Leaders of the world’s major emerging economies are likely to endorse plans at a summit next week to create a joint foreign exchange reserves pool and an infrastructure bank, senior emerging market officials said on Thursday.
Leaders from Brazil, Russia, India, China and South Africa, known as the “BRICS,” will gather in the coastal city of Durban, South Africa, on March 26 and 27.
The leaders will discuss a report prepared by working groups led by Brazil on the proposed reserves pool and another by India and South Africa on the creation of the infrastructure bank, the officials said.
The reserves pool of central bank money would be available to emerging economies facing balance of payments difficulties or could be tapped to stabilize economies during periods of global financial crises, according to documents outlining the plan that were obtained by Reuters.
“There are still some differences among the countries, but we believe that the BRICS will give the green light to both projects,” said a senior Brazilian government official.
But officials in Brazil, Russia and South Africa cautioned that it was too early for the leaders to reach formal agreements on both the bank and the reserves fund.
The proposals reflect frustration among emerging market nations at having to rely on the World Bank and International Monetary Fund, which they see as still reflecting the interests of the United States and other industrialized nations.
“It is too early to reach formal agreements on the bank and on the reserves fund, but both topics are on the agenda,” said Paulo Nogueira Batista, executive director for Brazil and 10 other countries in the IMF.
“What exact form the political commitments in the communique will take is something yet to be decided. It is not settled yet,” Nogueira Batista cautioned.
The other Brazilian official, who asked not to be named because he was not authorized to speak about the matters publicly, told Reuters the proposed contingency reserve arrangement would initially hold between $90 billion and $120 billion, although a figure was unlikely to be included in a final statement by the leaders.
Officials have said that the reserve pool should be similar in size to the Chiang Mai Initiative of Southeast Asian countries, which was doubled to $240 billion in May to boost their protection against external shocks.
One official said the reserve pool could eventually be much larger than the Chiang Mai Initiative, which includes China and Japan. China has emphasized that the size of the BRICS contingency pool needs to be big enough to make an impression on financial markets.
GROWING FINANCING NEEDS
Another senior emerging market official said the BRICS were also considering injecting an initial $50 billion into the new infrastructure bank. Details on the scale, location and structure of the bank will be discussed, but not agreed at the summit, the official added.
The bank would support the ever-growing financing needs in emerging and developing nations for roads, modern-day port facilities, and reliable power and rail services.
Brazilian Trade Minister Fernando Pimentel said on Thursday that some issues remained to be resolved before the infrastructure proposal could be presented to the presidents for approval in Durban.
“I hope the presidents of the BRICS approve the plan to create the bank, but I am not sure this proposal will be presented because the technical discussions are not over yet,” Pimentel told reporters.
While the proposed $50 billion is small compared to the huge infrastructure needs of developing countries, it is larger than the $29.1 billion the World Bank committed in 2010 for infrastructure development in developing countries.
Countries like China have invested heavily in infrastructure, but poorer ones in South Asia and Africa have struggled to finance new projects.
“As for a development bank, we are on the threshold of taking an official decision on this issue,” Russian Deputy Foreign Minister Sergei Ryabkov told reporters in Moscow on Thursday. “There are only a few days left (until the summit), and complete clarity will be introduced,” he added.
Ryabkov said the BRICS were closer to a decision on an infrastructure bank than on the proposal for the reserves fund.
The Africa Development Bank has estimated Africa can become a middle-income region if it spends about $90 billion a year on infrastructure. The World Bank has a slightly higher estimate.
World Bank Chief Economist Kaushik Basu believes there is a place for a BRICS-led infrastructure bank to help ease pent-up funding pressures in developing economies.
“The big problem for building up infrastructure is not a problem of bricks and mortar, it is long-term finance,” the former Indian finance ministry official said at an event at the Center for Global Development in Washington on Tuesday.
“This money that has not been there has been a pressure on the BRICS countries,” Basu said.
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