The establishment of a multilateral development bank operated by the BRICS nations, Brazil, Russia, India, China and South Africa, proposed at the Durban summit in March 2013, has received full support from the nations' leaders.
Intended as an alternative to the existing World Bank and International Monetary Fund (IMF), the BRICS bank will provide funding for infrastructure projects and create a "Contingent Reserve Arrangement" or emergency fund worth $100bn to help member countries counteract future financial shocks.
The new bank will present an ambitious challenge to the western-run multilaterals that currently shape global finances. Brazilian president Dilma Rousseff met with Russia's Vladimir Putin in Brasilia on Monday announcing after, that the proposed bank would top the summit agenda the following day. The bank was subsequently created on Tuesday 15th July.
$100bn Contingency Fund to Protect Against Economic Shocks
The BRICS countries have a shared desire for a bigger voice in global economic policy as they now account for 21% of global economic output and have contributed more than 50% of world economic growth in the past decade.
The bank will have its headquarters in Shanghai with the first president being from India and the first board chair from Brazil. An Africa Regional Centre will be based in South Africa. The bank is committed to help emerging and developing nations, mobilise resources for infrastructure and sustainable development projects, according to the summit's declaration.
Dilma Rousseff said: "These initiatives show that, despite our diversity, our countries are committed to a solid and productive association." Putin hailed the agreement as a "very powerful way to prevent new economic difficulties."
The Contingent Reserve Arrangement will have $100bn at its disposal to head off potential volatility linked to the United States exiting its stimulus policy.
China is expected to make the biggest contribution of $41bn followed by $18bn each from Brazil, India and Russia and $5bn from South Africa.
China Largest Contributors to New Development Bank
The summit comes as the economies of some BRICS countries, which combined represent 40% of the world population and a fifth of the global economy, are cooling down, with Russia and Brazil expecting just 1% growth this year.
This is Putin's first international summit since being kicked out of the G8 group of industrialised nations over the Ukraine crisis, providing him with an opportunity to reiterate his calls for a 'multipolar' world amid tensions with the West.
The BRICS summit declaration voiced 'deep concern' over the situation in Ukraine and called for 'comprehensive dialogue, the de-escalation of the conflict and restraint from all the actors involved, with a view to finding a peaceful political solution."
For Russia, the creation of a $100bn BRICS bank with a reserve currency fund worth another $100bn is a political coup as the West freezes the nation out of its own economic system. Russia is now tying itself into the financial superstructure of the next generation of economic heavyweights.
BRICS' Member Countries Seeking Economic Independence from West
The BRICS have criticised the World Bank and IMF for the dominance of the rich nations of the G7 and the stringent conditions attached to their lending they feel impinges on the economic sovereignty of its members.
BRICS countries will be represented in the bank by their finance ministers or central banking chiefs who are to sit on the governing body of the contingency fund. The fund will be steered by representatives of the participating countries' central banks under the supervision of a BRICS nation, selected on the basis of an annually rotating presidency.
Russia's recent experience over Ukraine has shown that the West is ready to eject politically unruly countries from its economic system. If the nation is able to successfully establish itself, the BRICS' inauguration of multilateral financial institutions rooted outside the reach of Western oversight could provide insulation from Western economic clout to countries like Russia and China, whose growth threatens to put it at odds with Japan, a US ally and G7 member.
- Wednesday 16 July 2014