Sept. 4 – The emerging BRICS nations will gather at the G20 meeting this week to discuss the future prospects of an emerging markets development bank.
The BRICS bloc, which include the emerging markets of Brazil, Russia, India, China and South Africa, have already agreed to structure a US$50 billion cooperative development bank to assist in the growth and development of its member countries, but have yet to finalize the proposed project’s details.
Last month, officials from the BRICS nations agreed on possible funding measures for the development bank’s capital target, which was reduced from US$100 billion to US$50 billion after disagreements stalled negotiations.
Several difficulties must be confronted by the BRICS bloc, such as the bank’s location and division of capital contributions. Part of the funding problem stems from the large amount of capital that has left the countries due to the potential unwinding of the U.S. monetary stimulus.
“These are systemic themes, complicated, [and] negotiations are difficult,” said Russian Deputy Finance Minister Sergei Storchak. “We must assume that the bank will not start functioning as fast as one could imagine. It will take months, maybe a year.”
Brazil has suggested that each nation contribute US$10 billion to the project, but consensus has yet to be reached by the remaining nations, with China hoping for larger capital injections from each country.
The appropriate international role for the development bank has also been under question, with India calling for direct economic intervention by the bank to bolster the member nation’s currencies. This idea was rejected by Brazil, increasing concerns that consensus may be difficult to reach.
“It’s not going to be an easy negotiation, we are not there yet,” commented an anonymous Brazilian official.
The G20 summit, held this week in Russia, comes amidst a slowdown in the emerging market economies, which contracted in July and fell to their lowest post-financial crisis level on the HSBC Emerging Markets Index.
According to BRICS officials, the current slowdown highlights the need to finalize the proposed development bank, which will provide financing for infrastructure projects to enhance the competitiveness and desirability of the emerging nations.
The development bank was first proposed in 2012 and received approval this year at the South African BRICS Summit.
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