President Jacob Zuma and the South African delegation flank the Chinese delegation led by President Xi Jinping at the sixth Brics summit, which concluded in Brasilia, Brazil, yesterday. Photo: GCIS

Brasilia - Leaders of the five Brics nations have agreed on the structure of a $50 billion (R535bn) development bank by granting China its headquarters and India its first rotating presidency. Brazil, Russia and South Africa were also given posts or units in the new bank.

The leaders also formalised the creation of a $100bn currency exchange reserve, which member states can tap in case of balance of payment crises, according to a statement issued at a summit in Fortaleza, Brazil.

Both initiatives, which require legislative approval, are designed to provide an alternative to financing from the International Monetary Fund (IMF) and the World Bank, where Brics countries have been seeking more say.

“The Brics are gaining political weight and demonstrating their role in the international arena,” Brazil’s President Dilma Rousseff said.

Until the eve of the summit, India and South Africa had vied with China to host the headquarters of the bank, dubbed the New Development Bank. The administration of India’s Prime Minister Narendra Modi gave in after it was reminded that his country’s previous administration had agreed to Shanghai as headquarters, according to an Indian official, who asked not to be identified because the talks were private.

Bank governance

Russian Finance Minister Anton Siluanov said the Brics had decided in favour of Shanghai because the city offered better infrastructure and opportunities to capture private funding, and it was home to more investors than the competitors.

Each member country got something out of the deal. The first chairman of the board of governors would be from Russia, with the first chairman of the board of directors from Brazil, said Carlos Cozendey, the secretary for international affairs at Brazil’s finance ministry. South Africa would establish an African regional centre, which might not get off the ground for another two years.

Unlike the IMF and World Bank, which were managed by Europeans and Americans, the Brics bank “is quite democratic”, Brazilian Finance Minister Guido Mantega told reporters. Yet the idea was not to compete with the Washington-based institutions but complement them, Rousseff said. “We have no interest in giving up the IMF – on the contrary, we are interested in democratising it, making it more representative.”

Withdrawal limits

Each member country had the right to withdraw different amounts from the joint currency reserves, read a statement from Brazil’s central bank. China could withdraw half the amount it earmarked, or $20.5bn. Brazil, Russia, and India could withdraw the sum they committed, or $18bn, while South Africa could tap $10bn, twice its contribution.

“It’s a type of insurance policy, speculators looking for weaker countries without back-up will run because those countries will have sufficient solidity to face a currency problem,” Mantega said.

Brics influence

“Separately, all the Brics economies in the last two years have slowed, so there is a lot of attention on their declining economic influence,” former Goldman Sachs economist Jim O’Neill, who coined the term, said. “But the general Western view is wrong. Even at the slower rate of growth, their importance continues to rise.”

There were plenty of opportunities for business, and the new development bank would help those opportunities become reality, said Jorge Gerdau Johannpeter, the chairman of Brazilian steel maker Gerdau. “The bigger the financing possibilities, the bigger the chances of implementing projects.”

The biggest winner among the Brics from the bank might be South Africa, as it stood to gain financial expertise, investment and trade, said Colin Coleman, the head of Goldman Sachs in sub-Saharan Africa.

“Arguably we have the greatest amount to benefit because we’re partnering diplomatically and otherwise with some of the world’s most important emerging-market economies.”

While Brics trade ministers said in a joint communiqué that member countries stood by the World Trade Organisation’s Bali agreement, Brazilian Trade Minister Mauro Borges said he understood India had concerns about its implementation and that the Brics countries did not intend to forge a common stance on the issue. – Bloomberg