News / Economy

BRICS Nations Start Development Bank

Leaders of the five BRICS nations – from left, Russia’s Vladimir Putin, India’s Narendra Modi, Brazil’s Dilma Rousseff, China’s Xi Jinping and South Africa’s Jacob Zuma – approved a development bank while meeting in Brazil, July 15, 2014.
Leaders of the five BRICS nations – from left, Russia’s Vladimir Putin, India’s Narendra Modi, Brazil’s Dilma Rousseff, China’s Xi Jinping and South Africa’s Jacob Zuma – approved a development bank while meeting in Brazil, July 15, 2014.
Reuters

Leaders of the BRICS emerging market nations launched a $100 billion development bank and a currency reserve pool Tuesday.

The bank, aimed at funding infrastructure projects in developing nations, will be based in Shanghai. India will preside over its operations for the first five years, followed by Brazil and then Russia, leaders of the five-nation group announced at a summit.

The BRICS – Brazil, Russia, India, China and South Africa – also set up a $100 billion currency reserves pool to help countries forestall short-term liquidity pressures.

The long-awaited bank is the first major achievement of the BRICS countries since they got together in 2009 to press for a bigger say in the global financial order created by Western powers after World War II.

The BRICS sought coordinated action following an exodus of capital from emerging markets last year, triggered by the scaling back of U.S. monetary stimulus.

Growing heft

The new bank reflects the growing influence of the BRICS, which account for almost half the world's population and about a fifth of global economic output.

The bank will start with a subscribed capital of $50 billion, divided equally among its five founders, with an initial total of $10 billion in cash put in over seven years and $40 billion in guarantees.

The bank will start lending in 2016. It will open membership to other countries, but the BRICS’ capital share cannot drop below 55 percent.

The contingency currency pool will be held in the reserves of each BRICS country and can be shifted to another member to  cushion balance of payments difficulties. This initiative gathered momentum after the reverse in the flows of cheap dollars that fueled a boom in emerging markets for a decade.

“It will help contain the volatility faced by diverse economies as a result of the tapering of the United States' policy of monetary expansion,” Brazilian President Dilma Rousseff said.

China, holder of the world's largest foreign exchange reserves, will contribute $41 billion, the bulk of the contingency currency pool. Brazil, India and Russia will chip in $18 billion each and South Africa $5 billion.

If necessary, China can ask for half of its contribution, South Africa for double and the remaining countries the amount they put in.

Labored negotiations

Negotiations over the headquarters and first presidency had stalled because of differences between India and China. The impasse reflected the difficulties that Brazil, Russia, India, China and South Africa face in working together to build an alternative to the Bretton Woods institutions dominated by the International Monetary Fund and the World Bank.

“We pulled it off 10 minutes before the end of the game. We reached a balanced package that is satisfactory to all,” a Brazilian diplomat told Reuters.

Negotiations to create the bank dragged on for more than two years as Brazil and India fought China's attempts to get a bigger share in the lender than the others.

A stand against global politics

Earlier in the day, Russia's foreign minister, Sergei Lavrov, said that the BRICS bloc stands against one-sided economic and political measures, but that the emerging nations are not seeking confrontation with the West.

“The summit has confirmed that by speaking against one-sided steps in global politics and economy, BRICS members are not seeking confrontation, but are offering to work out collective approaches to resolve all [global] issues,” Lavrov told reporters at the summit.

The United States has imposed sanctions against Russia, including asset freezes and visa bans against officials and business associates thought to be close to President Vladimir Putin in response to Crimea's annexation. The summit was largely seen as an opportunity for Putin to boost his geopolitical sway amid isolation from the West over the crisis in Ukraine. 

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Comment Sorting
Comments
     
by: Alex
July 17, 2014 11:36 AM
It is funny to watch how Putin is hastily strengthening alliance of BRICS countries, trying to make it as a counterweight to the EU, inciting the countries of the third world against the U.S. world dominance, creating a global anti-crisis fund, returning permanently to Cuba to restore the Russian military bases there, whilst Obama being in great despair that Putin has crept up on 250 km to the United States, is desperately trying to thwart Putin’s plans, persuading the EU to take actions, here and there putting traps for him in the form of point sanctions, hoping that it would work. But Putin as irrepressible idiot is pressing forward despite any sanctions. How it is to be that so many highly respected people in the world can not stop one “Kleine Zaches gennant Zinnober”.

by: Xaaji Dhagax from: Somalia
July 16, 2014 2:13 AM
BRICS successfully established huge international profitable bank. You think good news for Africans, right? WRONG!
The headquarter of that bank will be in China, while India will preside the operation of the bank for the coming five long years followed by Brazil and then Russia. Well, where South Africa will be allowed to fit in?
This is BRICS' ultimate style in racism! It's obvious that international racism against Africans won't go away any time soon.
In Response

by: peterkins ojoh from: uganda
July 16, 2014 5:10 PM
I think there is a hidden agenda behind BRICS establishment..Putin is just trying to find partners from third world countries because of isolation he faces from the West and USA
Russia is not known in developing countries for promoting development apart from selling junk helicopters, outdated firearms to support undemocratic governments
In Response

by: Tom from: Michigan
July 16, 2014 12:27 PM
There is a proposed regional office of this bank in South Africa!

by: Cranksy from: USA
July 15, 2014 11:25 PM
I would like to encourage VOA to keep publishing articles like this. Although I do not understand it, I sense this is about something potentially very important.

The bank will aim at funding infrastructure projects in developing nations. (a paraphrase) Is this an altruistic endeavor? On the other hand, this organization seems to be an effort at self-protection.


In Response

by: Carol Hayden from: USA
July 16, 2014 3:32 PM
These countries are not known for altruism. They are known for the wide separation between those with money and those who don't. They are afraid of sanctions making their credit cards not work. As long as this buffer exists, it doesn't matter what happens to common people.

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