Democracy Lab

Ten Questions for the New BRICS Bank

The great emerging markets want to start their own bank. But it doesn't seem like they've really thought it through.

The recent BRICS summit in Durban, South Africa concluded with its first tangible outcome since the countries began meeting formally five years ago: The commitment to create a new BRICS development bank. What more do we know about this ambitious project? Not much. So below are ten questions to consider as the bank takes shape.

1. Is the BRICS Development Bank a done deal?

Not necessarily. The joint statement from the BRICS leaders announcing that they "have agreed to establish the New Development Bank" sounded pretty definite, but then there seemed to be some hedging going on too. President of South Africa Jacob Zuma struck a cautious note, saying only that "...we have decided to enter formal negotiations" on the BRICS bank, while Russian officials muttered about the devil being in the details. Newspaper headlines reflected the ambiguity, with the Financial Times declaring "BRICS agree to create development bank [sic]," while on the same day, Voice of America led with the more cautious "BRICS Summit Ends Without Development Bank Deal." Obviously, there's still a lot of work to do and a lot can happen.

2. Do the BRICS have enough in common to sustain a shared institution?

Maybe. Maybe not. Some lack of consensus is undoubtedly behind the hedging. The BRICS encompass very different political systems -- from thriving democracy in Brazil to entrenched oligarchy in Russia -- and their economies are little integrated, inherently competitive, and are different in size by orders of magnitude. In 2011, China's GDP was over $7.3 trillion, about eighteen times larger than South Africa's economy, the smallest of the BRICS, and three times larger than Brazil's economy, the second biggest of the BRICS. It's also unclear to what extent the BRICS share a vision with respect to economic development, other than not being "the West." Still, while such differences create challenges, success is not impossible.  Remember, the economy of the United States dwarfed those of its allies when it created the Bretton Woods institutions in the postwar years. And there was no lack of disagreement about the postwar order among the European powers and Washington, but somehow the Bretton Woods system survived.

3. What will the new development bank focus on?

Infrastructure, it seems. The BRICS themselves have an estimated $4.5 trillion in infrastructure needs over the next five years, and coincidently, have about the same amount in foreign exchange reserves. A safe bet is that the new BRICS bank won't be doing the governance and democratization work that is popular at the World Bank these days, such as the "open data" project to make information about international development easily accessible to anyone. It is similarly difficult to imagine that the BRICS, which are not known for their transparency, would share the World Bank's enthusiasm for anticorruption efforts. 

4. Will developing countries welcome the BRICS development bank?

Probably. China is known for extending loans and resources without conditionality around touchy subjects like governance, and if the BRICS development bank follows suit, it's hard to imagine many countries saying no to easy money. Still, there's likely to be some skepticism, in no small part because of China's inevitably outsized role in the new bank and also because of the mixed reviews China gets from its global south trading partners. Across Africa, various leaders have criticized China's export of labor to the continent, and bemoaned the onslaught of cheap Chinese manufactured goods that undercut local production. In a particularly pointed criticism, Nigeria's central bank governor Lamido Sanusi, lambasted China as "a significant contributor to Africa's de-industrialization and under-development."  Nevertheless, if the BRICS bank offers economic assistance, most countries are likely to be interested. Money talks, and can even produce changes of heart. Look at the turnaround in attitude of Zambian president Michael Sata, who went from making scathing comments about China in 2006 to encouraging Chinese investment in his country in 2011.

5. Will the Bank be dominated by China?

Pretty likely, given China's relative economic weight. And that prospect is unlikely to delight the other BRICS. Some speculate that South Africa wants to host the bank and that an African seat for the bank could be one way to reduce China's influence. But that's wishful thinking. Even if the bank is physically located on another continent, China will hold the purse strings, and with that comes privilege. Look how the United States, nearly seventy years after the creation of the World Bank, still gets to pick the institution's president.

6. How will the bank be capitalized?

Not clear. There is talk of each country putting in $10 billion for an out-of-the-gate capitalization of $50 billion. But $10 billion would be an enormous commitment for South Africa. Presumably the other countries -- notably China -- would have to lend South Africa the money to meet its share. And this gets tricky quickly. China lending South Africa money to lend to Mozambique? In any event, $50 billion doesn't go very far in the world of global economic development. The World Bank committed $52.6 billion in "loans, grants, equity investments, and guarantees" in 2012 alone.

