BRICS Meet In Brazil, Create Bloc Development Bank

Leaders of the BRICS group of emerging powers – Brazil, Russia, India, China and South Africa – have decided to create their own development bank as a counterweight to what they perceive are “western-dominated” financial organizations like the US-based World Bank and International Monetary Fund.

The move came during the BRICS Summit earlier this week in Fortaleza, Brazil. The summit comes as the five countries, whose economies together represent 18 percent of the world total, are experiencing sharp slowdowns in their once fast-paced rates of growth.

The new development bank will reportedly be based in Shanghai and is expected to be functional within two years. It will be capitalized at $50 billion, a figure that could grow to $100 billion to fund infrastructure projects. The fund would also have $100 billion at its disposal to weather economic hard times.

The new development bank’s first director will reportedly be from India.

“We remain disappointed and seriously concerned with the current non-implementation of the 2010 International Monetary Fund (IMF) reforms, which negatively impacts on the IMF’s legitimacy, credibility and effectiveness,” the group said in a joint press release.

The BRICs leaders are now in the Brazilian capital of Brasilia, meeting with their counterparts from Argentina, Chile, Colombia, Ecuador, Venezuela and several other Latin American nations to discuss future economic and trade cooperation.

BRIC giant China is particularly interested in Latin America. After this week’s discussions, Chinese President Xi Jinping will stay in Brazil to launch a China-Latin America forum with the leaders of several regional countries including Cuba, Argentina, Ecuador, and Venezuela.

China is growing in influence in the region. Last year, the country, two-way trade with the region amounted to more than $261 billion.

BRICS Ink $50 Billion Lender in World Bank, IMF Challenge

By Raymond Colitt, Unni Krishnan and Arnaldo Galvao

Leaders of the five BRICS nations agreed on the structure of a $50 billion development bank by granting China its headquarters and India its first rotating presidency. Brazil, Russia and South Africa were given posts or units in the new bank.

The leaders also formalized the creation of a $100 billion currency exchange reserve, which member states can tap in case of balance of payment crises, according to a statement issued at a summit in Fortaleza, Brazil.

Both initiatives, which require legislative approval, are designed to provide an alternative to financing from the International Monetary Fund and the World Bank, where BRICS countries have been seeking more say. The measures coincide with a slowing of economic growth in the five countries to about 5.4 percent this year from 10.7 percent in 2007, according to economists surveyed by Bloomberg.

“The BRICS are gaining political weight and demonstrating their role in the international arena,” Brazilian President Dilma Rousseff said after a signing ceremony.

IMF Managing Director Christine Lagarde congratulated the BRICS on establishing the reserve arrangement and said the Washington-based lender would be “delighted” to work together on the international safety net designed to preserve financial stability, according to an e-mailed statement.

Until the eve of the summit, India and South Africa had vied with China to host the headquarters of the bank, dubbed the New Development Bank, whose membership may eventually be extended to other countries.

Bank Governance

Russia’s Finance Minister Anton Siluanov told reporters that the BRICS decided in favor of Shanghai because the city offers better infrastructure, opportunities to capture private funding, and is home to more investors than the competitors.

Each member country got something out of the deal. The first chairman of the Board of Governors will be from Russia, while the first chairman of the Board of Directors will be Brazilian. South Africa will establish an African regional center for the bank, which may not get off the ground for two years, according to Carlos Cozendey, secretary for international affairs at Brazil’s Finance Ministry.

Founding members have equal voting rights. Of the total subscribed capital, $40 billion are callable shares. Payment of the remaining $10 billion of paid-in shares will be made over seven years.

Unlike the IMF and World Bank, which are managed by Europeans and Americans, the BRICS bank “is quite democratic,” Brazilian Finance Minister Guido Mantega told reporters. Yet the idea is not to compete with the Washington-based institutions but complement them, Rousseff said in Brasilia today on the second day of the summit that includes leaders from Latin America. “We have no interest in giving up the IMF — on the contrary, we we are interested in democratizing it, making it more representative.”

