After five years of meetings, the BRICS emerging-market nations made some headway in their push for more sway in the global financial system, agreeing to set up a $100-billion currency crisis fund and a new development bank.
The fund, approved at a summit in Durban, South Africa yesterday, will help the BRICS nations -- Brazil, Russia, India, China and South Africa -- ward off balance of payments or currency crises. While leaders of the five countries agreed to create a bank to fund infrastructure projects, they didn’t find common ground on how to finance it.
There is “a very serious effort to really pull themselves together despite the differences and differing interests,” Colin Bradford, a non-resident senior fellow at Washington-based Brookings Institution and former chief economist of the U.S. Agency for International Development, said in phone interview yesterday from Potomac, Maryland. “Yes, it will be difficult to put the bank in place. It will take a lot of time to accumulate the capital.”
The BRICS nations accuse the World Bank and International Monetary Fund of not doing enough to address underdevelopment, and say Western governments exert too much control over the way they are managed.
“Competition between a BRICS bank and the World Bank could get interesting,” Simon Evenett, a professor of international trade and economic development at the University of St. Gallen, Switzerland, said in e-mailed comments yesterday. “Competition might lead to fewer strings being attached to loans, which will upset some Western governments.”
While setting up a new lender may provide BRICS nations with alternative funding on their own terms, Russian officials warned that it won’t be operational for some time. The feasibility of the bank has been under investigation for the past year and officials from South Africa and Brazil had said its creation would be a key outcome of the Durban summit.
“Issues including conditions of its activity, principles of its work are very complicated,” Russian Deputy Foreign Minister Sergei Ryabkov told reporters in Durban. “We don’t have disagreements, we have different approaches. It is early to take a formal decision to create the bank now. The devil is always in the detail.”
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 December 2010.
The five nations have 43 percent of the world’s population and total foreign-currency reserves of $4.4 trillion. 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 government.
The summit also saw BRICS nations agreeing to collaborate more closely. Brazil and China said on March 26 they will create a swap line of about $30 billion in their respective currencies. South Africa and Russia, which together hold about 80 percent of platinum group metal reserves, plan to coordinate their actions to influence prices in the market, mining ministers from both countries said.
“The prevailing global governance architecture is regulated by institutions which were conceived in circumstances when the international landscape in all its aspects was characterized by very different challenges and opportunities,” BRICS leaders said in a joint statement yesterday.
Officials didn’t provide details yesterday on how the currency crisis fund will operate. In October, Brazilian Finance Minister Guido Mantega said the pool will be modeled on the Chiang Mai Initiative, which gives Japan, China, South Korea and 10 southeast Asian nations access to $240 billion of emergency liquidity to shield the region from global financial shocks.
BRICS nations have signalled they are prepared to work together to wield influence, said Phil Elwood, vice president at Washington-based Levick Strategic Communications, whose clients include foreign governments.
“The lofty goal of being able to create a financial institution in less than a week was a little bit over-ambitious,” he said in a phone interview yesterday. “At this point the specifics of the bank aren’t as important as the message they are sending to the rest of the world.”