BRICS likely to make progress on bloc bank at summit
Updated: 2013-09-06 02:25
By WANG XIAOTIAN (China Daily)
The bloc of five major emerging economies known as BRICS will likely take tangible steps to establish a development bank at the Group of 20 summit in St Petersburg, Russia.
Leaders from Brazil, Russia, India, China and South Africa are expected to meet in an unofficial format during the summit and discuss progress made toward establishing a development bank and a joint reserve fund for the bloc.
The five nations are eager to cushion themselves from short-term liquidity pressures caused by changes in fiscal policies from major developed economies.
Reuters reported on Sunday that the bloc has agreed on the structure of a proposed development bank with $50 billion in capital.
But issues over the division of the $50 billion, payment of the capital, the bank's location and management of the bank remain undecided, said Russian Deputy Finance Minister Sergei Storchak.
"We must assume that the bank will not start functioning as fast as one could imagine," said Storchak in the Reuters report. "It will take months, maybe a year."
The development bank is aimed at financing the bloc's infrastructure projects, and plans for the bank were officially approved earlier this year at a BRICS summit in Durban, South Africa, after the proposal was raised in 2012.
Experts said the bank is a key complement to existing multilateral financial institutions and will be conducive to inter-bloc cooperation and growth in the global economy.
The bank can provide developing countries with financing support and policy consultation in infrastructure investment, trade facilitation and poverty reduction, said Zhao Jinping, a researcher with the Development Research Center of the State Council.
But disagreements over each country's contributions have delayed the establishment of the bank. Russian officials said earlier that Russia favors capping each country's contribution at $10 billion to begin with.
"It is inevitable that the contributions will pressure some members more than others and associated risks may vary, as will the fund's decision-making processes. Political strains similar to those within the IMF may emerge," said Jeremy Stevens, an economist at Standard Bank in Beijing.
There has been more substantial progress and consensus over other financial cooperation projects between the five countries.
Yi Gang, deputy governor of the People's Bank of China, said earlier that the bloc may reach a deal at the G20 summit to create a $100 billion currency reserve fund to cushion short-term liquidity pressure and create financial stability for major emerging economies.
The leaders have agreed on how contributions will be divided, operation mechanisms, governance structure and a loan-to-value ratio for the reserve, he said.
Yi said China will probably be the reserve's biggest contributor, but added that it won't contribute more than 50 percent to the fund. South Africa will be the smallest contributor, with the remaining three countries offering slightly larger amounts of capital.
Yuan Gangming, a global economic researcher at Tsinghua University, said it's necessary for the BRICS nations to stabilize the financial market by funding infrastructure construction in developing nations and buffering possible capital market fluctuations that result from government debt issuances.