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Brics agrees to form bank, undecided on capital

The Brics nations have formally decided to establish a new development bank to finance infrastructure projects and to create a $100 billion contingency fund to tackle any financial crisis in emerging economies, in what is seen as a major win for India's campaign to reform the global financial architecture. The decision was taken at the Brics Summit here, which also launched a Business Council to encourage investment and trade in member countries and to expand business cooperation.

'Following the report from our finance ministers, we are satisfied that the establishment of a New Development Bank is feasible and viable. We have agreed to establish the New Development Bank,' the 'eThekwini' (Durban) Declaration said at the end the Summit of leaders of Brazil, Russia, India, China and South Africa.

'The initial contribution to the Bank should be substantial and sufficient for it to be effective in financing infrastructure. We considered that developing countries face challenges of infrastructure development due to insufficient long-term financing and foreign direct investment (FDI), especially investment in capital stock,' the Declaration pointed out.

'This constrains global aggregate demand. Brics cooperation towards more productive use of global financial resources can make a positive contribution to addressing this problem,' the Brics leaders, including Prime Minister Manmohan Singh, said in a statement after the two-hour summit.

However, the leaders did not decide on the capital for the proposed bank, leaving it to the finance ministers to negotiate this and other issues before September. The statement also said that the initial contribution to the bank should be substantial and sufficient for it to be effective in funding infrastructure.

The development bank, mooted by India at last year's Summit in Delhi, was originally proposed to be started with a capital of $50 billion, with $10 billion from each of the members. Incidentally, differences appear unresolved with reservations from South Africa and Brazil over the contribution.

Hailing the development bank initiative along with the other leaders, Singh said that it gave him great satisifaction to note that one of the ideas that they discussed first in New Delhi — that of instituting a mechanism to recycle surplus savings into infrastructure investments in developing countries — has been given concrete shape during the Durban Summit. 'Our finance ministers will now work to develop the details of the project,' he told a joint press conference with the other leaders. Besides host President Jacob Zuma of South Africa, new Chinese President Xi Jinping, Russian President Vladimir Putin and Brazilian President Dila Rouseff participated in the summit.

In his address, Zuma said that the summit had decided to enter formal negotiations to establish a new Brics-led development bank, based on their own considerable infrastructure needs amounting to $4.5 trillion over the next five years, and to cooperate with the other emerging markets and developing countries in future.

Briefing reporters after the summit, Finance Minister P Chidambaram reiterated that India had floated a a big idea — a Brics Development Bank — at the Delhi summit last year and 'that is now a reality'.

'Both the ideas (Brics development bank and Contingency Reserve Arrangement) have been recommended by the finance ministers and have been approved by the leaders. Whatever the individual views of the finance ministers, the leaders have wholeheartedly welcomed the establishment of the Bank and the CRA,' he said, noting the Brazilian President's remarks that the capital of the bank must be commensurate with its challenges and goals.

He said that Russian President Putin had fully supported the establishment of the bank while China had always been enthusiastic in supporting it.


‘GLOBAL FINANCIAL INSTITUTIONS MUST BE MORE REPRESENTATIVE’


The Brics summit has called for reform of the international financial institutions to make them more representative and to reflect the growing weight of the five-member grouping and other developing countries. 'We remain concerned with the slow pace of reform of the International Monetary Fund (IMF). We need to implement, as agreed, the 2010 IMF Governance and Quota Reform, said the 'eThekwini' (Durban) Declaration. 'We urge all members to take all necessary steps to achieve an agreement on the quota formula and complete the next general quota review by January 2014,' it added.

In the 13-page Declaration, the leaders said that reform of theIMF should strengthen the voice and representation of the poorest members of the IMF, including sub-Saharan Africa. 'All options should be explored with an open mind to achieve this. We support the reform and improvement of the international monetary system, with a broad-based international currency system providing stability and certainty,' it said.

Pointing out that the New Delhi Summit last year had directed the finance ministers to examine the feasibility and viability of setting up a new development bank for mobilising resources for infrastructure and sustainable development projects in Brics and other emerging economies and developing countries, the leaders said that it would supplement the existing efforts of multilateral and regional financial institutions for global growth.
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