Development Banks of the Developing World: Nature, Origins and Consequences
| Author | Kathryn Hochstetler |
| DOI | http://doi.org/10.1111/1758-5899.12161 |
| Date | 01 September 2014 |
| Published date | 01 September 2014 |
Development Banks of the Developing World:
Nature, Origins and Consequences
Kathryn Hochstetler
University of Waterloo
The 21st century has seen the rapid expansion of inter-
national development finance from emerging market
economies. Much of this is from national development
banks: Brazil’s National Economic and Social Develop-
ment Bank (BNDES), the China Development Bank (CDB),
the Eximbank of China (China Eximbank), the South Afri-
can Development Bank (SADC) and Industrial Develop-
ment Corporation (IDC), among others, are providing
increasingly large amounts of finance for development
projects both within their own countries and beyond
their borders. In addition, the BRICS countries (Brazil, Rus-
sian, India, China and (since 2010) South Africa) appear
to be well on their way to creating their own collective
BRICS Development Bank. The survey articles in this spe-
cial section offer initial assessments of this emerging
market finance, with special attention to questions about
its nature, origins and consequences.
Financing from emerging market economies has faced
two opposite reactions from the policy and academic
worlds. On the one hand, their international finance –
especially China’s–has been the subject of considerable
speculation and suspicion. It is associated with land and
resource ‘grabs’and the self-interested foreign policy aims
of these public lenders (discussed in Brautigam and Zhang,
2013). The finance is said to be distributed with consider-
ably fewer structural adjustment, governance, environmen-
tal or human rights conditions than traditional funders
require (e.g. Compagnon and Alejandro, 2013; Woods,
2008), potentially removing a powerful tool of influence
from the North. In the other view, often promoted by the
emerging powers themselves, the lack of such conditions
is positive. Emerging market finance is considered to be
emblematic of the potential for South–South solidarity alli-
ances, where development finance is given without oner-
ous requirements and in closer alignment with recipient
priorities (e.g. Chaturvedi, 2012; He, 2013; Quadir, 2013). To
the extent that t he lenders also bene fit from such financial
arrangements, that is consistent with the ‘win–win’deals
needed when both sides are developing countries.
Against simple versions of either of these views, the
articles in this special section exemplify the authors’call
for more careful research into actual levels and patterns
of financing from emerging powers. The pieces on indi-
vidual countries (Brautigam and Gallagher, Hochstetler,
Qobo and Motsamai) show that there is often a large
gap between what is reported in headlines and what is
actually disbursed, not only in total numbers but in criti-
cal details like interest rates, conditions placed on the
loans and provisions for repayment. Emerging powers’
development finance turns out to have characteristics in
common with more traditional finance: it is generally ori-
ented around conventional understandings of profitabil-
ity, follows worldwide patterns of governmental support
for the international activities and exports of national
firms, and so on. It is not meant to be aid, except with
rare exceptions. The most significant conditions imposed
are those that tie finance to the use of national firms,
especially by Brazil and China.
1
The articles thus present
credible starting points for what will hopefully be a new
area of more systematic study.
Turning to the origins of South–South finance, the glo-
bal financial crisis of 2008 has focused attention on the fra-
gilities and shifting dynamics of international finance,
including the rise of development finance from emerging
powers. Yet it should be clear that the origins of such
financial institutions are much earlier. Chin’s article is a
good summary of the long-standing need for more devel-
opment finance, particularly for long-term loans that build
infrastructure, in these and other parts of the developing
world. Notwithstanding new promises for infrastructure
spending from the G20 and traditional lenders, the 2008
crisis worsened what were already large shortfalls in the
capital needed for such projects. The needs themselves
were not new, however: they drove the creation of these
national banks half a century or more ago, and are push-
ing their internationalization now.
The willingness of emerging powers to start filling this
gap for other developing countries is also older than the
2008 crisis, although the country-specific articles show
that the pace of disbursements picked up considerably
afterwards. Brazil’s President Luiz In
acio Lula da Silva,
cited in Hochstetler’s piece, was perhaps the frankest of
politicians from these countries in speaking about the
link between BNDES’international lending and Brazil’s
foreign policy interest in being a ‘big country’promoting
its strategic economic and political interests –along with
those of its loan recipients. Chin’s article on the BRICS
Development Bank shows that this willingness may not
©2014 University of Durham and John Wiley & Sons, Ltd. Global Policy (2014) 5:3 doi: 10.1111/1758-5899.12161
Global Policy Volume 5 . Issue 3 . September 2014
344
Special Section Article
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