BRIC countries start fund to compete with World Bank

June 27, 2014
Start date is set for July 14, 2014

BRICS emerging nations close to launching bank
Reuters, Posted at 05/30/2014 1:07 PM | Updated as of 05/30/2014 1:07 PM

BRASILIA - The five BRICS nations will likely agree to fund their $100 billion development effort equally, giving them the same rights in a new multilateral bank that could start lending in two years, a senior Brazilian government official told Reuters on Thursday.

Capitalization of the bank was one of the main sticking points in the sometimes tortuous negotiations among the emerging powers to create a joint lender to finance infrastructure projects in developing nations.

The new bank would symbolize the growing influence of emerging economies in the global financial architecture long dominated by the United States and Europe through the International Monetary Fund and World Bank.

Negotiations to create the lender have dragged on for two years, with some members growing weary of China's desire to have a bigger stake in the bank by putting in more capital. But this hurdle is being overcome.

"The majority wants an equal sharing of the capital and there is no other specific proposal on the table," said the official, who is directly involved in the negotiations. "This is not going to be a problem."

Leaders of Brazil, Russia, India, China and South Africa are expected to sign a treaty to launch the bank officially when they meet at a BRICS summit in the northern Brazilian city of Fortaleza on July 15.

The bank, which will have start-up capital of $50 billion, will have to be ratified by the countries' legislatures and could begin lending in two years, said the official, who requested anonymity because he was not authorized to speak publicly.

Of that start-up capital, the countries will put in a total of $10 billion in cash and $40 billion in guarantees, which will be used to raise capital on international markets.

The new development bank would help cover growing demand for project financing that has not been fully met by global multilaterals, which for years have been heavily criticized for meddling in the domestic policies of sovereign borrowers.

"The bank will look into the finances of borrowers, but never intervene in their economic affairs," said the official. "Any country can join the bank with a $100,000 share. The idea is to provide them loans at a lower cost than what they would individually get in markets."

The BRICS will also decide if the bank will be based in New Delhi, Shanghai, Johannesburg or Moscow. Brazil will not offer headquarters because of upcoming presidential elections that could delay negotiations, the official said.

Later, the group will have to choose an executive "with experience in the financial sector" to lead the bank in a five-year presidency that will rotate among the founding members.

In five years the bank's capital should double to $100 billion through capitalization from funding members, debt emissions or contributions from new members. The BRICS will hold a minimum of 55 percent of the bank's shares.

June 27, 2014

This article is entitled "South American leaders to attend 6th BRICS Summit", but it addresses many of the items to be discussed at the 6th BRICS Summit.

A few key points (in my mind) from this article:

"Brazilian Ambassador José Alfredo Graça Lima addressing a press conference in Brasilia on Tuesday said the keenly awaited BRICS Bank will finance infrastructure and sustainable development projects.

"Developing nations have long complained that the World Bank and International Monetary Fund are failing to address underdevelopment and Western nations have too much say over the management of these institutions.

"The BRICS Bank’s start-up capital of $50 billion would eventually be built up to $100 billion...

"Social inclusion and sustainable development will be in focus during this year’s summit.

"...South American nations are also jointly exploring the creation of a communications system to curtail US spying in the region."

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South American leaders to attend 6th BRICS Summit

The Brazilian cities of Fortaleza and Brasilia will host the 6th BRICS Summit on the 14th, 15th, and 16th July, an event that will showcase the growing economic clout of the five countries.

The 2014 Summit’s debates will focus on the theme “BRICS – inclusive growth: sustainable solutions”.

As part of a BRICS outreach strategy to emerging economies, a working session will be held on 16th July between the heads of states of BRICS and their counterparts from the governments of South American nations. Argentina had expressed interest in joining the powerful bloc, although BRICS have ruled out expansion of the group for now.

BRICS Finance Ministers and Central Bank Governors meeting, Trade Ministers meeting, Development Bank Presidents meeting, Business Forum and a session of the BRICS Business Council will be held on 14th July in Fortaleza.

