BRICS bank expectation runs before preparation
by Ethel Hazelhurst, BusinessReport
March 28th 2013
Hopes that a decision on the long-awaited Brics development bank would be announced this week may have been unrealistic.
Expectations were high as leaders of the five Brics nations gathered in Durban that the final details of the joint initiative would be revealed.
But the fifth summit of Brazil, Russia, India, China and South Africa (Brics) ended only with the news that the countries’ finance ministers had agreed the concept was “feasible and viable”.
Making the announcement on behalf of the Brics leaders, President Jacob Zuma said progress would be reviewed at the next Brics meeting in September.
The announcement came after year-long deliberations.
Frontier Advisory’s Martyn Davies said: “It appears that the heavy lifting around the detail, structure and mission that was required was not done before the summit. It was a cornerstone of foreign policy vis-a-vis the Brics and it is somewhat disappointing that a concrete announcement was not made.”
But, given the multiple issues that have to be addressed before a multibillion-dollar multilateral institution can be set up, the time frame could be seen as reasonable.
The decisions include the amount of capital each member will have to contribute to the initiative, the legal framework and governance structures of the institution, the management team and who will appoint it and where the bank will be headquartered.
Zuma said yesterday that the finance ministers of the Brics countries had been instructed in March last year to examine the possibility of a new development bank “for mobilising resources for infrastructure and development projects in Brics and other emerging economies and developing countries”.
In his plenary address he said the countries had decided to “enter formal negotiations to establish a Brics-led new development bank based on our own considerable infrastructure needs, which amount to around $4.5 trillion (R42 trillion) over the next five years”.
This bank was seen as a supplement to the “existing efforts of multilateral and regional financial institutions for global growth and development”.
The Development Bank of Southern Africa anticipated the happy event yesterday, when its chief executive, Patrick Dlamini, said the Brics bank “would ensure that the infrastructure development needs of member states, in particular Africa, gets much needed infrastructure funding to address infrastructure gaps”.
Another ambitious project is in the pipeline.
Zuma said the five countries were looking at a financial safety net in the form of a Contingent Reserve Arrangement initially worth $100 billion.
Finance ministers and central bank governors had been exploring the project since last June, Zuma said.
They had concluded that “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”.
This work in progress will also be reviewed in September.