Withdrawal Limits

Each member country has the right to withdraw different amounts from the joint currency reserves, according to a statement from Brazil’s central bank. China can withdraw half the amount it earmarks or $20.5 billion. Brazil, Russia, and India may withdraw the same amount they commit or $18 billion, while South Africa can tap $10 billion, twice its contribution.

“It’s a type of insurance policy,” said Mantega.

The BRICS have evolved from the original term coined in 2001 by then-Goldman Sachs Group Inc. economist Jim O’Neill to describe the growing weight of the largest emerging markets in the global economy. In 2011, South Africa joined to give the BRICS a broader geographic representation.

BRIC Influence

“Separately, all the BRIC economies in the last two years have slowed, so there is quite a lot of attention on the declining economic influence of them,” O’Neill said in an interview with Bloomberg TV India. “But I think that the general Western view is just wrong. Even at the slower rate of growth, they are, their importance to the world continues to rise.”

There are still plenty of opportunities for business, and the newly-created development bank will help those opportunities become reality, said Jorge Gerdau Johannpeter, chairman of Brazilian steelmaker Gerdau SA.

“The bigger the financing possibilities, the bigger the chances of implementing projects,” Gerdau told reporters at the summit.

The biggest winner among the BRICS and its newly created bank may be South Africa, as it stands to gain financial expertise, investment and trade, said Colin Coleman, the Johannesburg-based head of Goldman Sachs Group Inc. in sub-Saharan Africa, who attended the BRICS Business Council meeting.

WTO Agreement

“Arguably we have the greatest amount to benefit because we’re partnering diplomatically and otherwise with some of the world’s most important emerging-market economies,” Coleman said in a phone interview.

While BRICS trade ministers in a joint communique said that member countries stood by the World Trade Organization’s Bali agreement, Brazil’s Trade Minister Mauro Borges said he understood India had certain concerns about its implementation and that the BRICS countries didn’t intend to forge a common stance on the issue.

BRICS share of world exports rose to 16 percent in 2011, from 8 percent in 2001.

Russia also proposed at the summit in the northeastern coastal city of Fortaleza the creation of an Infrastructure Fund during the summit, Kirill Dmitriev, chief executive officer of the Russian Direct Investment Fund, told reporters. The fund could start up as early as next year, he said.

To contact the reporters on this story: Raymond Colitt in Brasilia Newsroom at rcolitt@bloomberg.net; Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net; Arnaldo Galvao in Brasilia Newsroom at agalvao1@bloomberg.net

 

BRICS Ink $50 Billion Lender in World Bank, IMF Challenge

By Raymond Colitt, Unni Krishnan and Arnaldo Galvao

Leaders of the five BRICS nations agreed on the structure of a $50 billion development bank by granting China its headquarters and India its first rotating presidency. Brazil, Russia and South Africa were given posts or units in the new bank.

The leaders also formalized the creation of a $100 billion currency exchange reserve, which member states can tap in case of balance of payment crises, according to a statement issued at a summit in Fortaleza, Brazil.

Both initiatives, which require legislative approval, are designed to provide an alternative to financing from the International Monetary Fund and the World Bank, where BRICS countries have been seeking more say. The measures coincide with a slowing of economic growth in the five countries to about 5.4 percent this year from 10.7 percent in 2007, according to economists surveyed by Bloomberg.

“The BRICS are gaining political weight and demonstrating their role in the international arena,” Brazilian President Dilma Rousseff said after a signing ceremony.

IMF Managing Director Christine Lagarde congratulated the BRICS on establishing the reserve arrangement and said the Washington-based lender would be “delighted” to work together on the international safety net designed to preserve financial stability, according to an e-mailed statement.

Until the eve of the summit, India and South Africa had vied with China to host the headquarters of the bank, dubbed the New Development Bank, whose membership may eventually be extended to other countries.

Bank Governance

Russia’s Finance Minister Anton Siluanov told reporters that the BRICS decided in favor of Shanghai because the city offers better infrastructure, opportunities to capture private funding, and is home to more investors than the competitors.

