DURBAN, South Africa – Leaders of five of the world’s emerging economic powers agreed Wednesday to create a development bank to help fund their $4.5 trillion infrastructure plans – a direct challenge to the World Bank that they accuse of Western bias.
But the rulers of Brazil, Russia, India, China and South Africa – known as the BRICS group –were unable to agree on some basic issues. Foreign Minister Pravin Gordhan of South Africa told reporters that there were “different views” about how much capital such a bank would need.
He said $50 billion had been mentioned, an amount conference officials said would be seed capital shared equally between the five countries.
Finance ministers had discussed basing contributions on a country’s wealth, but then felt it would leave economic giant China, with the world’s No. 2 economy, in an untenably dominant position, according to conference officials, who spoke on condition of anonymity because they are not authorized to speak to reporters.
Analysts said there was little doubt that China, with the world’s largest reserves of foreign exchange, inevitably would be dominant, perhaps in much the same way that the United States and Europe dominate the World Bank and the International Monetary Fund.
The development bank would be the first institution of the informal BRICS forum, which was started in 2009 amid the economic meltdown to chart a new and more equitable world economic order. South Africa joined two years ago.
“Russia supports the creation of this financial institution,” President Vladimir Putin said Wednesday, but he cautioned “we believe that, if it is created, then it must work on market principles only and support the businesses of all our countries.”
But his deputy foreign minister, Sergey A. Ryabkov, implied the announcement was premature: “We are not contesting the idea, we support it, we favor it, but we are urging everyone to be serious enough to make further efforts in order to create the right foundation.” They were at a stage where “the devil is in the details,” he added.
Inability to agree on fine points about the bank, first mooted a year ago when finance ministers were tasked with exploring its feasibility, highlighted the differences between the bloc that is made up of democracies and autocracies, diverse foreign policies and structurally different economies.
But at the fifth BRICS summit, its first in South Africa at the coastal resort of Durban, leaders pointed to their shared histories and aims: South Africa, very much the junior partner with a much smaller economy, has a decades-old relationship with China and Russia since they funded and armed anti-apartheid liberation movements; it shares a history of colonization with Brazil, a country that was the destination for more African slaves than any other; and with India as Mahatma Gandhi lived in South Africa for more than 20 years and developed his political activism here as he faced discrimination from a white minority government.
South African President Jacob Zuma, whose country is lobbying to be home to the BRICS development bank, said the formal negotiations to establish the institution were “based on our own considerable infrastructure needs, which amount to about $4.5 trillion U.S. dollars over the next five years.”
The bank will also cooperate with other emerging market countries and developing economies.
Zuma said the bank also will establish a “BRICS contingent reserve arrangement,” a pool of money to cushion member states against any future economic shocks and further lessen their dependence on Western institutions.
Both those aims challenge the traditional roles of the World Bank and the International Monetary Fund, institutions that in their 50-year life have been dominated by the United States and Europe.
“As cooperation between the BRICS becomes more increasingly institutionalized, it will begin to challenge the economic architecture set out by the Bretton Woods institutions, regarded by many policymakers within the BRICS as obsolete and biased toward the developed world,” analyst Martyn Davies of Frontier Advisory wrote this week.
“The underlying motivation within the BRICS is to assert their own collective interests, hard though they are to define, and do so against established Western ones.”