Slow but steady approach yields fruit
The sixth summit of BRICS (Brazil, Russia, India, China and South Africa) this week is expected to take the first concrete step in showcasing its system shaping capacities and skills. Among other deliberations on evolving a new global financial order, BRICS leaders are expected to launch two new institutions - a development bank, which some are calling a mini-World Bank and a contingent reserve arrangement, which is also being described as a mini-IMF. Both these would mark a drift away from the monopoly of the US-dominated multilateral lending agencies of the G7 economies and herald a paradigm shift in global economic decision-making.
Both institutions aim to reach $100 billion reserves, though this will happen over a long period of time. The development bank will begin with a modest contributions of $10 billion from each of the five countries, which will give it starting capital of $50 billion. Of this $50 billion, only part will be contributed immediately by each country, while the rest will be callable capital. These low contributions seek to ensure the equal participation of the BRICS members. The bank is due to begin disbursing funds in 2016. To reach $100 billion, it will be simultaneously opened for participation by other UN member states, although the BRICS countries intend to ensure that these new members do not get more than 45 percent of the stakes in order to keep control of the bank's policies.
They have evolved a far more innovative approach to their second institution, the contingent reserve pool or currency swap fund. The plan is for China to contribute $41 billion, Brazil, Russia, and India $18 billion each and South Africa $5 billion. Their drawing rights will be proportional to their contributions, but these will be only 50 percent of its contributions in case of China, 100 per cent for Brazil, Russia and India and 200 percent for South Africa. These contributions will also be as yet only in the form of commitments and actual funds will only flow when required.
