Andrei Shelepov

Engagement between the New Development Bank and Other Development Banks: A Formal Basis for Future Cooperation

Since its establishment, the New Development Bank (NDB) has been actively seeking to establish cooperation with other multilateral financial institutions. This strategy was stimulated by the fact that projects funded by multilateral banks often require large-scale investments and significant expert resources, or are associated with risks that a single lender cannot undertake independently.The purpose of this article is to study the mechanisms of cooperation between the NDB and “traditional” multilateral banks, as well as the national development banks of the BRICS grouping of Brazil, Russia, India, China and South Africa. This article seeks to forecast the future of cooperation in order to better understand the overall prospects of the NDB. To do so, existing formats of engagement between the NDB and other development banks are analyzed, as are their approaches to participation in joint projects.The article finds that the NDB, despite its differences from the “traditional” banks, seeks to establish an effective division of labour and cooperation with them, primarily because of their common goal of reducing the large-scale deficit in infrastructure investments. Despite the fact that none of the projects approved by the NDB so far involves other multilateral development banks, the launch of official cofinancing with them is expected in the very near future. Depending on the scenarios of NDB expansion, its joint loan portfolio with other multilateral banks in five years could reach

The AIIB, multilateral and national development banks: potential for cooperation

58 to

The Review of the IMF Working Paper “The Global FDI Network: Searching for Ultimate Investors” (by J. Damgaard, T. Elkjaer)

82 billion. As for national development banks of the BRICS, the NDB has also laid a formal framework for cooperation with them, even while it has not yet resulted in any concrete projects. Thus, in order to successfully implement its strategy of engagement with other financial institutions in the future, the NDB needs to intensify practical cooperation with national banks in the areas identified in the relevant declarative documents.

BRICS National Development Banks: Potential for Narrowing the Infrastructure Financing Gap

This article focuses on one of the new multilateral development banks (MDBs) dominated by emerging economies - Asian Infrastructure Investment Bank (AIIB). The creation of this institution was stimulated, inter alia, by the growing demand for infrastructure financing. However, in most cases MDBs cannot finance large infrastructure projects without pooling their resources. To better understand the AIIB prospects in addressing infrastructure investment gap, this article analyzes the existing formats of its cooperation with other MDBs and co-financing mechanisms they use, and outlines possible directions for further cooperation. The author explores memoranda of understanding between the AIIB and other MDBs, examines practical aspects of engagement and makes a projection regarding their joint financial contribution growth in the coming years. The forecast includes two scenarios: basic and optimistic, and is based on the analysis of AIIB existing partnerships with other institutions and volumes of financing for joint projects. The methodology used for assessment takes into account potential developments in the bank in terms of capital growth, membership expansion and attracting resources in the financial market. Based on the forecast, the author concludes that in five years the new bank together with its partners will be able to provide infrastructure financing of up to US

Indonesia and the BRICS: Implementing the BEPS Action Plan

165 billion. In order to develop cooperation in accordance with the optimistic scenario, the AIIB should start relying on its own environmental and social practices, acting as a main co-financier. However, the potential of AIIB interaction with national development banks that can also contribute to better infrastructure financing is currently underutilized. This article shows that in future, cooperation in this area can become a significant component of increasing the AIIB’s contribution to narrowing the global infrastructure gap.

New and Traditional Multilateral Development Banks: Current and Potential Cooperation

The review of the IMF Working Paper “The Global FDI Network: Searching for Ultimate Investors” provides a detailed overview of three types of problems identified by the authors when using international institutions’ data on foreign direct investment as a proxy for real economic integration between economies: bilateral asymmetries between inward and outward FDI for most country pairs; FDI overestimation caused by special purpose entities that do not carry out real economic activities; and complexities of determining ultimate investing economies. In addition, the review describes an approach proposed by the IMF experts to construct a global FDI network eliminating these problems, as well as FDI estimates within the network.

Potential role of the NDB and AIIB in the global financial system

The establishment of two new multilateral development banks - the New Development Bank (NDB) and Asian Infrastructure Investment Bank (AIIB) - was a result of efforts by the BRICS grouping of Brazil, Russia, India, China and South Africa. To become fully operational, the new institutions drew on the solid experience of the national development banks of BRICS members. National and new multilateral development banks can use each other’s experience and coordinate their work to achieve the development goals of the BRICS countries through the creation of an appropriate financing model that better meets the needs of developing countries and emerging economies than models offered by traditional development banksThe aim of this article is to identify the experience of national development banks in order to find ways to increase the effectiveness of existing institutions or create new ones in the area of development financing. The article also assesses the potential role of national development banks in ensuring sustainable development in their respective countries, primarily by facilitating the creation and upgrading of infrastructure. Finally, the author identifies the potential for cooperation among BRICS national development banks and between those banks and the NDB and AIIB.This analysis shows that the provision of sustainable infrastructure financing is impossible without an effective combination of various sources of funds at a low cost on a long-term basis by development banks. At the same time, the most obvious source - direct financing from national budgets - is not optimal for the BRICS countries, as confirmed by the growing role of financial markets in providing resources they need. Still, countries should maintain certain regulatory preferences for national development banks, allowing them to address the growing level of competition from other financial institutions. The author also concludes that several factors limit the effectiveness of national development banks’ participation in foreign projects. These factors may act as incentives to forge closer partnerships among national banks and with multilateral banks.

