BRICS to create Development Bank to finance infrastructure projects

The BRICS countries - Brazil, Russia, India, China, South Africa – will formalise two principal agreements to put in place key multilateral financial infrastructures for the developing world.

The VI BRICS Summit next week in Brazil will sign documents to create a Development Bank to finance infrastructure and sustainability projects, as well as establish a reserve fund to assist countries of the bloc in coping up balance of payments eventualities, according to a note from the Brazilian Ministry of Foreign Affairs.

Signing of these agreements to create the BRICS Development Bank and the Contingent Reserve Arrangement (CRA) will take place on 15 and 16 July in Fortaleza and Brasília.

The BRICS Development Bank, which will mirror the World Bank, will have $100 billion in authorised capital to be used for financing infrastructure and sustainable development projects in the BRICS member nations and other developing countries. The BRICS countries, it has been agreed upon, will initially underwrite $50 billion in capital to the bank, in equal parts of $10 billion each.

Investment banks and multilateral institutions may become shareholders of the bank, but their participation will be subject to approval by the BRICS member countries. The five founding members of the new Bank will retain controlling interest should any new members be admitted.

The Bank’s name has yet to be chosen. Shanghai, Johannesburg, New Delhi and Moscow are the four possible locations for its headquarters, the note added.

The Contingent Reserve Arrangement (CRA), which will mirror the IMF, will receive an initial subscribed capital of $100 billion and function as an additional buffer of defence for BRICS countries facing difficulties with their balance of payments. China will contribute $41 billion, Brazil, Russia and India will each contribute $18 billion and South Africa will contribute $5 billion to the initial capital.

Access to resources will depend on assessments conducted by two different committees: a board of governors of the fund and a technical advisory board.

The choice of social inclusion as a theme for the Summit (the first at a BRICS Summit) will help reinforce the importance the BRICS leaders place on achieving the UN Millennium Development Goals – the social challenges outlined by the United Nations in 2000 to be met by 2015 – through economic growth or inclusive social policies implemented by their governments.

In addition to the two primary financial agreements to be signed, the VI BRICS Summit will also produce the Fortaleza Declaration, which will consolidate the common views of the group on issues of the international agenda and on matters of cooperation within the BRICS.

The countries are also studying the possibility of launching a platform to foster the development of common methodologies for social indicators. As the new chair of the BRICS, under the rotating policy of the group, Brazil will lead the implementation of the action plan to be approved in Fortaleza, which will incorporate various activities to be undertaken until the next Summit, to be held in Russia in 2015.

The Summit will be preceded on 14 July by a number of events including the Finance Ministers Meeting; the Central Bank Governors Meeting; the Ministers of Trade Meeting; the Meetings of the BRICS Business Forum and Business Council; and the BRICS Financial Forum (the meeting of National Development Banks of the group, to be organized by Brazil’s BNDES).

On 15 July, the Summit will hold its first private work session in Fortaleza, during which the leaders of the BRICS will discuss international issues of political, economic and financial nature. The afternoon begins with the official signing ceremony for the activities of the Summit, followed by a plenary session.

On 16 July, in Brasília, the Heads of State and Government of the BRICS countries will meet with Presidents of South American countries.

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