7. What currency will the new bank use?

Very possibly the Yuan. China will no doubt want to make loans denominated in yuans, a borrowing option it extended to other BRICS countries in 2012. It has already pushed for lending in its own currency to protect it against currency risk in Africa's enticing but volatile emerging markets. But making the Yuan the currency of the new development bank might only deepen unease about China's outsized role.

8. Aren't the BRICS "doing development" already?

Yes, a lot of it, by some measures, which is surprising given the high levels of poverty that persist across the BRICS. China is the big player; in recent years, it has substantially grown its activities abroad, particularly in Africa.  However, traditional metrics of development aid are difficult, if not impossible, to apply to what China is doing, and estimates of its aid vary hugely, from $1.5 billion to $25 billion. Brazil is also emerging as a more active donor, giving more than $1 billion in various forms of aid to more to sixty-five countries in 2012. Russia, too, is a re-emerging as donor. During the Cold War, the Soviet Union competed with the United States for influence by giving away wads of cash and assistance -- in 1986, it gave away a whopping $26 billion. But after the country fell apart in the 1990s, Russia became a net recipient of aid. Today, it is once again a donor, distributing $514 million in Official Development Assistance in 2011 (compared with around $5.3 billion from Canada and $30.7 billion from the United States). India is just beginning to establish itself as a foreign donor. In 2012, it collected its aid programs into the Development Partnership Administration, which has a five-year coffer of some $15 billion. South Africa, meanwhile, is supposed to put an aid agency into action in 2013. How a BRICS bank would interact with these unilateral efforts is not clear. 

9. Do the BRICS already invest in each other?

Not much. In 2011, only 2.5 percent of FDI from BRICS countries went to other BRICS, whereas over 40 percent of their FDI went to developed countries. Presumably, one of the purposes of a BRICS development bank is to change this, but such a change would require a considerable shift in current priorities. Meanwhile, the World Bank has recent projects of some kind or another in all the BRICS countries, such as financing for sustainable rural development in Brazil.

10. Will a new development bank pose a challenge to the World Bank?

Perhaps. It is certainly intended by its creators as an alternative to the World Bank, although it's still a long way from meeting that challenge. Comments from BRICS leaders don't do much to hide a sense of schadenfreude over the declining economic circumstances of the West versus the rising fortunes of their own countries, and a deepening level of frustration that the rules of the game have not changed to reflect that reality. "We still have a situation where certain parts of the world are over-represented," declared South African finance minister Pravin Gordhan. Despite years of promises to give the global South more say in both the IMF and the World Bank, no big structural changes have happened. And stagnating aid budgets among OECD countries only create more openings for the BRICS. So if a BRICS bank does emerge as a challenge, the West has no one to blame but itself.



The Most Powerful Woman in Israel

Movers and shakers in Jerusalem have learned one simple lesson: Don't cross Sara Netanyahu.

In a move that jolted the Israeli political scene, Prime Minister Benjamin Netanyahu stripped Reuven Rivlin, the longtime Knesset speaker, of his post in mid-March as the new government was being sworn in.

Almost immediately, the Israeli media began speculating on what precipitated Rivlin's political demise. Had he bungled an important political issue? Was he insufficiently loyal to Bibi? No, his sin was rumored to be something different: He had angered Sara Netanyahu, the prime minister's wife.

In a subsequent prime-time television interview, Rivlin seemed to validate the rumors. He said that in addition to the prime minister and Avigdor Lieberman, the former foreign minister, there was a third person responsible for his dismissal -- "a person that is always at the center of things but apparently behind the scenes." When the interviewer asked whether that person was Sara Netanyahu, Rivlin didn't deny it, saying only that he didn't want to wade into gossip.

The Rivlin spat was just the latest instance of the overweening power supposedly wielded by Israel's first lady. "She's running the show here in Israel," a 2012 Vanity Fair article quoted an anonymous Israeli tycoon as saying. "She can make or break anyone."

Many Israelis, however improbably, believe this to be true. Indeed, Sara Netanyahu, 54, was just chosen by Forbes Israel magazine as Israel's most powerful woman, beating out multimillionaire business leaders, influential journalists, and actual politicians.

There is nothing rational about the topic of Sara Netanyahu. When it comes to "Sara," as most people in Israel refer to her, salacious gossip and anonymous leaks are the coin of the realm. Very few people in a position to really know talk about her, and certainly not on the record.

