BRICS Nations Plan New Bank to Bypass World Bank, IMF

The biggest emerging markets are uniting to tackle under-development and currency volatility with plans to set up institutions that encroach on the roles of the World Bank and International Monetary Fund.

The leaders of the so-called BRICS nations -- Brazil, Russia, India, China and South Africa -- are set to approve the establishment of a new development bank during an annual summit that starts today in the eastern South African city of Durban, officials from all five nations say. They will also discuss pooling foreign-currency reserves to ward off balance of payments or currency crises.

“The deepest rationale for the BRICS is almost certainly the creation of new Bretton Woods-type institutions that are inclined toward the developing world,” Martyn Davies, chief executive officer of Johannesburg-based Frontier Advisory, which provides research on emerging markets, said in a phone interview. “There’s a shift in power from the traditional to the emerging world. There is a lot of geo-political concern about this shift in the western world.”

The BRICS nations, which have combined foreign-currency reserves of $4.4 trillion and account for 43 percent of the world’s population, are seeking greater sway in global finance to match their rising economic power. They have called for an overhaul of management of the World Bank and IMF, which were created in Bretton Woods, New Hampshire, in 1944, and oppose the practice of their respective presidents being drawn from the U.S. and Europe.

“We need to change the way business is conducted in the international financial institutions,” South African International Relations Minister Maite Nkoana-Mashabane said in a March 15 speech in Johannesburg. “They need to be reformed.”

The U.S. has failed to ratify a 2010 agreement to give more sway to emerging markets at the IMF, while it secured Jim Yong Kim, an American, as head of the World Bank last year over candidates from Nigeria and Colombia.

Goldman Sachs Asset Management Chairman Jim O’Neill coined the BRIC term in 2001 to describe the four emerging powers he estimated would equal the U.S. in joint economic output by 2020. Brazil, Russia, India and China held their first summit four years ago and invited South Africa to join their ranks in December 2010.

Trade within the group surged to $282 billion last year from $27 billion in 2002 and may reach $500 billion by 2015, according to data from Brazil’s government.

“If they announce a BRICS bank it will be quite something,” O’Neill said in an e-mailed reply to questions on March 15. “At a minimum it symbolizes they can achieve something as political group and means lots of other things could follow in the future. It also means that they will have their own kind of special World Bank, which may aid infrastructure and trade projects.”

While BRICS leaders may approve the creation of a development bank in principle at the summit, there’s still disagreement on how it should be funded and operated.

The meeting may fail to reach a detailed agreement this week on how to fund the bank, said Mikhail Margelov, President Vladimir Putin’s envoy to Africa. Russia favors capping each side’s initial contribution at $10 billion, he said in a March 15 interview in Moscow.

“It will be some time before it will be feasible for this bank to start financing say, a railway project,” Simon Freemantle, an analyst at Standard Bank Group Ltd., Africa’s biggest lender, told reporters in Durban yesterday. “That is some way out.”

Agreement on pooling foreign-currency reserves to fend against crises is also “some way off,” South African Trade Minister Rob Davies said on March 22.

In October, Brazilian Finance Minister Guido Mantega said the pool will be modeled on the Chiang Mai Initiative, which gives Japan, China, South Korea and 10 southeast Asian nations access to $240 billion of emergency liquidity to shield the region from global financial shocks.
Interest rates near zero in the U.S., Japan and Europe have fueled foreign investors’ appetite for higher-yielding assets, driving up currencies from Brazil to Turkey. Brazil has warned of a global currency war as nations take reciprocal action to weaken their currencies and protect export industries.

Brazil’s real has gained 2 percent against the dollar since the beginning of the year, while South Africa’s rand has dropped 8.8 percent in the period.

For South Africa, which makes up just 2.5 percent of total gross domestic product in BRICS, the summit is a way to showcase its role as an investment gateway to Africa. President Jacob Zuma has invited 15 African heads of state, including Egypt’s Mohamed Mursi and Ethiopia’s Hailemariam Desalegn, for talks with the BRICS leaders at the summit. For most of the BRICS leaders, it’s also the first opportunity to meet Chinese President Xi Jinping after his appointment on March 17.

“We will discuss ways to revive global growth and ensure macroeconomic stability, as well as mechanisms and measures to promote investment in infrastructure and sustainable development,” Indian Prime Minister Manmohan Singh said in a statement yesterday.

Woah...thats serious.

BRICS has the collective influence to push for the restructuring of the global governance mechanisms to ensure a fairer world.

BRICS seeks to advance the restructuring of the global political, economic and financial architecture into one that is more equitable and balanced and rests on the important pillar of multilateralism.

