BRICS eye political capital with US$150b deal on new reserve fund and bank

Five largest emerging markets hope US$150b deal at Brazil summit will boost growth and cohesion, but analysts say measures are not enough

PUBLISHED : Tuesday, 15 July, 2014, 1:31am
UPDATED : Tuesday, 15 July, 2014, 1:31am

The leaders of five of the world's largest emerging markets will showcase a new currency reserve fund and development bank this week. Critics say neither is enough to revive the group's waning clout.

Brazil, Russia, India, China and South Africa, known as the BRICS, will approve the creation of the US$100 billion reserve fund and US$50 billion bank at a July 15-16 summit in Brazil's coastal city of Fortaleza and the capital Brasilia.

The initiatives were born out of frustration with a lack of participation in global governance, particularly in the World Bank and International Monetary Fund, said Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics. The measures are not big enough to boost growth or cohesion in the group as foreign investor sentiment sours and member states focus on issues close to home, such as Brazil's elections, the conflict in Ukraine and new economic policy plans in India.

"It's hard to see a lot of impetus at this stage for the BRICS in general and for these initiatives in particular," Subramanian said.

Economic growth in the five countries is projected to average 5.37 per cent this year, half the pace seen seven years ago. Brazil and Russia will grow 1.3 per cent and 0.5 per cent, respectively.

Yuri Ushakov, a Russian presidential aide on foreign policy, said the group's growth rate was still above that of the global average and that its economic and political weight was increasing.

The BRICS have evolved from the original term coined in 2001 to describe the growing weight of the largest emerging markets in the global economy. The group's track record in pursuing a common agenda on the world stage has been mixed.

"It's easier to say what the BRICS aren't than what they are," said senior Brazilian foreign ministry official Jose Alfredo Graca Lima.

The five countries failed to agree on a candidate to head the World Bank in 2012 and the International Monetary Fund in 2011, two posts at the heart of their demands for more say in global economic matters.

The new development bank, which will not impose policy requirements on borrowers, would help fill fast-growing infrastructure financing needs, said Kevin Gallagher, a professor of international relations at Boston University.

With an expected start-up capital of US$50 billion financed equally by the five members, the bank could lend US$3.4 billion per year in a decade, according to a March study by the UN trade body. That compares with the US$61 billion the World Bank expects to lend this year.