Frustrated by the failure of the World Bank and the International Monetary Fund to give them a bigger say, the five BRICS nations launched a $50 billion bank to fund infrastructure projects and a $100 billion money pool to help members cope with liquidity crises. The\u00a0 bank will be headquartered in Shanghai, Brazil, Russia, India, China and South Africa, who count for a quarter of the global economic output.<\/p>\n
The New Development Bank, due to start making loans in 2016, shows developing countries \u201cflexing their muscles\u201d and providing \u201chealthy competition\u201d to the World Bank and IMF, widely seen as insensitive to poorer countries\u2019 priorities, says Stephany Griffith-Jones, an international finance expert at Columbia University in New York.<\/p>\n
In a rebuff to China’s efforts over the past two years negotiations to win a dominant position for China in the new bank, BRICS leaders announced\u00a0Tuesday\u00a0at their summit in Fortaleza, Brazil, that all five countries would contribute equally to capitalizing the bank.<\/p>\n
\u201cThis is not a hegemony,\u201d Brazilian president Dilma Rousseff told reporters, explaining that an Indian will be the first to occupy the bank\u2019s rotating presidency. It will be at least 15 years before China holds the top post.<\/p>\n
China did persuade Brazil and India to locate the bank\u2019s headquarters in Shanghai. \u201cShanghai is a financial center, an international city, and China has a lot of experience in building infrastructure, which is what the new bank is mainly for,\u201d says Zhu Jiejin, who teaches at the Center for BRICS Studies at Fudan University in Shanghai.<\/p>\n
Beijing will have more clout in the currency reserve, to which it will contribute $41 billion of the $100 billion total. South Africa will put in five billion dollars and the other three countries $18 billion each. The fund will cushion the sort of balance of payments crises that developing countries might face in the event of rising US interest rates that would likely trigger capital outflows from emerging markets.\u00a0 China isn’t likely to get caught short: It has nearly $4 trillion in foreign currency reserves.<\/p>\n
Developing countries complain that IMF emergency loans often come with harsh austerity measures that are politically risky and not always appropriate. The New Development Bank is expected to be more understanding of its clients\u2019 concerns.<\/p>\n
The BRICS leaders said they were \u201cdisappointed and seriously concerned\u201d that the IMF had not implemented governance reforms, agreed in 2010, to better reflect the increasing economic weight of emerging market countries. The US Congress has refused to ratify those reforms.<\/p>\n
The new bank may eventually be able to lend $34 billion a year by 2036, provided that it is adequately capitalized.\u00a0 Though that would come nowhere near bridging the one trillion dollar annual shortfall in infrastructure investment in developing countries that the World Bank estimates, \u201cit would be a start,\u201d says Zhu.\u00a0 \u201cAt any rate one thing is certain,\u201d he adds. \u201cWe now have more choice for infrastructure financing, not just the World Bank.\u201d<\/p>\n<\/div>\n
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<\/div>\nBrazil, Russia, India, China, and South Africa have founded a $100 billion ‘New Development Bank’ that will lend to members and other developing countries, a potential alternative to the Washington-based World Bank. China and four other emerging market nations are … Continue reading