MOSCOW - The biggest emerging markets are uniting to tackle underdevelopment 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 began Tuesday in Durban, South Africa, officials from all five nations say. They also will discuss creating a pool of 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,” said Martyn Davies, chief executive officer of Johannesburg-based Frontier Advisory, which provides research on emerging markets. “There’s a shift in power from the traditional to the emerging world. There is a lot of geopolitical concern about this shift in the western world.”
The five 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, N.H., in 1944, and oppose the tradition of drawing their respective presidents from the U.S. and Europe.
“We need to change the way business is conducted in the international financial institutions,” South African International Relations MinisterMaite 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.
Finance ministers and central-bank governors from the emerging nations agreed to set up a currency crisis fund of about $100 billion, Brazilian Finance Minister Guido Mantega told reporters Tuesday. He didn’t give details of proposed funding for the new bank, which Brazil wants established by 2014. The nation’s leaders are due to sign a final accord Wednesday.
Goldman Sachs Asset Management Chairman Jim O’Neill coined the BRICS 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 in December 2010.
Trade within the group rose to $282 billion last year from $27 billion in 2002 and may reach $500 billion by 2015, according to data from Brazil. Foreign direct investment into the five nations reached $263 billion last year, accounting for 20 percent of global FDI flows, up from 6 percent in 2000, the United Nations Conference on Trade and Development said on its website Monday.
“If they announce a BRICS bank, it will be quite something,” O’Neill said in an emailed reply to questions on March 15. “At a minimum, it symbolizes they can achieve something as a 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 the leaders of the five nations may approve the creation of a development bank in principle at the summit, details on funding and operations may take longer to finalize.
Russia favors capping each nation’s initial contribution at $10 billion, Mikhail Margelov, President Vladimir Putin’s envoy to Africa, 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, Africa’s biggest lender, told reporters in Durban Monday. “That is some way out.”
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 currency, the real, has gained 1.9 percent against the dollar since the beginning of the year, while South Africa’s rand has dropped 8.7 percent in the period.
For South Africa, which makes up just 2.5 percent of total gross domestic product in the five nations, 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 leaders at the summit. For most of the 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 Monday.
Business, Pages 21 on 03/27/2013