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Monday, November 10, 2014
BRICS Agree on $50 Billion Bank With Something for Everyone
By Raymond Colitt, Unni Krishnan and Arnaldo GalvaoJul 15, 2014 6:20 PM CT
Leaders of the five BRICS nations agreed on the structure of a $50 billiondevelopment 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 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 percent this year from 10.7 percent 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 toShanghai 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 favor 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 yesterday said that member countries stood by the World Trade Organization’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 percent in 2011, from 8 percent 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 today. The fund could start up as early as next year, he said.
BRASILIA: The BRICS group of emerging powers met Wednesday with South American presidents as they justified the creation of a development bank seen as an alternative to Western-dominated global financial organizations.
The leaders of Brazil, Russia, India, China and South Africa held closed-door talks in Brasilia with counterparts from Argentina, Chile, Colombia, Ecuador, Venezuela and other Latin American nations.
The gathering follows a BRICS-only summit Monday in the seaside city of Fortaleza, where the five nations agreed to create the $50 billion bank for infrastructure projects and a $100 billion crisis reserve fund described as a "mini-IMF."
"On the contrary, we wish to democratize it and make it as representative as possible," she told reporters following talks with Indian Prime Minister Narendra Modi before joining other leaders.
Emerging and developing nations have been frustrated at the slow pace of IMF reform aimed at giving them bigger voting rights within the institution.
While the BRICS bank and fund will benefit the group for now, Rousseff has left open the possibility of using them to aid other developing nations, notably debt-ridden Argentina.
Argentine President Cristina Kirchner praised the BRICS bank and fund deal as alternatives to the World Bank and IMF.
"There are more and more institutions being formed that question how multilateral organizations function, which instead of coming up with solutions only complicate people's lives," she told a forum of leftist activists before the summit.
Argentina is at risk of defaulting on $1.3 billion in debts after losing a US Supreme Court battle with hedge funds seen as "vultures" by Buenos Aires.
"We believe that we must end with this international pillaging in finance that they are trying to do against Argentina and that they will certainly try to do against other countries," Kirchner said.
It could take two years, however, for the institutions to become operational because they have to be ratified by the legislatures of each BRICS nation, Brazilian officials say.
Chinese media hailed the creation of the BRICS bank, which will be based in Shanghai, blaming the West for flaws in the global financial system.
"The plans of the emerging-market bloc of BRICS to establish a development bank usher in a long-awaited and helpful alternative to the Western-dominated institutes in global finance," China's official Xinhua news agency said in an editorial.
After Wednesday's talks, Chinese President Xi Jinping will spend one more day in Brazil to launch a China-Latin America forum with leftist leaders including Cuban President Raul Castro.
The meetings represent a new push by Beijing to gain clout in a region traditionally seen as a US backyard.
China's massive purchases of commodities and exports of manufactured goods to the resource-rich region have boosted its two-way trade with Latin America to a total of $261.6 billion last year.
The meetings are also another opportunity for India's Modi to present himself to the world.
For Russian President Vladimir Putin, the talks give him a platform following his country's exclusion from the G8 group of industrialized nations over Moscow's annexation of Crimea from Ukraine.