The grouping's members have to sort out internal differences in order to realize the bank idea by the time next summit takes place in Brazil in March 2014
The establishment of the bank can help propel development, thus adding to the grouping’s prowess as a shaper of global economic order. Source: Kommersant Photo
Russian Finance Minister, Anton Siluanov was cited by Reuters as saying at the sidelines of a G20 meeting in Washington last week that a final decision on a BRICS bank would be taken at the next major meeting of the grouping. “At the next BRICS meeting early in 2014, I believe that this matter (the BRICS bank) may be discussed and a final decision may be made on that,” Siluanov said, according to the report.
The past few months have generated anxiety among some of the emerging economies due to rising inflation and capital outflows, and consequent downgrading of exchange rates. The South African Finance Minister, Pravin Gordhan while admitting the volatile financial scenario refuted the story of gloom as highlighted in sections of the media. As the Reuters quoted him, “Our concern is that emerging markets are being called all sorts of names, fragile, etc when in fact that is not the case … Our fundamentals are pretty sound, although some of them (emerging nations) face particular vulnerabilities, but so do European countries.”
Gordhan urged the developed countries, particularly the US, not to taper its stimulus plan, which has effect on developing economies in terms of capital outflows. With this background, the establishment of a BRICS bank, also referred to as New Development Bank, can help the developing economies rely on this new bank supported by newly emerging, and relatively stable, economies than on the financial arrangements controlled by the West.
This year the bank idea was pursued regularly during meetings of the leaders of the grouping, signaling that the leaders are serious about developing a common framework for the bank. During the Durban summit in March, the countries formed a working group to carry forward the deliberation and give concrete suggestions. During the G20 summit in St. Petersburg Vadim Lukov, ambassador-at-large of the Russian Foreign Ministry, stated that “BRICS states have reached an important agreement on the charter capital of a BRICS bank making $50 billion.” Russian President, Vladimir Putin during that summit expressed satisfaction with the progress of BRICS and its traditional practice of talks ahead of G20. He observed, “I find this practice very useful. It is important that our countries seek to take mutual positions on global development.”
Despite differences among the members about initial capital to be contributed and about the location of the bank, it is certain that the differences have narrowed down. On the initial capital, there seems to be two suggested formats by the members. While China is interested to have a large initial capital, for which it has expressed interest to contribute a larger share, other members, like India and Brazil, are interested in a mechanism, in which all countries have equal shares. Russia seems to have supported the latter format. Lukov’s statement last month supports this view. Siluanov’s views are almost similar as he stated last week, “We spoke in favour of contributions in phases, $10 billion within 10 years, so it is not burdensome to Russia’s budget and the budget of other countries.”
Reportedly, China wants to have a large initial capital of $100 billion, in which it is interested to contribute $41 billion, while India, Russia and Brazil will contribute $18 billion each, and South Africa, the smallest among the five in economy size, will contribute $5 billion. There are debates about inviting outside powers to contribute to the bank, though the decision making power will be confined to the founding five members.
BRICS members have to sort out internal differences in order to realize the bank idea by the time next summit takes place in Fortaleza in Brazil in March 2014. The internal differences have been magnified in some media, which have also cast doubt about the prospects of the grouping as an emerging player on the global scene. Such pessimism has also been propelled by the sluggish economic performance in some of the member countries in past months. However, it will be reasonable to argue that despite all prognosis about its bleak future, the grouping still represents the economies which have grown despite global slowdown, and whose growth have intensified debates about a new global order.
In a recent opinion article, the Chinese news agency Xinhua made the case for a new reserve currency and called for a new global order, which would be different from the present dispensation. The concrete progress, not mere announcements and declarations, towards finalization of initial capital, share of each member, location of the BRICS bank and its decision making process will help the grouping in realizing a fair global order. The establishment of the bank can also help salvage financial crunch of member countries like South Africa, or other developing countries and propel development, thus adding to the grouping’s prowess as a shaper of global economic order.
This article first appeared in Russia Beyond the Headlines (India Edition).