by Mike Cohen and Ilya Arkhipov
March 26, 2013
The leaders of the so-called
BRICS nations - Brazil, Russia, India, China and South Africa - are set
to approve the establishment of a new
development bank during an annual summit
that starts today in the eastern South
African city of Durban.
The biggest emerging markets are uniting to
tackle under-development and currency volatility with plans to set up
institutions that encroach on the roles of the
World Bank and International Monetary Fund.
The leaders of the so-called
BRICS nations - Brazil, Russia, India,
China and South Africa - are set to approve the establishment of a new
development bank during an annual summit that began today in the eastern
South African city of Durban, officials from all five nations say.
They will also discuss pooling foreign-currency
reserves to ward off balance of payments or currency crises.
“The deepest rationale for the BRICS is
almost certainly the creation of new Bretton Woods-type institutions
that are inclined toward the developing world,” Martyn Davies, chief
executive officer of Johannesburg-based Frontier Advisory, which
provides research on emerging markets, said in a phone interview.
“There’s a shift in power from the
traditional to the emerging world. There is a lot of geo-political
concern about this shift in the western world.”
The BRICS nations, which have combined
foreign-currency reserves of $4.4 trillion and account for 43 percent of the
world’s population, are seeking greater sway in global finance to match
their rising economic power.
They have called for an overhaul of management
of the World Bank and IMF, which were
created in Bretton Woods, New Hampshire, in
1944, and oppose the practice of their respective presidents being drawn
from the U.S. and Europe.
“We need to change the way business is
conducted in the international financial institutions,” South African
International Relations Minister Maite Nkoana-Mashabane said in a March
15 speech in Johannesburg.
“They need to be reformed.”
The U.S. has failed to ratify a 2010 agreement
to give more sway to emerging markets at the IMF, while it secured Jim
Yong Kim, an American, as head of the World Bank last year over
candidates from Nigeria and Colombia.
Finance ministers and central bank governors from the BRICS nations, who met
in Durban today, agreed to set up currency crisis fund of about $100
billion, Brazilian Finance Minister Guido Mantega told reporters
He didn’t give details of proposed funding for
the new bank, which Brazil wants established by 2014.
The nation’s leaders are due to sign a final
Goldman Sachs Asset Management Chairman Jim O’Neill coined the
BRIC term in 2001 to describe the four emerging powers he estimated would
equal the U.S. in joint economic output by 2020.
Brazil, Russia, India and China held their first
summit four years ago and invited South Africa to join their ranks in
Trade within the group surged to $282 billion last year from $27 billion in
2002 and may reach $500 billion by 2015, according to data from Brazil’s
Foreign direct investment into BRICS nations
reached $263 billion last year, accounting for 20 percent of global FDI
flows, up from 6 percent in 2000, the United Nations Conference on Trade and
Development said on its website yesterday.
“If they announce a BRICS bank it will be
quite something,” O’Neill said in an e-mailed reply to questions on
“At a minimum it symbolizes they can achieve
something as political group and means lots of other things could follow
in the future. It also means that they will have their own kind of
special World Bank, which may aid infrastructure and trade projects.”
While BRICS leaders may approve the creation of a development bank in
principle at the summit, details on funding and operations may take longer
Russia favors capping each side’s initial contribution at $10 billion,
Mikhail Margelov, President Vladimir Putin’s envoy to Africa he said in
a March 15 interview in Moscow.
“It will be some time before it will be
feasible for this bank to start financing say, a railway project,” Simon
Freemantle, an analyst at Standard Bank Group Ltd., Africa’s biggest
lender, told reporters in Durban yesterday.
“That is some way out.”
Interest rates near zero in the U.S., Japan and
Europe have fueled foreign investors’ appetite for higher-yielding assets,
driving up currencies from Brazil to Turkey.
Brazil has warned of a
global currency war as nations take
reciprocal action to weaken their currencies and protect export industries.
Brazil’s real has gained 1.9 percent against the dollar since the beginning
of the year, while South Africa’s rand has dropped 8.7 percent in the
For South Africa, which makes up just 2.5 percent of total gross domestic
product in BRICS, the summit is a way to showcase its role as an investment
gateway to Africa.
President Jacob Zuma has invited 15
African heads of state, including Egypt’s Mohamed Mursi and Ethiopia’s
Hailemariam Desalegn, for talks with the BRICS leaders at the summit.
For most of the BRICS leaders, it’s also the
first opportunity to meet Chinese President Xi Jinping after his appointment
on March 17.
“We will discuss ways to revive global
growth and ensure macroeconomic stability, as well as mechanisms and
measures to promote investment in infrastructure and sustainable
development,” Indian Prime Minister Manmohan Singh said in a statement