FORTALEZA, Brazil – The BRICS group of emerging powers on Tuesday, July 15, created a Shanghai-based development bank and a reserve fund seen as alternatives to Western-led institutions.
The leaders of Brazil, Russia, India, China and South Africa agreed to launch the institutions to finance infrastructure projects and head off future economic crises.
“We took the historic decision to create the BRICS bank and the reserve agreement – an important contribution to reconfigure the system of international economic governance,” Brazilian President Dilma Rousseff said at a summit in the northeastern seaside city of Fortaleza.
Russian President Vladimir Putin hailed the agreements as “a very powerful way to prevent new economic difficulties.”
The five emerging nations first unveiled their plans last year. The New Development Bank will mirror the Washington-based World Bank while the reserve is seen as a “mini-IMF.”
“We need to work to improve economic governance at a global level, increase the representations and voice of developing countries,” said Chinese President Xi Jinping.
Rousseff pressed again for urgent changes in the International Monetary Fund’s voting shares “to reflect the unquestionable weight of emerging countries.”
The development bank will have initial capital of $50 billion that could rise to $100 billion, funded equally by each nation to avoid concerns that one country has more power than the other.
After drawn-out negotiations about the bank’s location, BRICS leaders agreed to put its headquarters in Shanghai. The first president will be Indian while the first board chair will hail from Brazil.
An Africa Regional Center will be based in South Africa, whose President Jacob Zuma failed to convince his peers to place the bank’s headquarters in Johannesburg.
The bank will help fund infrastructure and sustainable development projects, the summit declaration said.
The Contingent Reserve Arrangement will have $100 billion at its disposal to head off potential economic volatility linked to the United States exiting its stimulus policy.
China is making the biggest contribution, $41 billion, followed by $18 billion each from Brazil, India and Russia and $5 billion from South Africa.
Rousseff left open the possibility of using the fund to help non-BRICS nations, saying the group would be willing to “examine” any request from Argentina, which is in danger of defaulting on its debt.
The bank and fund, however, have to be ratified by each BRICS country’s legislature before coming into force.
The summit comes as the economies of BRICS countries, which together represent 40% of the world population and a fifth of the global economy, are cooling down.
The talks in Fortaleza opened a series of summits in Brazil, with BRICS leaders meeting with South American presidents in Brasilia on Wednesday, July 16.
The Fortaleza talks allowed Xi and India’s new Hindu nationalist Prime Minister Narendra Modi to meet face-to-face for the first time.
Modi said the BRICS must act as a “united and clear voice for a peaceful, balanced and stable world.”
For Putin, who visited Argentina and Cuba before coming to Brazil, the trip has given him a chance to hammer home his calls for a “multipolar” world amid tensions with the West over the Ukraine crisis.
Russia has been kicked out of the G8 group of industrialized nations over the Ukraine crisis.
The United States is threatening to impose new economic sanctions on Russia over accusations that it is backing pro-Moscow separatist rebels in eastern Ukraine.
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.”
Rousseff said BRICS leaders “lament the lack of concrete progress” in Ukraine and other hotspots, including Iraq, Syria and the Israeli-Palestinian conflict.
After Wednesday’s BRICS-South America summit, Xi will launch the China-Latin America forum on Thursday, July 17, highlighting Beijing’s growing interests in Washington’s backyard. – Rappler.com