- POSTED: 16 Jul 2014 09:54
The BRICS group of emerging powers on Tuesday created a Shanghai-based development bank and a reserve fund as alternatives to Western-led institutions.
FORTALEZA: The BRICS group of emerging powers on Tuesday created a Shanghai-based development bank and a reserve fund 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 aims to rival 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 renewed calls for reform at the International Monetary Fund saying it "urgently needs to review its distribution of voting power in order to reflect the unquestionable weight of emerging countries."
The development bank will have an initial capital of $50 billion that could rise to $100 billion, funded equally by each nation. BRICS leaders agreed to put the bank's headquarters in Shanghai. The first president will be Indian while the first board chair will hail from Brazil. An Africa Regional Centre 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 emerging and developing nations mobilise resources for 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 expected to make the biggest contribution, $41 billion, followed by $18 billion each from Brazil, India and Russia and $5 billion from South Africa.
The summit comes as the economies of some BRICS countries, which together represent 40 per cent of the world population and a fifth of the global economy, are cooling down, with Russia and Brazil expecting just one per cent growth this year. Experts say the new bank and fund will give the group the backbone of a formal organization.
The talks in Fortaleza will open a series of marathon summits and bilateral meetings in Brazil, with BRICS leaders meeting with South American presidents in Brasilia on Wednesday. The Fortaleza summit allowed Xi and India's new 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 industrialised 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 world 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, highlighting Beijing's growing interests in a region that long was seen as the back yard of the United States.