Each member country got something out of the deal. The first chairman of the Board of Governors will be from Russia, while the first chairman of the Board of Directors will be Brazilian. South Africa will establish an African regional center for the bank, which may not get off the ground for two years, according to Carlos Cozendey, secretary for international affairs at Brazil’s Finance Ministry.

Founding members have equal voting rights. Of the total subscribed capital, $40 billion are callable shares. Payment of the remaining $10 billion of paid-in shares will be made over seven years.

Unlike the IMF and World Bank, which are managed by Europeans and Americans, the BRICS bank “is quite democratic,” Brazilian Finance Minister Guido Mantega told reporters. Yet the idea is not to compete with the Washington-based institutions but complement them, Rousseff said in Brasilia today on the second day of the summit that includes leaders from Latin America. “We have no interest in giving up the IMF — on the contrary, we we are interested in democratizing it, making it more representative.”

Withdrawal Limits

Each member country has the right to withdraw different amounts from the joint currency reserves, according to a statement from Brazil’s central bank. China can withdraw half the amount it earmarks or $20.5 billion. Brazil, Russia, and India may withdraw the same amount they commit or $18 billion, while South Africa can tap $10 billion, twice its contribution.

“It’s a type of insurance policy,” said Mantega.

The BRICS have evolved from the original term coined in 2001 by then-Goldman Sachs Group Inc. economist Jim O’Neill to describe the growing weight of the largest emerging markets in the global economy. In 2011, South Africa joined to give the BRICS a broader geographic representation.

BRIC Influence

“Separately, all the BRIC economies in the last two years have slowed, so there is quite a lot of attention on the declining economic influence of them,” O’Neill said in an interview with Bloomberg TV India. “But I think that the general Western view is just wrong. Even at the slower rate of growth, they are, their importance to the world continues to rise.”

There are still plenty of opportunities for business, and the newly-created development bank will help those opportunities become reality, said Jorge Gerdau Johannpeter, chairman of Brazilian steelmaker Gerdau SA.

“The bigger the financing possibilities, the bigger the chances of implementing projects,” Gerdau told reporters at the summit.

The biggest winner among the BRICS and its newly created bank may be South Africa, as it stands to gain financial expertise, investment and trade, said Colin Coleman, the Johannesburg-based head of Goldman Sachs Group Inc. in sub-Saharan Africa, who attended the BRICS Business Council meeting.

WTO Agreement

“Arguably we have the greatest amount to benefit because we’re partnering diplomatically and otherwise with some of the world’s most important emerging-market economies,” Coleman said in a phone interview.

While BRICS trade ministers in a joint communique said that member countries stood by the World Trade Organization’s Bali agreement, Brazil’s Trade Minister Mauro Borges said he understood India had certain concerns about its implementation and that the BRICS countries didn’t intend to forge a common stance on the issue.

BRICS share of world exports rose to 16 percent in 2011, from 8 percent in 2001.

Russia also proposed at the summit in the northeastern coastal city of Fortaleza the creation of an Infrastructure Fund during the summit, Kirill Dmitriev, chief executive officer of the Russian Direct Investment Fund, told reporters. The fund could start up as early as next year, he said.

Brazil-BRICS Trade: A Visual Breakdown

By Elizabeth Gonzalez

On July 15, several of the world’s most powerful emerging market leaders will meet in Brazil. Heads of state from the five BRICS countries—Brazil, China, India, Russia, and South Africa—will convene for the group’s sixth summit.The meeting marks the first official visit to Brazil by both Chinese President Xi Jinping and Indian Prime Minister Narendra Modi. The trade bloc, which first began heads-of-state summits in 2009, brings together a group of markets that the World Bank estimates will account for the majority of global growth by 2025. Ahead of the meeting, AS/COA Online zeroes in on the Latin American country’s trade relationship within the bloc.

China dominates trade relations among the BRICS, according to Brazil’s Ministry of Development, Industry, and Foreign Trade. In 2013, the value of China-Brazil trade was more than nine times larger than Brazilian trade with India—the Latin American country’s second largest partner within the group.

Click here to see the visual breakdowns.