BRICS agree on $50bn IMF rival bank, ‘difficult’ details remain
September 3, 2013
While I am in total disagreement that it will take this long to be done with the IMF once and for all, it's still nice to see the BRICS guys making moves in the right direction. ~BK
The ‘big five’ of the developing world, the BRICS nations, will meet on the sidelines of the G20 to further iron out the details of their proposed development bank, which will pool foreign reserves from the five nations to create a fund of up to $100bn.
Leaders from Brazil, Russia, India, China, and South Africa will meet in St. Petersburg to discuss the progress of the bank to rival the dominance of the World Bank and the IMF, and to establish a new joint currency reserve arrangement.
So far the emerging economies have agreed on $50bn in capital, but there are still ‘difficult details’ that could take months to sort out, Russian Russian Deputy Finance Minister Sergei Storchak said.
"These are systemic themes, complicated, [and] negotiations are difficult. We must assume that the bank will not start functioning as fast as one could imagine,"Storchak said. "It will take months, maybe a year."
The bank will be set up by 2015 Storchack confidently said in June at the St. Petersburg Economic Forum. The project was approved at the BRICS summit in Durban, South Africa in March 2013.
Officials from the five nations agreed earlier in August on the source of the bank’s capital, but still need to finalize details of management, division and payment of capital, and the location are still crucial elements they need to agree on, Storchak said.
The bank will largely help finance infrastructure and development projects in the five member states, and will pool foreign currencies to fend off a future financial crisis.
China proposed $100 billion in capital and wanted to control a larger share of the bank, whereas Brazil advocated each country contributed $10 billion and have equal influence.
The creation of the bank “will undoubtedly help avoid excessive negative impacts that fluctuations in currency markets may have on our economies," Russian Foreign Minister Sergey Lavrov said.
Total trade within the grouping amounted to $6.1 billion last year and represented 16.8 percent of global trade, according to South African President Jacob Zuma.
"The strength of the BRICS is amplified by the fact that BRICS countries account for 43 percent of the world's population, around 18 percent of its GDP and 40 percent of its currency reserves, estimated around a trillion US dollars," Zuma said at the Durban summit.
The project is ambitious, and comes at a time when countries may not be perfectly ready to plonk down $10 billion extra in reserves.
In the month of July, emerging market economies contracted, while developed expanded. Emerging market currencies are being rapidly sold off before an expected US Federal Reserve decision to end its $85 billion-per-month bond buying program. The Indian rupee has already lost about 20 percent of its value since May.
Looking for louder say
One of the main agenda points for BRICS leaders is to reform IMF quotas and votes, a move that is crucial, according to Lavrov.
Lavrov is in favor of doubling the IMF loan quotas to developing economies and fast growing markets.
“This will contribute to the democratization of the international monetary and financial system. BRICS countries should unite to see that the G20 implements what it has agreed upon," Lavrov said.
The IMF quota represents a country’s contribution to the fund’s capital, as well as its share of the voice in the IMF’s decision making. The size of a quota also decides the possible volume of a loan from the IMF. At the moment the US has the highest IMF quota at 17.08 percent, which enables Washington to veto any fund decision. An initiative is regarded approved within the IMF, if it gets 85 percent of the voices.