Brics nations broadly agree on capital structure of joint bank
2013-08-29 09:58:26
The Brics bloc of emerging nations have broadly agreed on the capital structure of a proposed bank, a development that will likely speed up the group’s efforts to set up a joint institution to counter the influence developed countries exert over the global economy.
Officials from Brazil, Russia, India, China and South Africa have agreed to set up the bank with a total capital of $50 billion, shared equally among them, a senior Indian government official told The Wall Street Journal Wednesday.
This decision at a meeting in New Delhi in the first week of August means the nations will have equal control over the proposed bank. This will likely end disagreements over funding and management of the bank as China had earlier proposed a $100 billion capital and sought a bigger share.
Other key issues, such as on proposals within the group to offer a stake to developed nations like the U.S., need further discussion, the Indian official said. The group is considering offering a stake of 40% to 45% to non-Brics countries, the official added.
Having developed economies as shareholders would help the bank get a higher credit rating and enable it to raise cheaper funds from the market. Ratings of Brics countries vary from barely investment grade for India, Brazil, Russia and South Africa to exceptionally good rating for China.
The bloc has yet to make a decision on where the bank would be based, the official said.
These issues are likely to be discussed when the finance ministers of the group meet on the sidelines of the annual meetings of the World Bank and International Monetary Fund in Washington between Oct. 11 and 13, the official said.
The proposal to set up the bank was initially made at a Brics summit in March 2012, which adopted a resolution to explore the possibility of an institution to mobilize funds for infrastructure development within the group and in other emerging markets. The group hopes such a bank could offer an alternative to the U.S.-dominated World Bank.
At their meeting in Durban, South Africa, in March this year, the Brics heads of state approved the proposal. But they also indicated differences over issues such as funding and management.
The finance ministers of the five nations are now expected to finalize a road map on setting up of the bank before the next summit in March 2014 in Brazil.
The Brics members’ slow march toward establishing their own bank illustrates their struggle to move past populist rhetoric to true cooperation between sometimes adversarial nations. Each country is eager to reap the benefits of a larger trade group—and all are fearful of being flooded with products from the others, particularly China.
The loosely knit Brics group, whose members are heterogeneous in character, is taking time to sort out the differences as each want to safeguard its commercial interest, said B.B.L. Madhukar, secretary-general of the Brics Chamber of Commerce & Industry, an industry lobby group.
The five nations are also exploring currency swaps to trade more freely within the group without the need to convert earnings and investments into U.S. dollars, the standard conduit of global trade.
The Brics bloc represents 43% of the world’s population, and according to CUTS International, accounts for a quarter of the global economy.
The group was set up in 2006 as BRIC, a term coined by Goldman Sachs. South Africa joined the group in 2010, giving it the current acronym.