ST. PETERSBURG: Amid the festering global slowdown, the BRICS club of emerging economies has underlined its commitment to add more economic traction to the five-nation grouping by unveiling progress in setting up a landmark Development Bank with an initial corpus of $50 billion and creating $100 billion Currency Reserve Fund.
The leaders of Brazil, Russia, India, China and South Africa held an informal meeting on the sidelines of the G20 summit of major and emerging economies being held in the picturesque Russian city of St. Petersburg Sept. 5 and energised the two signatures initiatives that were agreed at their 5th summit in Durban in March this year.
Ending months of speculation, it was decided that China will contribute $41 billion, while Brazil, Russia and India will chip in with $18 billion each. South Africa, the smallest economy which is often described as an odd member on an even grouping, will commit only $5 billion to the CRF.
The decision of the BRICS to firm up the contours of the reserve fund came amid a marked slowdown in the economies of member countries and increased financial volatility. India’s Prime Minister Manmohan Singh underlined that the development was significant as emerging market currencies were becoming increasingly vulnerable due to a host of factors, including the planned easing of easy money by the US.
The contingency fund will act as a bulwark for the five emerging economies by providing them with a fall-back option to deal with short-term volatility in their capital flows, which could adversely impact their currencies.
“In light of the increase in financial market and capital flow volatility during recent months, the BRICS leaders reiterated their concerns over the unintended negative spillovers of unconventional monetary policies of certain developed economies. They emphasised that the eventual normalisation of monetary policies needs to be effectively and carefully calibrated and clearly communicated,” said a media statement after the meeting of the leaders of the BRICS countries.
The on-going challenges and vulnerabilities in the global economy, particularly in advanced economies, came in for close scrutiny at the BRICS’ leaders’ meeting. Against this backdrop, the BRICS leaders exhorted major economies, including G20, to do more to boost global demand and market confidence. The leaders also underlined the need to ramp up intra-BRICS economic cooperation to cushion their economies against the continuing slow pace of global recovery.
Another important takeaway from the BRICS meeting was visible progress in firming up the outlines of the New Development Bank, a defining initiative that seeks to provide developmental finance to burgeoning infrastructure needs of developing countries. Sceptics have tended to be dismissive of the BRICS Development Bank and have scoffed at their presumed ambitions of putting up an alternative to the hegemony of the IMF and the World Bank, but as the St Petersburg meeting showed, the details are falling in place, with leaders agreeing to an initial corpus of $50 billion to get the bank off the ground.
What’s more, the media statement noted that “progress has been made in negotiating its capital structure, membership, shareholding and governance.” “We can’t give any specific timeline, but the BRICS leaders are committed to working out the details of the bank,” said India’s Foreign Secretary Sujatha Singh.
Given the magnitude of such a project, there is still some way to go to thrash out significant details, like the venue of the bank and individual contributions of BRICS countries, before the Brasilia summit in 2014. India, for one, is insisting on parity of contribution as it does not want the asymmetries of the Brettons Woods institutions to be duplicated in the new bank, which is expected to be a symbol of a new global South, which has moved beyond rhetoric to acquire more clout in global decision-making bodies.
Seeking to end the existing inequities in the international financial system, the BRICS leaders also renewed their call for urgent reform of global financial institutions and voiced collective concern over “the stalling of the International Monetary Fund reform process.” “They recalled the urgent need to implement the 2010 IMF Quota and Governance Reform, as well as to complete the next general quota review by January 2014 as agreed at the G20 Seoul Summit in order ensure the Fund’s credibility, legitimacy and effectiveness,” said the statement.
For Russia, an ardent proponent of the BRICS process, the St. Petersburg meeting, which registered tangible progress in Development Bank and CRF, was specially gratifying as it was in this Russian city the journey of BRICS started with the avowed aim of recasting the global system to reflect the increasing weight of emerging economies in the global system. In 2006, Russian President Vladimir Putin had proposed at a meeting held on the margins of the G8-O5 outreach meeting that BRIC countries should meet as a group. The BRIC expanded to BRICS at the Sanya summit in China 2011 to include South Africa, the continent’s largest economy.
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