Leaders of BRICS nations seen to launch a joint development bank
Emerging nations prepare to challenge dominance of World Bank with possible US$10b seed money from each country
Leaders from the BRICS emerging nations are expected to launch a joint development bank to rival western-dominated institutions at a summit beginning tomorrow.
The grouping of Brazil, Russia, India, China and hosts South Africa will meet in Durban to set up an infrastructure-focused lender that would challenge seven decades of dominance by the World Bank.
Xi Jinping, who has underscored the growing importance of the group by making Durban his first summit as China's president, expressed hopes for "positive headway" in establishing the bank.
If the leaders succeed, it would be the first time since the inaugural BRICS summit four years ago that the group matches rhetorical demands for a more equitable global order with concrete steps.
Together the BRICS account for 25 per cent of global gross domestic product and 40 per cent of the world's population.
But members say institutions like the World Bank, the International Monetary Fund and the United Nations Security Council are not changing fast enough to reflect their new-found clout.
The World Bank has traditionally been led by an American and the IMF has been led by a European thanks to an unwritten transatlantic carve-up made possible by skewed voting weights.
There is no Latin American or African permanent member of the UN Security Council, and India - despite its vast population and nuclear capabilities - remains a non-veto-wielding member.
Details of how the BRICS bank would work have yet to be finalised, but diplomats say it could start with US$10 billion seed money from each of the BRICS countries.
That would be dramatically scaled back from initial, more ambitious proposals for funding of US$50 billion from each individual country.
The exact role of the bank is also up for debate.
Indian officials have pressed for a BRICS-led development bank, recycling budget surpluses into investment in developing countries.
Many developing nations inside and outside BRICS will hope that is a way of tapping China's vast financial resources.
Meanwhile, China would no doubt like the bank to invest in trade-multiplying projects.
"The bank will help BRICS sustain financial risks and provide support for the development of African countries," state media quoted Ma Zhaoxu, a Chinese foreign ministry official, as saying.
However, BRICS expert Oliver Stuenkel at Getulio Vargas Foundation in Sao Paulo sees the development bank as partially a reaction to their dimmed economic outlooks.
"Now Brazil is growing at an anaemic rate, South Africa is not doing so well and India's growth is stalling, so the BRICS need to prove they can survive and prosper in challenging economic times," he said.
Stuenkel called the creation of the development bank "a litmus test of their capacity to survive".
Moreover, given the scepticism of the BRICS nations about the commitment of the West to reform global economic institutions, "anything less than the establishment of the bank would be seen as a colossal failure".
Western officials had been wary of the idea of a BRICS bank, but have since tempered their view.
Kaushik Basu, the World Bank's chief economist, said there was plenty the bank could do, but warned setting it up would be a "humongous task".
Aside from the development bank, the group will also try to establish a foreign exchange reserve pool worth as much as US$240 billion to be drawn on in financial crises.
China has the world's largest foreign exchange reserves, worth US$3.31 trillion at the end of last year; establishing currency swap lines could help other BRICS nations tap that massive resource.
Brazil also hopes to sign a bilateral accord with China to promote trade in their national currencies.
BRICS leaders will also set up business and think-tank councils and discuss a ranking system for non-western universities.