Mar. 29 – The fifth annual BRICS summit concluded in Durban, South Africa, on Wednesday with the big news being the announcement of a BRICS development bank and a currency stabilizing mechanism.
The leaders of the BRICS countries – Brazil, Russia, India, China, and South Africa – expressed their intent to sign an agreement to establish the BRICS Development Bank (BDB) by as early as March 2014. Negotiations between each country’s respective central bank governors and finance ministers aim to be concluded in the upcoming months.
The BDB was originally proposed to have a starting capital of US$50 billion, but the matter was not settled during the summit.
The bank is intended to function as a vehicle to transfer government surpluses into “real economy” investments, particularly infrastructure development, in the five member countries. It would also provide the countries with an opportunity to diversify their investments away from the U.S. and European bond markets. China is a central player here, and is currently seeking to optimize the allocation of its foreign reserves (which now total over US$3.31 trillion).
Intra-grouping investments currently only represent 2.5 percent of the countries’ total foreign investments, according to a recently released United Nations Trade and Development report. For comparison, 40 percent goes to the U.S., the E.U. and Japan.
The deal that will establish the BDB is also expected to include a US$100 billion contingency reserve arrangement (CRA) to safeguard the countries’ currencies against short term liquidity pressures and to promote global financial stability. China plans to contribute US$41 billion, while India, Russia and Brazil each plan to contribute US$18 billion into the CRA. South Africa will contribute US$5 billion.
India’s Finance Minister, P. Chidambaram, said that the arrangement was a precautionary measure intended to lend stability to the system and was not set up to deal with any current liquidity pressures.
The BRICS countries also decided on the creation of a business council to facilitate private sector investments. The council’s objectives include the promotion of business relations, banking, technology transfer and cooperation in technology development, manufacturing and industrialization. Each country has chosen five business leaders for representation on the council.
Further, the construction of a 28,400 kilometer (17,650 mile) high-capacity fiber-optic cable network to link the BRICS countries was also discussed.
