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BRICS Nations Broadly Agree on Capital
Structure of Bank
The Wall Street Journal, August 28, 2013
The Brics bloc of emerging nations have broadly agreed on the
capital structure of a proposed bank, a senior Indian official said,
a step 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, the Indian government official told The
Wall Street Journal Wednesday.
This decision, which the official said was taken 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 wants
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.
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