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Last updated: March 27, 2013 5:08 pm
Leaders of the Brics group of emerging economies on Wednesday announced they had agreed to set up a development bank that could ultimately challenge the influence of the Bretton Woods institutions, but they failed to produce any details on its size or structure.
The push to create a bank was the key theme of the Brics summit in Durban that brought together leaders of Brazil, Russia, India, China and South Africa, with the move seen as a test of whether the club of nations can develop beyond a loose political grouping.
The five leaders unambiguously backed the development bank initiative and speeches were laced with calls for greater co-operation between Brics nations, amid references to a shifting world order as the west continues to grapple with its economic woes.
“The potential of Brics development is infinite,” said Xi Jinping, China’s new president. “The real potential of Brics co-operation is yet to be realised.”
Jacob Zuma, South Africa’s president, spoke of “the most dynamic emerging economies leading a structural shift in the global economy”.
The leaders also agreed to establish a $100bn pool of foreign reserves to “contribute to strengthening the global financial safety net and complement existing international arrangements as an additional line of defence”. But again, there were no details on how this would be structured or implemented.
The initiatives are attempts by the Brics nations, which together produce some 20 per cent of global GDP, to create formal institutions as they push for greater co-operation between members.
The plans for a bank and reserve pool also reflect frustrations with the perceived outdated western dominance of the World Bank and the International Monetary Fund.
The Brics countries had agreed to establish a bank “based on our own considerable infrastructure needs, which amount to around $4.5tn over the next five years, but also to co-operate with other emerging markets and developing countries in future”, Mr Zuma said.
But officials said the group’s finance ministers would continue to discuss how much capital the bank would have, its structure, the role of shareholders and its location.
A diplomat with one of the Brics members said there had been differences over whether to announce the size of the bank at the Durban meeting, saying there was “talk of $50bn or nothing at all”.
Russia felt it was better to announce the bank’s initial capital at a time when other details of the institution had also been agreed upon, the diplomat said.
However, a South African official said the remit of finance ministers since the concept of a bank was first raised at a Brics summit in New Delhi last March had been only to look at its “viability and feasibility”.
“The [initial] capital has a huge impact on the voice of the shareholders,” the official said, saying it would take at least a year to iron out some of the issues.
Emerging markets: News and comment from more than 40 emerging economies
Pravin Gordhan, South Africa’s finance minister, said there was a “great sense of urgency to establish the entity as soon as possible”, adding at the appropriate time other developing countries could join.
The issue of capital had been discussed, he said, but there were “different views” on what that amount should be. “We need to make sure that we do the necessary technical work to come out with a number,” he added.
“An observation that many of us would make as developing countries is that the roots of the IMF and World Bank still lie in the post-World War II environment,” Mr Gordhan said. “The reforms that have been undertaken so far . . . are inadequate in terms of reflecting current economic and other realities around the world.”
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