Instead of facts, pop psychology is the order of the day. The media tends to paint her as a hysterical, vain, power-hungry woman -- a combination Lady Macbeth and Imelda Marcos. Netanyahu supporters, and the first couple themselves, push a counternarrative of Sara as a loving and hardworking mother, a supportive spouse, and an easy punching bag for the prime minister's political opponents. As a recent Haaretz profile asked, is Sara Netanyahu "the victim of a witch hunt, or is she the witch?"


The Rivlin dismissal is small change in the legend of Sara Netanyahu. If media speculation is to be believed, only two months ago she almost cost her husband the premiership. After the Jan. 22 general elections, it took Bibi more than two weeks to meet with Naftali Bennett, the leader of the pro-settler Jewish Home party viewed by many as a natural ally of the prime minister. The snub led Bennett to forge an unlikely alliance with Yair Lapid, head of the centrist Yesh Atid party. To form a government, Netanyahu eventually had to give in to the pair's lofty demands.

The scuttlebutt was that Netanyahu's relationship with Bennett was strained due to Bennett's tumultuous term as Netanyahu's chief of staff. The cause of the strain? Sara.

The Israeli media reported that Sara didn't like Bennett, that she thought him too ambitious, that he threatened the first lady's influence, and that, in a fit of rage, Sara screamed at Ayelet Shaked, a Bennett protégé and Netanyahu's then office manager, unleashing a barrage of abuse that wouldn't have been out of place in a south Tel Aviv construction site.

Neither Bennett nor Shaked has ever unequivocally denied that their exit from Netanyahu's office was due to the first lady. In an interview during the campaign, Bennett was queried about his relationship with the Netanyahus. "You always claim that it ended well between you and Netanyahu, and you and Sara Netanyahu," the interviewer probed. "No, I claimed that it ended well between me and [Benjamin] Netanyahu," Bennett replied curtly.

On the morning after the January polls, Bennett was asked again about how he could possibly work with Netanyahu and his wife given "everything that has happened." Bennett didn't deny the acrimonious history, saying, "It'll be OK" -- ihiyeh beseder -- a patented Israeli expression usually deployed in situations far from OK.

Bennett then highlighted that he and the prime minister shared a common military background in the elite Sayeret Matkal commando unit and went on to joke that he and the first lady even "served in the same terrorism course" together. The jest made front-page headlines, and was not well received in the Netanyahu camp. Only after Bennett publicly apologized to Sara did the prime minister finally grant him a meeting.

The bad blood was rumored to persist right up until the formation of the new government. At the last minute, Netanyahu reneged on an agreement granting Bennett and Lapid the honorary titles of "deputy prime minister." Army Radio quoted an anonymous Likud party source as claiming that the first lady was behind the move. Political exigency had apparently forced Sara to accept Bennett's joining the government, but that didn't stop her from denying him one more prize.


The Bennett story, whether true or not, fits perfectly with the image of Sara Netanyahu in the Israeli public imagination. She supposedly has a temper -- what Israelis refer to as a "problematic personality" -- with hired help a common target of her ire. Former nannies, housekeepers, and assistants have gone public with chilling stories and even filed lawsuits against the first lady. One high-profile case was settled quietly out of court in the 1990s, while just last year a long-serving housekeeper sued the first lady for "abuse." (Sara, for her part, has countersued for slander.)

Moreover, media reports claim that Sara's self-importance has led the Netanyahu household to abuse both public and private funds. For a few days this year, the media were preoccupied with how much the Netanyahu household was spending on ice cream. More seriously, the attorney general is probing whether, 10 years ago, while out of office, the Netanyahus traveled widely -- and extravagantly -- on the dime of various wealthy businessmen.

Concerns about Sara's behavior in the public spotlight go back over a decade. In a 1998 New Yorker profile during Netanyahu's first term as prime minister, David Remnick interviewed a close Netanyahu aide, the late David Bar-Ilan. Inevitably, the subject turned to the first lady. Bar-Ilan, "supposedly a master of the press," in Remnick's words, "rolled his eyes."

"Look, Sara is not the most stable woman in the world," Bar-Ilan told Remnick. "Now she only appears at the appropriate things, receptions for children, things for the retarded or disadvantaged. And it works. It's OK. Finally it's become boring to Israelis. Had she run half naked through the streets, it might have been something else, but it's under control."

The intervening years have shown that Bar-Ilan was overly optimistic regarding both Sara's alleged temperament and the Israeli public's appetite for anything involving the first lady. Israelis have constructed an image of Sara as someone imbued with an almost pathological need to uphold her husband's prestige.

