The BRICS (Brazil, Russia, India, China and South Africa) bloc has begun planning its own development bank and a new bailout fund which would be created by pooling together an estimated $240 billion in foreign exchange reserves, according to diplomatic sources. To get a sense of how significant the proposed fund would be, the fund would be larger than the combined Gross Domestic Product (GDP) of about 150 countries, according to Russia and India Report.
Many believe the BRICS countries are interested in creating these institutions because they are increasingly dissatisfied by Western dominated institutions like the World Bank and the International Monetary Fund (IMF). For example, although the European debt crisis has allowed BRICS countries to push for more influence at the IMF, they currently only hold about a combined 11% of the Fund’s voting shares. By way of comparison, the U.S. holds a 16.75% voting share, allowing it to veto any major decision, which require an 85% supermajority, while the United Kingdom and France both have larger voting shares than any of the BRIC countries singularly.
The new institutions were first discussed in March during the 4th BRICS summit in New Delhi. A subsequent special working group was set up by the BRICS in June to hash out the details. If all goes to plan, the proposed development bank and bailout mechanism will be formally established at the 5th BRICS summit in Durban, South Africa in March 2013.
In setting up the development bank, the BRICS would be mounting a challenge to global institutions like the World Bank and the European Bank for Reconstruction and Development, which attach political conditions to the low-interest loans they disburse to developing countries. In contrast, the BRICS development bank is expected to offer non-conditional loans at a higher interest rate. At the same time, it has been suggested that the BRICS bank could augment the World Bank by funding projects in industries that the World Bank does not, such as biofuels, large dams and nuclear power plants, which don’t meet the World Bank’s environmental standards.Read More...
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