|Brics leaders, from left: Russia's president Vladimir Putin, India's prime minister Narendra Modi, Brazil's president Dilma Rousseff, Chinese president Xi Jinping and South Africa's president Jacob Zuma. Photograph: Mikhail Klimentyev / Ria Novosti / Kremlin Pool/EPA|
The leaders of the Brics emerging market countries have launched a $100bn (£58.3bn) development bank and an emergency reserve fund in their first major step towards reshaping the western-dominated international financial system.
The Brics group comprises Brazil, Russia, India, China and South Africa. The bank, aimed at funding infrastructure projects in developing nations, will be based in Shanghai, and India will preside over its operations for the first five years, followed by Brazil and then Russia, leaders of the five-country group announced at a summit. They also set up a currency reserves pool to help countries forestall short-term liquidity pressures.
The long-awaited bank is the first major achievement of the Brics countries since they joined forces in 2009 to press for a bigger say in the global financial order created by western powers after the second world war, which centres on the International Monetary Fund (IMF) and the World Bank.
The Brics were prompted to seek coordinated action after an exodus of capital from emerging markets last year, triggered by the scaling back of US monetary stimulus. The new bank reflects the growing influence of the Brics, which account for almost half the world's population and about a fifth of global economic output.
The bank will begin with a subscribed capital of $50bn divided equally between its five founders, with an initial total of $10bn in cash put in over seven years and $40bn in guarantees. It is scheduled to start lending in 2016 and be open to membership by other countries, but the capital share of the Brics cannot drop below 55%.
The contingency currency pool will be held in the reserves of each Brics country and can be shifted to another member to cushion balance-of-payments difficulties. This initiative gathered momentum after the reverse in the flows of cheap dollars that fuelled a boom in emerging markets for a decade.
"It will help contain the volatility faced by diverse economies as a result of the tapering of the United States' policy of monetary expansion," said the Brazilian president, Dilma Rousseff. "It is a sign of the times, which demand reform of the IMF."
China, holder of the world's largest foreign exchange reserves, will contribute the bulk of the contingency currency pool, or $41bn. Brazil, India and Russia will contribute $18bn each and South Africa $5bn. If a need arises, China will be eligible to ask for half of its contribution, South Africa for double and the remaining countries the amount they put in.
Negotiations over the headquarters and first presidency were reached at the 11th hour due to differences between India and China. The impasse reflected the trouble Brazil, Russia, India, China and South Africa have had in reconciling stark economic and political differences that made it difficult for the group to turn rhetoric into action. "We pulled it off 10 minutes before the end of the game. We reached a balanced package that is satisfactory to all," said a Brazilian diplomat, who asked not to be named.
Negotiations to create the bank dragged on for more than two years as Brazil and India fought China's attempts to get a bigger share in the lender than the others. Brazil and India prevailed in keeping equal equity at its launch, but fears linger that China, the world's second-largest economy, could try to assert greater influence over the bank to expand its political clout abroad. China, however, will not preside over the bank for two decades.
The NGO ActionAid International said that while it was pleased that plans for the new development bank were gathering pace, more needed to be done to ensure it was inclusive. "There are still no clear indications of how other stakeholders, including civil society, can have input into the bank's policies," said its advocacy coordinator, Sameer Dossani. "This is crucial to avoid the mistakes of the World Bank and others in the past."
Link source: http://www.theguardian.com/global-development/2014/jul/16/brics-countries-development-bank