The $100 billion Contingency Reserve Arrangement (CRA) will be launched at this year’s Summit and final details of the New Development Bank (NBD) will also be unveiled.

In the Durban Summit last year, leaders from Brazil, Russia, India, China and South Africa had approved a $100 billion fund to combat currency crises.

“The establishment of a self-managed contingent reserve arrangement would have a positive precautionary effect, help BRICS countries forestall short-term liquidity pressures, provide mutual support and further strengthen financial stability,” South African President Jacob Zuma said after the five BRICS leaders met in Durban in March.

BRICS have 43 per cent of the world’s population and total foreign-currency reserves of $4.4 trillion.

Brazilian Ambassador José Alfredo Graça Lima addressing a press conference in Brasilia on Tuesday said the keenly awaited BRICS Bank will finance infrastructure and sustainable development projects.

Developing nations have long complained that the World Bank and International Monetary Fund are failing to address underdevelopment and Western nations have too much say over the management of these institutions.

The BRICS Bank’s start-up capital of $50 billion would eventually be built up to $100 billion. Russia has proposed that each member contributes an equal, 20 per cent share. All the members of BRICS except Brazil has proposed to host the Bank.

Social inclusion and sustainable development will be in focus during this year’s summit.

The 6th Summit will inaugurate the second cycle of BRICS, with each member country hosting one summit each.

The African Union attended last year’s Summit as observers even as BRICS countries try to increase bilateral trade with the continent. Meanwhile, the invitation this year to Latin American heads of states comes as the region tries to match the inspiring growth rates of above 4.3 per cent of 2004-11.

Meanwhile, South American nations are also jointly exploring the creation of a communications system to curtail US spying in the region.

Latin American countries raised a storm of protest after, according to US NSA leaks by former contractor Edward Snowden, the agency spied on an array of nations in the region, including Brazil.

The meet in Brasilia with a congregation of BRICS and South American leaders in attendance could call for an end to mass surveillance like the one carried out the US intelligence agency and gross invasions of privacy.

July 3, 2014

From Reuters:

China is moving forward with a plan to create its own version of the World Bank, which will rival institutions that are under the sway of the US and the West. The bank will start with $100 billion in capital.

The Asian Infrastructure Investment Bank (AIIB) will extend China’s financial reach and compete not only with the World Bank, but also with the Asian Development Bank, which is heavily dominated by Japan. The $100 billion in capital is double that originally proposed, the Financial Times (FT) reported.

A member of the World Bank, China has less voting power than countries like the US, Japan, and the UK. It is in the ‘Category II’ voting bloc, giving it less of a voice. In the Asian Development Bank, China only holds a 5.5 percent share, compared to America’s 15.7 percent share and Japan’s 15.6 share.

At the International Monetary Fund, China pays a 4 percent quota, whereas the US pays nearly 18 percent, and therefore has more influence within the organization and where loans go.

“China feels it can’t get anything done in the World Bank or the IMF so it wants to set up its own World Bank that it can control itself,” the FT quoted a source close to discussions as saying.

To date, 22 countries have expressed interest in the project, including oil-rich Middle Eastern nations, the US, India, Europe, and even Japan, the FT reported.

“There is a lot of interest from across Asia but China is going to go ahead with this even if nobody else joins it,” the FT source said.

Funding for the Asian Infrastructure Investment Bank will mostly be sourced from the People’s Republic of China and be used to pay for infrastructure projects.

The bank’s first project will be a reincarnation of the ancient Silk Road, the vast network of trade routes between China and its regional neighbors. Another proposed project is a railway from Beijing to Baghdad.

The idea for the bank was first floated in October 2013, when China unveiled plans to create the bank. Then it was initially to be funded with $50 billion in capital.

Separately, the BRICS nations plan to have a $100 billion development bank ready by 2015.

Funds will be reserved for emerging market members who are often bypassed by institutions like the IMF and World Bank.

Bank preparations will likely be finalized at the 6th annual BRICS summit on July 14-16, when the five world leaders convene in Brazil.