BRICS believes that the international community should work together to strengthen cooperation for common development.

The grouping calls for further international financial regulatory oversight and reform, strengthening policy coordination and financial regulation and supervision cooperation, and promoting the sound development of global financial markets and banking systems.

All BRICS countries are currently serving on the UNSC as permanent (China and the Russian Federation) or non-permanent members (Brazil, India and South Africa) and share the objective of pushing for the reform of the UN, especially the UNSC, with a view to making it more effective, efficient and representative, so that it can deal with today’s global challenges more successfully.

BRICS has a fully fledged global format, which makes it better equipped to represent the developing world and constitutes a stronger force to counter international forums largely dominated by the developed world.

A BRICS development bank will mobilise resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries.

A development bank will supplement existing efforts of multilateral and regional financial institutions for global growth and development.

Such a new development bank could complement existing institutions and address gaps and challenges in critical sectors.

South Africa strongly supports this initiative and other African leaders have also indicated their keen interest.

It's still a banking system, though - and if the people of those countries haven't yet learned what that means by what is being played out internationally in front of them, they'll learn it up ahead at some point.

‘BRICS Development Bank would shift the tectonic plates of geopolitics and geo-economics’

The BRICS Development Bank is the beginning of the end of the existing monetary management system, Asia Times correspondent Pepe Escobar told RT.

RT: There’s no doubt about it, these countries that form the BRICS, they haven’t got a lot in common have they? They’ve all got different styles of government indeed some of them are economic rivals. Are they really a group to be taken seriously?

Pepe Escobar: From now on yes, let’s say until this summit in Durban, there was a lot of political talk of course and the BRICS are basically an economic group in the making. Now it’s different, now they have clear sound, actual policies to be implemented.

This alternative to the World Bank and the IMF is absolutely essential, this is the beginning of the end of the Bretton Woods system and is to be supported by the next BRICS, the MIST, the Mexico, Indonesia, South Korea and Turkey and the next MISTS as well.

These are the tectonic plates of geopolitics and geo-economics, they are changing, and it’s not Atlantasist anymore. It’s the emergence, the re-emergence finally of the South. I’m reading a fantastic book about that as we speak, I’m going to write about it probably tomorrow, by Vijay Prashad and he explains in detail over 300 pages how the South has been completely undermined and attacked in fact by the North, since the end of the Second World War and now for the past few years at least with the best neo liberalism in fact all over the place, failed policies. Now the South has started to organize itself.

RT: Pepe, the way you’re talking here, about geo-economics, it sounds as if we’re crossing the border into geopolitics, is that really one of the main ambitions of this group?

PE: As well. It’s not only geo-economics, its geopolitics as well, because inside the BRICS we have for instance crucial bilateral relationships. For instance, now China is the largest trading partner of Brazil, of course there are clashes, but they can resolve this inside the BRICS mechanism.

Russia and China is an extremely strategic partnership involving special energy, no wonder Xi Jinping went to Russia just after he was elected president in China and immediately afterwards he went to Africa where the meeting is taking place, because South Africa is one of the bridges for China to invest in the whole of the African continent and the myth being spread by Western corporate media that China is a neo-colonialist power is completely ridiculous.

If you talk to African officials from many of these countries involved, some even say that China has already invested in their countries, and they have not extracted a single barrel of oil yet.

The most important thing in fact that we should be talking about all the time is the only argument that the Western elites have at the moment vis-à-vis the BRICS and organization of the South’s or they have a lot of resentment against the West. This is ridiculous.

RT: Pepe, we are in global economic crisis at the moment, so there is so much talk about these fast developing economies, surely they’re going to be effected by the global economy crisis and indeed their GDP is slowing down, some are experiencing stagnant growth so is really the outlook that rosy?

PE: No, no, no, I’m not saying it is a rosy outlook. Brazil is going to grow one percent this year. This is absurd, they were growing between seven and eight. China, even if they decrease from 10 to 7.5-7.7 per cent, every 11.5 weeks China creates a Greek economy inside China. If you put this in perspective, this is enormous.

Of course, from the point of view of Western elites, the only thing they care about is the salvation of capitalism, of financial capitalism. They think that China is the salvation of capitalism. Just like Deng Xiaoping fifty years ago, he was saying exactly the opposite.

And now, it’s China saving the West, instead of the West saving China. And there are discrepancies in terms of Russia and China as well. But in the long term, there will be more integration among the BRICS, among the other developing countries as well, especially among the global South, and we’re talking about 150-160 countries.