BRICS Approve Currency Fund as Bank Start-Up Stalls

[Sir X]

BRICS Approve Currency Fund as Bank Start-Up Stalls
By Franz Wild, Arnaldo Galvao & Ilya Arkhipov - Mar 27, 2013 11:31 AM ET
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Leaders from Brazil, Russia, India, China and South Africa approved a $100 billion fund to combat currency crises, while failing to reach agreement on financing for a development bank.
China may provide the bulk of the funding for the foreign- currency pool, Russian Finance Minister Anton Siluanov said in an interview today in Durban, South Africa. Negotiators are considering proposals for China to contribute $41 billion, Brazil, Russia and India to provide $18 billion each and South Africa $5 billion, he said.
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(L-R) Indian Prime Minister Manmohan Singh, Chinese President Xi Jinping, South Africa President Jacob Zuma, Brazil's President Dilma Rousseff and Russian President Vladimir Putin pose for photographers during the BRICS Summit in Durban, South Africa. Photographer: Sasha Mordovets/Getty Images

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“The establishment of a self-managed contingent reserve arrangement would have a positive precautionary effect, help BRICS countries forestall short-term liquidity pressures, provide mutual support and further strengthen financial stability,” South African President Jacob Zuma said after leaders from the five nations met in Durban.
The BRICS countries, which have 43 percent of the world’s population and total foreign-currency reserves of $4.4 trillion, are seeking greater financial sway to match their rising economic power.
Emerging markets from Brazil to Turkey have been hit by currency swings as interest rates near zero in the U.S., Japan and Europe fueled foreign investors’ appetite for higher- yielding assets. Brazil’s real has gained 1.9 percent against the dollar this year, while South Africa’s rand has slumped 8.8 percent.
Asia Fund
Officials didn’t provide details today on how the currency fund will operate. 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.
While leaders agreed that a development bank was “feasible and viable,” they failed to provide detail on how it would be funded. The BRICS nations have been studying the viability of the bank for a year. In the run-up to the summit, officials from Brazil and Russia indicated each country could contribute $10 billion.
“We have reached broad consensus,” said Chinese President Xi Jinping said at the summit closing. The agreement on the banks and currency reserve arrangement “will further unlock potential cooperation. BRICS cooperation will help stabilize global economic governance.”
Substitute Funds
India proposed the bank a year ago amid criticism from developing nations that the World Bank and International Monetary Fund aren’t doing enough to address underdevelopment and Western nations have too much say over their management.
Any new institution is unlikely to achieve much in the near term, said Andrew Kenningham, an economist at Capital Economics Ltd. in London.
“It will not be easy to reach agreement on the bank’s capital contributions and governance structure,” he said in e- mailed comments yesterday. “If and when it gets up and running, it may simply duplicate or substitute for funds led by the Chinese Development Bank.”
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.
Foreign Inflows
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. Foreign direct investment into the nations reached $263 billion last year, accounting for 20 percent of global foreign direct investment flows, up from 6 percent in 2000, the United Nations Conference on Trade and Development said on its website March 25.
Views differed among BRICS representatives on the total capital for the development bank, with India favoring $50 billion, South African Finance Minister Pravin Gordhan told reporters in Durban. There also wasn’t agreement on voting rights and the share structure, he said.
“A bank like this isn’t established overnight,” Gordhan said. “The fact that in one year you can initiate an idea and get it to a point where you’ve got five different countries saying let’s establish it and having established its feasibility and viability is phenomenal progress which you rarely see around the world.”
Russia’s Deputy Foreign Minister Sergei Ryabkov was more circumspect about the bank, saying it will take some time before it’s created.
“We don’t have disagreements, we have different approaches,” he told reporters in Durban. “It is early to take a formal decision to create the bank now. The devil is always in the detail.”
To contact the reporters on this story: Franz Wild in Johannesburg at fwild@bloomberg.net; Arnaldo Galvao in Brasilia Newsroom at agalvao1@bloomberg.net; Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net
To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

[Sir X]

The economic/political/ideological shift from the west continues , bank of the south , to bank of the Brics.

[Sir X]

Why a BRICS 'world bank' may be welcome
The so-called BRICS 'club' of nations – Brazil, Russia, India, China, South Africa – plan to start a development bank to rival the World Bank. This challenge to the Western-driven liberal order relies to a large part on that order.


By the Monitor's Editorial Board / March 27, 2013


BRICS leaders, from left, Indian Prime Minister Manmohan Singh , Chinese President Xi Jinping , South African President Jacob Zuma, Brazil's President Dilma Rousseff, and Russian President Vladimir Putin pose for a group picture during their summit in Durban, South Africa March 27.

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Five nations, which together have nearly half the world’s population, agreed Wednesday to set up a development bank that could easily rival the World Bank. If they succeed, it will mark a serious attempt by this group to redefine the values that humanity shares.


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The “club” of the so-called BRICS nations – Brazil, Russia, India, China, South Africa – was started only four years ago. The new bank, which aims to loan or grant $4.5 trillion to poor countries, would be their first concrete step to challenge many of the international norms put in place after World War II, largely by the United States.

They’ve long resented the residual influence of Western countries at many other international organizations, such as the World Bank and the International Monetary Fund. Such multilateral bodies have helped create a “liberal order” for the world, promoting free markets and democratic governance in the way they provide economic assistance or agree on rules for commerce.

Most of all, that order has spread the very notion of a global system based on values and not just national interests. They also stand for the idea that values can be universal.

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Setting up a separate “world bank” may represent a symbolic blow to many of those ideas and practices. India’s trade minister, Anand Sharma, said the BRICS will “have a defining influence on the global order of this century.” Together, the group accounts for about a quarter of the world economy.

In a new book, “The End of Power,” author Moisés Naím of the Carnegie Endowment for International Peace writes about how power within the geopolitical landscape is shifting from West to East and from North to South. The BRICS certainly represent that.

In the last 30 years, the world has also seen more democratic revolutions and more international interventions in sovereign countries to uphold human rights. Those trends worry Russia and China, the two BRICS members with the most money to dispense and whose leaders rule with an iron fist. Yet at the same time, the trend in attitudes worldwide reveals less tolerance for strong authority and more desire for freedom. A number of global opinion surveys back that up.

A similar attempt to challenge so-called Western values was made in the 1980s by a few nations in East Asia, such as Malaysia and Singapore. They claimed the region had a cultural bias toward communal rights and loyalty to authority. That campaign fizzled, especially when it was shown that some non-Asian countries also leaned that way.

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Despite these concerns about the new bank, it should not be feared, but rather accommodated. It is, after all, helping humanity, or at least a portion of it where the BRICS want to have influence with what strings are attached to loans. The bank’s very existence plays to the idea of a free market of ideas, or a competition based on merit. And it will likely be run in a democratic way.

All that shows how much the current liberal order has become universal.

It would be too easy to divide the world into “the West and the rest.” The norms of the past half century aren’t rooted in the geography or ethnicity of Europe or the US. They have been shown to expand peace and prosperity. New global visions are welcomed if they can be just as effective.