A new answer to global development challenges

President of the New Development Bank (NDB) Kundapur Vaman Kamath gives a speech during a opening ceremony of the New Development Bank in Shanghai, China, July 21, 2015. Officials from the world's largest emerging nations launched the New Development Bank (NDB) on Tuesday, the second of two new policy banks heavily backed by Beijing that are being pitched as alternatives to existing institutions such as the World Bank. [Photo/Agencies]

The New Development Bank of BRICS that was launched in Shanghai on Tuesday is by no means a challenge to the existing international financial system.

Instead, the multi-billion dollar development bank initiated by the BRICS members, Brazil, Russia, India, China and South Africa, is a much-needed complement to the International Monetary Fund and World Bank.

By focusing on financing infrastructure projects mainly in its member countries, at least in the early stages, the NDB will give a considerable boost to the growth of the BRICS countries, the main driving force of global growth over the past decade.

These major emerging countries' combined GDP was only about one-quarter of the United States' at the turn of the century. Now, they represent a GDP roughly as large as that of the US while contributing nearly half of the global growth.

Admittedly, cyclical and structural challenges have, for the moment, made the BRICS growth story less dramatic than it used to be. But if the scale and growth potential of these major emerging countries continue, there is little reason to doubt their growth prospects in the long run.

In a sense, the new bank is a vote of confidence by the BRICS countries in their own outlooks for further development and prosperity through closer cooperation.

The NDB's success will not only be defined by how much it will help advance development in the BRICS and other emerging countries around the world. More importantly, it will also be determined by its ability to cushion developing countries against the headwinds stemming from the global crisis, and its ability to give a much-needed helping hand to the current international financial system.

By downgrading its 2015 outlook for global growth to 3.3 percent, the slowest pace of global growth since 2009, the IMF recently sounded the alarm over the fragile global recovery. If the US raises interest rates later this year, it is more than likely that outflows of international capital from developing countries will only accelerate, making things even uglier for emerging economies struggling with currency devaluation and soaring inflation.

The newborn NDB may not be able to reverse this trend. But as long as the bank and the fund pool of the BRICS can help cushion instability in the currency market to defend the health of the global financial system, the world will be thankful for what the BRICS countries have joined their hands to do.