Brics bank created; China gets headquarters, India its presidency3 min read . Updated: 16 Jul 2014, 07:52 PM IST
Leaders formalize creation of a $100 bn currency exchange reserve, which members can tap in case of balance of payment crises
Brasilia/New Delhi: Leaders of the five Brics nations agreed on the structure of a $50 billion development bank by granting China its headquarters and India its first rotating presidency. Brazil, Russia and South Africa were also granted posts or units in the new bank.
The leaders also formalized the creation of a $100 billion currency exchange reserve, which member states can tap in case of balance of payment crises, according to a statement issued at a summit in Fortaleza, Brazil.
Both initiatives, which require legislative approval, are designed to provide an alternative to financing from the International Monetary Fund (IMF) and the World Bank, where Brics countries have been seeking more say. The measures coincide with a slowing of economic growth in the five countries to about 5.4% this year from 10.7% in 2007, according to economists surveyed by Bloomberg.
“The Brics are gaining political weight and demonstrating their role in the international arena," Brazilian president Dilma Rousseff said after a signing ceremony.
Until the eve of the summit, India and South Africa had vied with China to host the headquarters of the bank, dubbed the New Development Bank. The administration of Indian Prime Minister Narendra Modi gave in after it was reminded that his country’s previous administration had agreed to Shanghai as the bank’s headquarter, according to an Indian official, who requested not to be named because the talks were not public.
Russia’s finance minister Anton Siluanov told reporters that the Brics decided in favour of Shanghai because the city offers better infrastructure, opportunities to capture private funding, and is home to more investors than the competitors.
Each member country got something out of the deal. The first chairperson of the Board of Governors will be from Russia, while the first chairperson of the Board of Directors will be Brazilian. South Africa will establish an African regional center for the bank, which may not get off the ground for another two years, according to Carlos Cozendey, secretary for international affairs at Brazil’s finance ministry.
“Unlike the IMF and World Bank, which are managed by Europeans and Americans, the Brics bank is quite democratic," Brazilian finance minister Guido Mantega told reporters.
Each member country has the right to withdraw different amounts from the joint currency reserves, according to a statement from Brazil’s central bank. China can withdraw half the amount it earmarks or $20.5 billion. Brazil, Russia, and India may withdraw the same amount they commit or $18 billion, while South Africa can tap $10 billion, twice its contribution.
“It’s a type of insurance policy, speculators looking for weaker countries without backup, will run because those countries will have sufficient solidity to face a currency problem," said Mantega.
The Brics have evolved from the original term coined in 2001 by then Goldman Sachs Group Inc. economist Jim O’Neill to describe the growing weight of the largest emerging markets in the global economy. In 2011, South Africa joined to give the Brics a broader geographic representation.
“Even with slowing economic growth in Brics countries, there are still plenty of opportunities for business, and the newly-created development bank will help those opportunities become reality," said Jorge Gerdau Johannpeter, chairman of Brazilian steelmaker Gerdau SA.
“The bigger the financing possibilities, the bigger the chances of implementing projects," Gerdau told reporters at the summit.
“The biggest winner among the Brics and its newly created bank may be South Africa, as it stands to gain financial expertise, investment and trade," said Colin Coleman, the Johannesburg-based head of Goldman Sachs Group Inc. in sub- Saharan Africa, who attended the Brics Business Council meeting.
“Arguably we have the greatest amount to benefit because we’re partnering diplomatically and otherwise with some of the world’s most important emerging-market economies," Coleman said in a phone interview.
While Brics trade ministers in a joint communique on Tuesday said that member countries stood by the World Trade Organization’s (WTO’s) Bali agreement, Brazil’s trade minister Mauro Borges said he understood India had certain concerns about its implementation and that the Brics countries didn’t intend to forge a common stance on the issue.
Brics share of world exports rose to 16% in 2011, from 8% in 2001.
“Russia also proposed at the summit in the northeastern coastal city of Fortaleza the creation of an Infrastructure Fund during the summit," Kirill Dmitriev, chief executive officer of the Russian Direct Investment Fund, told reporters on Wednesday. “The fund could start up as early as next year," he said. Bloomberg