BRICS Countries Launch New Development Bank
Leaders from the BRICS countries – Brazil, Russia, India, China, and South Africa – formally launched a joint international development bank on Tuesday during their annual summit, held this year in the Brazilian city of Fortaleza. Headquartered in Shanghai, the bank will finance infrastructure and sustainability projects in BRICS and other emerging and developing countries.
The New Development Bank, as it will be called, will have US$100 billion in initial authorised capital at its disposal. The BRICS countries will initially underwrite half that amount – US$50 billion – with each putting forward equal contributions of US$10 billion.
The rotating presidency of the bank will first go to India, leaders said in the Fortaleza Declaration, with Brazil chairing the bank’s first board of directors. Russia, for its part, will chair the first board of governors, while a regional centre will be set up concurrently in South Africa.
BRICS finance ministers have now been directed to work on modalities for bringing the bank into operation. Officials have said that other countries, multilateral institutions, and investment banks could eventually become bank shareholders, though their participation will be subject to BRICS’ sign-off.
During the meet, leaders also signed off on a reserve fund that will help BRICS members deal with actual or potential balance of payments problems, known as the Contingent Reserve Arrangement (CRA).
This initiative will receive US$100 billion in initial subscribed capital, with China contributing the largest share of the funding at US$41 billion. Brazil, Russia, and India will equally provide US$18 billion, with South Africa supplying the balance of US$5 billion.
Jockeying for position
Since the launch of the BRICS – previously known as just BRIC, until South Africa joined three years ago – analysts have questioned whether the coalition can indeed form a true alliance, given their varying political and economic circumstances. The group has historically found difficulty in backing common positions, such as nominations for new World Bank and International Monetary Fund (IMF) chiefs.
Furthermore, this year’s summit comes on the heels of the quadrennial World Cup tournament, also hosted by Brazil, and the Winter Olympics held earlier this year in the Russian city of Sochi – both instances that highlighted some of the development changes that these emerging economies still face.
In their statement on Tuesday, the BRICS noted the various efforts they have already made to strengthen their coordination on the world stage, in particular the contributions that emerging markets have made to global growth in the wake of the economic crisis.
“In the aftermath of the first cycle of five Summits, hosted by every BRICS member, our coordination is well established in various multilateral and plurilateral initiatives and intra-BRICS cooperation is expanding to encompass new areas,” they said.
At this stage, leaders said, the group is now “committed to raise our economic cooperation to a qualitatively new level,” while noting that over the past five years the BRICS countries have “consolidated their position as the main engines for sustaining the pace of the international economy.”
IMF reform in the background
The New Development Bank is meant to mirror the World Bank, and the CRA will be set up similarly to the IMF, Brazilian Ambassador José Alfredo Graça Lima, Under-Secretary-General for Political Affairs II in the Brazilian Foreign Affairs Ministry, told reporters ahead of the meet.
The push to launch this new bank has emerged largely from the desire to move away from a long-standing dependence on the IMF and the World Bank, though BRICS leaders have said that this new initiative is meant to supplement existing multilateral institutions.
The Bretton Woods institutions, as they are also called, have frequently come under fire from emerging and developing economies, with many clamouring for a reform in their governance structure to reflect current realities. The IMF reforms agreed to four years ago would have shifted more power to developing and emerging market economies; however, these reforms have since stalled as a result of the US Congress’ failure to ratify the implementing legislation domestically.
The IMF’s policy-setting body, known as the International Monetary and Financial Committee (IMFC) gave the US Congress a year-end deadline to pass these reforms. Otherwise, the IMFC warned, it will push the IMF to develop “options for next steps.” (See Bridges Weekly, 17 April 2014)
“We remain disappointed and seriously concerned with the current non-implementation of the 2010 International Monetary Fund reforms, which negatively impacts on the IMF’s legitimacy, credibility, and effectiveness,” the BRICS leaders said on Tuesday, highlighting the importance of giving emerging economies a greater voice in the institution.
The five-country group made similar calls regarding World Bank reform, stressing that the implementation of “more democratic governance structures” and improved financial capacity would be key in helping the institution bring to bear its goal to end extreme poverty by 2030, as pledged a year ago. (See Bridges Weekly, 25 April 2013)
Clarity on Bali trade deal?
Another key question ahead of this week’s meet was whether India might clarify – or even change – its controversial position on the implementation of the WTO’s Trade Facilitation Agreement (TFA), which was agreed upon at the global trade body’s Ninth Ministerial Conference (MC9) in Bali, Indonesia last December.
In the months since, WTO members have been working to bring the Trade Facilitation Agreement into the organisation’s legal framework by 31 July, so that it can then be ratified by enough members to enter into force by the same date next year. Bringing the TFA into the WTO Agreement requires the adoption of a Protocol of Amendment by members.
However, the Protocol process ran into difficulty in May, after the African Group tabled a proposal that would make the deal’s implementation provisional, pending the conclusion of the overall Doha Round trade negotiations. (See Bridges Weekly, 28 May 2014)
Though the African Union has appeared to soften its stance in this area, a new hurdle emerged earlier this month when India said it could not back the TFA unless it saw more signs of action on developing a “permanent solution” on food security – as promised in one of the other Bali decisions. Public comments from Indian Commerce Ministry officials later affirmed this view. South Africa is one of the other countries that has reportedly continued backing the provisional implementation of the trade deal. (See Bridges Weekly, 10 July 2014)
At a meeting of the WTO’s Preparatory Committee on Trade Facilitation last week, prior to the BRICS Summit, Philippine Ambassador Esteban Conejos – who chairs the group – said that consensus was still “elusive,” sources confirmed to Bridges at the time. To date, no new meeting of the committee has been formally scheduled.
Separately, the WTO’s Committee on Agriculture is set to discuss two papers on public stockholding in developing countries after the summer break, sources say. One paper was released by the US, and features proposed “elements for a work programme on food security.” The G-33 coalition of developing countries, of which India is a part, is reportedly planning its own contribution.
In Tuesday’s Fortaleza Declaration, BRICS leaders pledged their commitment to helping establish a post-Bali work programme by year’s end for concluding the Doha Round, in line with the direction given by trade ministers at the WTO ministerial conference.
They noted, moreover, that this work programme “should prioritise the issues where legally binding outcomes could not be achieved at MC9, including the Public Stock-Holding for Food Security Purposes.”
However, the leaders also said that they “looked forward” to the implementation of the Trade Facilitation Agreement, while noting the importance of ensuring that the WTO’s poorest members receive support from international partners to deal with the costs.
Brazilian trade minister Mauro Borges went further, telling Reuters on Monday that the BRICS countries “are confident that the Bali agreement will be implemented by all.” India’s concern over its food security, the Brazilian official added, was “understandable,” though not an “ultimatum” against meeting the 31 July deadline for adopting the Protocol.
Indian Trade Secretary Rajeev Kher, for his part, told reporters that progress on food security would not be a pre-condition for signing off on the Protocol, while stressing that it should be addressed alongside trade facilitation.
“We are not saying there should be no deal,” Kher told Reuters. “We are simply asking them to address our concerns.”
ICTSD reporting; “BRICS Fight Waning Clout With $150 Billion Deal in Brazil Summit,” BLOOMBERG, 13 July 2014; “Brazil sees Bali trade deal implemented despite India concern,” REUTERS, 14 July 2014; “India says progress on food not condition for Bali deal implementation,” REUTERS, 15 July 2014.