Comparative Prospects of the New Development Bank and Asian Infrastructure Investment Bank

Tax base erosion and profit shifting (BEPS) is a global problem. Finding solutions is a challenge for most countries. The global economic crisis led to a new environment and requirements for doing business. These requirements have been developed by two key international institutions: the Organisation for Economic Co-operation and Development (OECD) and the Group of 20 (G20). This approach has engaged the developed and developing countries that are members of these institutions, as well as a significant number of partner countries. As a result, the number of countries that have confirmed their commitment to the BEPS Action Plan exceeds 100.This article assesses the level of implementation of the BEPS Plan in Indonesia and in the BRICS countries of Brazil, Russia, India, China and South Africa. The author monitored their activities for 13 of the 15 actions (excluding Actions 11 and 15). He has also identified several best practices that can be used by Russia.Monitoring considered implemented and planned actions, primarily amendments to and new norms in relevant national legislation, as well as the expected implementation time for all BEPS actions. In addition, the author assessed institutional environments created to implement the provisions of the Action Plan, consultation processes and mechanisms for informing stakeholders.Analysis shows that approaches to implementing the BEPS Action Plan differ among the six countries. Although several lag behind in terms of their implementation schedule, each country has demonstrated some efforts that can be considered as best practices. Russia has succeeded the most in implementing the Action Plan.

BEPS Action Plan: Global Tax Cooperation

Most experts on multilateral development banks (MDBs) mention the possibility of large-scale co-financing in their forecasts concerning their future operations. However, interaction between MDBs and other actors, including co-financing, is rarely considered as a research problem for analytical and scientific papers. Yet this type of cooperation is one of the most important factors of effectiveness for the entire system of MDB financing. Thus, working in partnership with governmental institutions (development assistance agencies, export credit agencies, etc.), MDBs help attract additional financial resources and expertise in the countries where they are active. Working on state, regional and global levels, multilateral banks cooperate not only with governmental institutions, but also with private sector and civil society representatives. Such cooperation benefits both parties. In addition to mobilizing additional financial resources, it improves project preparation and implementation, taking into account national peculiarities, while partner institutions get a chance to use their experience and expertise. Given the recent establishment of the New Development Bank (NDB) and Asian Infrastructure Investment Bank (AIIB), they are unlikely to achieve their main goal of narrowing the infrastructure financing deficit in developing countries without active cooperation with other institutions.This article discusses the results and examines the prospects of the NDB and AIIB cooperating with traditional MDBs. It also focuses on the new banks’ engagement with other financial institutions, including commercial banks and national development banks.The author analyzes interbank memorandums and agreements as a formal basis for cooperation between various institutions, and examines in detail the examples of co-financing infrastructure projects by the new and traditional MDBs, as well as new multilateral cooperation mechanisms established by development banks.The author concludes that the new banks’ strategies differ from those of other institutions, and each has its own advantages. The AIIB seeks to establish cooperation primarily with large institutions to use their considerable experience and explore co-financing opportunities for large-scale projects. The NDB, with limited membership and geographical representation, focuses on, inter alia, cooperation with MDBs with a small number of participants, national development banks and commercial banks, which allows it to adopt the best international practices and gain experience in specific countries, receive consultative support for issuing bonds and improve financial management.

Explaining G20 and BRICS Compliance

This article focuses on the two recently established multilateral development banks (MDBs) dominated by emerging economies: Asian Infrastructure Investment Bank (AIIB) and New Development Bank (NDB). The authors explore the main economic and political incentives that lie behind the creation of these institutions, examine challenges and opportunities they are likely to face, and provide a forecast of their loan portfolios growth in the coming years. The forecast includes two scenarios: basic and optimistic, and is based on the analysis of NDB and AIIB differences from traditional banks, and potential benefits and challenges they can bring. The methodology used for assessment allows projecting the financial capacity of the two banks based on their announced shareholder capital and likely financial performance determined by membership, governance arrangements and other factors, and takes into account recent developments in both banks. Based on the forecast, the authors conclude that in ten years the new banks will be able to provide infrastructure financing at the level of traditional institutions working in the area. In order to develop in accordance with the optimistic scenario, the new banks should adhere to their basic alternative principles, but also rely on the experience of traditional banks in areas where they have proved their effectiveness. These include exchange of experience on selection of projects, social and environmental safeguards, and monitoring results. Apart from addressing the global infrastructure gap, the new banks could also stimulate traditional ones to reform their governance and change operational modalities and thus become more responsive to developing countries’ interests.