It's not an image that has been constructed out of whole cloth. In 2002, with her husband out of power, a former Netanyahu supporter from within Likud, Shimshon Deri, secretly recorded a phone conversation with Sara. A transcript of the call was quickly leaked to the media.

"Bibi is a leader that's bigger than this country. He's a leader of real international stature," she told her interlocutor. "Do people in this country really want to be butchered and burned? Come on, why does he have to try so hard? We'll move overseas. Let the country burn. The country without Bibi won't survive."

Sara subsequently apologized for her remarks, but lost in the uproar was Sara's statement during the conversation that she "wasn't in the loop" on the petty political issue under discussion. She may have been feigning ignorance, but her remark ran counter to the second pillar of the Sara mythology -- that she controls her husband and all those whom she allows to surround him.


If you believe the most outlandish rumors, the source of Sara Netanyahu's alleged power over her husband can be traced back to 1993 and a political sex scandal straight out of a House of Cards pitch meeting. Bibi's political opponents called his home and threatened to release a videotape of him caught in flagrante with another woman if he didn't remove himself from the Likud leadership race. A frazzled-looking Bibi took to the television studio the very next day and shamefully admitted to the affair, but refused to cave in to the blackmail. The tape was never released, and it's unclear if it ever existed.

Sara was thus thrust into the public spotlight very much against her will. Only 34 at the time, she had married Bibi two years prior. It was her second marriage and Bibi's third. They had met a few years earlier, when Sara was a flight attendant for Israel's national carrier El Al. A child psychologist by education and training -- a career she still proudly practices -- she was a novice in the rough-and-tumble world of Israeli politics.

The 1993 incident, however, was a harbinger of the gossip-mongering to come. For instance, there are persistent whispers that after the affair, Sara's loyalty was bought at a price -- that there is a signed contract sitting in a safe-deposit box in a Tel Aviv law office, detailing certain powers that Bibi ceded to his wife.

Out of all the rumors surrounding the first couple, this is the most implausible. No public official, anywhere in the world, would sign a document granting someone else power over his decision-making. What if the document leaked? But the story persists because Israelis want an explanation: Why does Sara ostensibly wield so much power? What does she hold over her husband's head?

The answer is likely more prosaic, and less titillating, than what many people want to believe. The other woman, it's rumored, was an attractive (and married) Netanyahu political consultant. This fact, coupled with Bibi's marital track record, might explain Sara's vigilance over whom her husband hires for his personal staff, where he goes, and with whom he meets. No credible source claims that Sara makes policy decisions, but her influence on personnel choices is admittedly strong. "She won't get involved regarding whether to raise the value-added tax or to attack Iran," an anonymous source formerly close to the first couple told Forbes Israel. "But she will definitely be involved in deciding on who gets to decide these very important [and fateful] issues."

It's not a coincidence that this article -- and any profile of the prime minister -- is littered with references to former aides and supporters. To paraphrase George Costanza describing the Seinfeld-version George Steinbrenner, Netanyahu goes through advisors "like it's a bodily function." Early last year, a scandal erupted in the prime minister's office when Chief of Staff Natan Eshel was caught sexually harassing a young female staffer. The scandal broke when three senior aides -- all well-respected professionals -- came to the prime minister with the evidence. After first denying the charges, Eshel finally agreed to a plea deal, resigning his post in lieu of any criminal charges being brought against him.

The three aides were not celebrated for exposing Eshel's behavior, but quickly drummed out of government. Two of the aides, including Netanyahu's military attaché, were fired, and the third recently stepped down from his post. Eshel, who according to reports is also a close confidante of Sara, kept working for the prime minister in a semiofficial capacity and was even mooted as a potential negotiator in the recent coalition talks. This was a scandal in its own right and speaks volumes about how the prime minister conducts his affairs.

Netanyahu is already Israel's second-longest-serving premier, after only Israel's founding father, David Ben-Gurion. He has been at the pinnacle of Israeli politics for more than two decades. Yet he has few, if any, close aides and doesn't seem to trust anyone -- except perhaps Sara. From all available evidence, she is the only constant in his personal and political life.

Sara might not be the nicest person, but that has never been a prerequisite for public figures. A left-leaning media might see her as an easy target, a blunt instrument with which to bludgeon her husband -- and to be sure, she often makes their jobs easier than the prime minister's allies would like. But no grand conspiracies, no shadowy sources, are necessary when trying to explain Sara Netanyahu's power: She shares a bed with Israel's most powerful man.

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