Contours of proposed bank for BRICS to be finalised in March

BRICS nations - Brazil, Russia, India, China and South Africa - are likely to finalise the structure of a development bank that will fund infrastructure in the associate nations at the BRICS summit in Durban in March. The bank, however, may not start functioning before 2014 and is likely to have substantially less initial paid-up capital than the amount of $240 billion that is doing the rounds currently. Officials of BRICS countries are scheduled to meet in Pretoria, South Africa on January 10-11 to look at the viability and feasibility of setting up the bank.

In February, finance ministers from these nations will meet to finalise the structure and thereafter, the leaders will approve it in March at the Durban summit.

Officials in India said all the countries are committed to creating the development bank for the region and the chances of a consensus are very high.

“It may start with small paid-up capital from BRICS countries and work on the World Bank’s model. The bank will have to raise funds from the market at a concessional rate and lend further to the BRICS countries at a low rate,” said a finance ministry official.

International media reports have said the bank could be created by pooling together about $240 billion in foreign exchange reserves, but officials said this was too high an amount for BRICS countries and the initial investment would be nowhere close to that number.

“India wants to have a figure which is comfortable for all, otherwise the bank would not be feasible,” said the official adding that even a country like South Africa should not find it difficult to participate in the project.

As the sovereign ratings of most BRICS nations are not too good, borrowing at low rates would be difficult. Thus, the bank will not have an ‘AAA’ rating like the World Bank.

The BRICS Development Bank would provide pooled funds to fund various social sector and infrastructure projects. Though multilateral institutions such as the World Bank, International Monetary Fund ( IMF) and Asian Development Bank (ADB) are already doing that job, the BRICS Development Bank would help promote growth specifically in these five countries. It will provide an additional source of funding.
The bank would look at project-based financing. It may not fully fund the projects but would provide credit enhancement.

As India is a co-chair of the BRICS group along with South Africa, it is taking the lead in preparing the framework. Though the idea of the bank was in the air for some time, it was formally mooted in the New Delhi summit of BRICS last year.


The article was first published on 9 January 2013 by the Business Standard

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