Trending

Newsletter

Skirmish over BRICS Bank Dominates Developing-Nation Summit

By: Charlette Sosa - Jul 14, 2014, 10:10 am

EspañolThe BRICS, an emerging alliance of nations that represent approximately half the world’s population, are holding their sixth summit from Monday. Even before the event begins, however, tensions have flared over a likely vote on a New Development Bank (NDB), to be coordinated between members: Brazil, Russia, India, China, and South Africa.

Brazil is hosting the three-day event that begins in the northeastern coastal city of Fortaleza, Ceará, and Chinese President Xi Jinping is co-chair, along with Brazilian President Dilma Rouseff. Russian President Vladimir Putin, South Africa’s Jacob Zuma, and recently elected Indian Prime Minister Narendra Modi complete the top lineup for the July 14-16 summit.

Given social inclusion as a major theme, Rousseff has also invited several South American heads of state, including those from Argentina, Bolivia, Ecuador, Paraguay, Uruguay, Venezuela, and Surinam. They will attend the final day of talks, which move to Brasilia, the nation’s capital.

BRICS
(BRICS-6)

Chinese Vice Foreign Minister Li Baodong says the talks have “very good timing.” From Beijing last week, he explained that members have generated an “extensive consensus,” and they are completely confident that they will be able to launch the bank during the meeting.

The location for the new bank, though, remains a sticking point. On Thursday, Kremlin aide Yury Ushanov said it was confirmed that the headquarters of the NDB would be in Shanghai, China. Earlier in the week, Russian Finance Minister Anton Siluanov had said the bank’s location would be in either New Delhi or Shanghai.

South Africa countered on Friday that this was “speculation.” There has been “no decision on the domicile of the bank,” explained Rob Davies, South Africa’s trade and industry minister. Peter Fabricius, writing in the Pretoria News, contends that South African officials assumed they would be in line for the bank’s headquarters, and he speculates that the newest member to the bloc was “shanghaied” over the matter.

Davies insisted that South Africa has a “compelling value proposition” that the NDB be headquartered in Johannesburg. Our “robust, significant financial sector here” would allow “efficacy” for infrastructure investment on the African continent. “Debate will have to take place” among all the heads of state as “agreed.”

Brazil is not a contender in the fracas for the NDB location due to the upcoming presidential elections in October.

BRICS members first proposed the idea in 2012, and then elaborated on it during the March 2013 summit in the South African port city of Durban. In terms of the rollout, Russian officials have forecast that the joint operation will begin lending in 2016.

Finance Minister Anton Siluanov says each member country will equally budget US$2 billion over seven years for “paid-in capital,” to total $10 billion in cash plus $40 billion in guarantees. The remaining $50 billion of the authorized maximum stock will “eventually [be] built up,” he explained.

The NDB initiative conveys a “strong message,” says José Alfredo Graça Lima, Brazil’s under-secretary-general for political affairs. Emphasis will be on financing bloc members’ infrastructure and sustainable-development projects.

The fund will have a five-year rotating chairmanship among BRICS members, but the first has yet to be decided, says Siluanov. NDB implementation also requires ratification by each member country’s respective legislature.

Before departing for Latin America, Putin noted the interest of other countries in the BRICS “potential,” but he said expanded membership was an issue for the “future.” There is already an “agreement” that the current BRICS-member stake in the NDB will never fall below 55 percent, according to the Russian News Agency, ITAR-TASS.

Fortaleza city center
Fortaleza city center. (Flickr)

Upping BRICS Pooled Funds to $US200 Billion

Last year’s Durban summit also produced an agreement to establish a “self-managed” $100 billion currency fund to “forestall short-term liquidity pressures.” BRICS leaders have laid out blueprints for a Contingency Reserve Arrangement (CRA) on the summit’s docket.

“Current conditions of capital volatility” require an additional buffer beyond the International Monetary Fund (IMF), said Siluanov.

CRA funds will be held in the respective reserves of each BRICS country and be transferable to member nations to offset currency market instability. China is set to contribute the lion’s share at $41 billion; Brazil, Russia, and India $18 billion each; and South Africa will add $5 billion.

Contrary to conventional thought, World Bank President Jim Yong Keng believes neither of these BRICS initiatives is a competitor. The rival is “poverty.” The World Bank (WB) website describes infrastructure as the “critical agent” to development challenges and estimates the gap in its investment to the tune of US$ 1 trillion per year.

Fergus Hodgson contributed to this article.

Charlette Sosa Charlette Sosa

A contributor with the PanAm Post, Sosa worked for several years as the editor of the Venezuela News Desk for the Caracas Daily Journal. Follow her on Twitter @cjgsosa.