By Li Hongmei
In a major achievement for reforming the international financial architecture, BRICS nations on Wednesday decided to establish a new development bank to finance infrastructure and to create a US $100 billion Contingency Reserve Arrangement to tackle any financial crisis in the emerging economies.
The announcement was made in the South African port city of Durban at the fifth BRICS Summit which also launched a Business Council to encourage investment and trade in member countries and to expand business cooperation.
"We considered that developing countries face challenges of infrastructure development due to insufficient long-term financing and foreign direct investment, especially investment in capital stock. 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 leaders said in a statement after the two-hour summit.
An anonymous official familiar with the negotiations was quoted as saying that the size of the contingency fund would be US $100 billion, in which China would contribute a US $41 billion share, followed by Brazil, Russia and India with $18 billion each, and South Africa with US $5 billion.
According to the report, each country's central bank is supposed to keep the fund's reserves as part of its own reserves. It could take a year or so for each nation to regulate the fund, and a final agreement could be signed when the BRICS regroup next year in Brazil.
Yu Qiao, a professor of finance with the School of Public Policy and Management at Tsinghua University, remarked that the size of the fund is adequate to fend off risks of volatility in exchange rates in the five countries.
"The management model of the fund indicates it is more of a gesture instead of an entity like the IMF and the European Financial Stabilization Mechanism," said Yu, adding that the fund will be a complementary measure in fending off risks.
According to the Xinhua News Agency, S African president Zuma told a plenary session of the summit that the leaders have decided to enter formal negotiations to establish a BRICS-led development bank and they require $4.5 trillion over the next five years to finance infrastructure projects.
The bank will also be used to cooperate with other emerging markets and other developing nations.
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 development bank, mooted by India at the last year's Summit in Delhi, was originally proposed to be started with a capital of US $50 billion with US $10 billion from each of the members.
