The proposed bank would mobilise resources for infrastructure and sustainable development projects in BRICS. Source: PhotoXpress
The BRICS grouping is on the cusp of unveiling plans to come up with its own bank. There are, however, no grandiose or super ambitious plans to take on global financial institutions like the World Bank and International Monetary Fund; not just yet even though the BRICS share of global GDP is currently hovering around 18 percent and is set to grow to 26 percent over the next decade.
The single point objective of the grouping of the five nations spanning across four continents is to put in place its own system of mutual lending and enable funding of big ticket developmental projects in the member countries and also help other nations to develop ties with BRICS.
The regional bailout fund is likely to be formally set up during the 5th BRICS summit in Durban, South Africa (March 26-27, 2013). The most important feature of this initiative would enable the member countries to bypass the need for rushing to the Western-dominated and controlled Bretton Woods system which extends loans with conditions attached. Most often these conditions are not conducive to the socio-political climate of the targeted countries.
South African Minister’s Caveat
Before we discuss the broad contours of the proposed BRICS bank, we should take note of South African deputy minister for trade and industry Elizabeth Thabethe’s important caveat. She has put the things in perspective with a measured comment in an interview with the Business Standard, a leading Indian economic daily last week.
Thabethe pointed out that the BRICS finance ministers were tasked at the 2012 Summit to look into the feasibility and viability of the proposed BRICS Development Bank. “A report on the findings will be presented to the leaders at the upcoming Summit, but I have to reiterate and reassure that it is not the intention of this proposed new development bank to replace any of the existing financing institutions,” she told the daily. “Its aim is to provide additional and also niche financing where it is not available or forthcoming, notably for emerging markets and developing economies in sectors critical for attaining their developmental goals.”
Asked whether a formal declaration will be made at the upcoming Durban summit after the feasibility report is presented she told the Business Standard that it was “a work in progress” and there were still many issues left to be sorted out. Sample her candid reply: “Establishing a development bank is not a small endeavour which is why the leaders at the previous summit requested the ministers of finance to thoroughly investigate all the aspects around the possibility of forming such an institution. This was taken very seriously and apart from being in regular contact electronically, the ministers and their teams have met four times in committee to discuss this issue further… One can expect further discussions and negotiations going forward.”
BRICS leaders had initially aimed sky high in determining the corpus fund of the proposed bank. A highly ambitious sum of $240 billion was being talked about. However, the ground realities and the unrelenting global economic recession seemed to have watered down their enthusiasm.
Now it looks like that the initial corpus fund of the BRICS bank would be a more realistic and doable $50 billion with each of the five members being an equal contributor and stakeholder, though it is to be seen whether all five members would be able to meet even this scaled down target.
The idea had been geminating for quite some time in the minds of the BRICS leaders but it came for a focused attention at the 4th BRICS summit in New Delhi on March 29, 2012.
BRICS moved quickly after the New Delhi summit and on June 10, 2012 a special working group was set up by the grouping to thrash out the broad contours of the BRCS mutual fund. This working group is also seized with the task of creating another financial institution – a BRICS development bank which would mainly be funding infrastructure projects in the member countries.
The concept, expected to be implemented during the Durban summit, can enhance the BRICS’ clout globally and set an example for other regional bodies to emulate, if it were to be implemented in copy book style. Its success would inevitably increase solidarity among the member countries.
Each of the five member nations is a world leader in something or the other. While China and India are the world's major granaries Russia is world leader in oil and gas production, China is a top coal producer and Brazil is the number one producer of sugar and coffee.
An important thing to be seen is what will be the currency for the BRICS mutual fund and development bank. While China has been pushing for its currency Yuan to be the currency for the BRICS financial institutions, the other member states are not in favour. The consensus may be on the US dollar or Special Drawing Rights (SDRs) as BRICS reserves currency.
It is envisaged that the bank would provide pooled funds for targeted infrastructure projects and key sectors, while supporting and driving increased commerce between the BRICS and other emerging economies.
Although multilateral institutions such as the World Bank and International Monetary Fund (IMF) already perform a similar function, BRICS countries say the new bank would not compete with these but rather supplement them, especially in developing countries.
South Africa’s director-general in the Department of International Relations and Cooperation, Jerry Matjila, went on record as saying recently that there was political will among the group to have the bank.
Pretoria is lobbying hard to host the bank. The African nation had co-chaired the preparatory work on the bank together with India. For the first time since BRICS came into existence, high-level representatives of Africa's regional economic blocs and the African Union (AU) have also been invited to attend.
South Africa's Acting High Commissioner to India Malusi Mogale has said a feasibility report on setting up the BRICS development bank would be presented at the upcoming summit. “The development bank would help in providing additional and niche financing,” he said.
The proposed bank would mobilise resources for infrastructure and sustainable development projects in BRICS and other emerging economies. It is also expected to supplement the existing efforts of multilateral and regional financial institutions for global growth and development, it had said.
The writer is a New Delhi-based journalist-author and a strategic affairs analyst
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