WASHINGTON – The world’s major developing nations are laying plans to combine their economic clout in a challenge to the role that U.S.- and European-led institutions such as the World Bank and International Monetary Fund play in global economic affairs.
Meeting this week in Durban, South Africa, the loose consortium known as the BRICS nations — Brazil, Russia, India, China and South Africa — are expected to approve establishment of a “BRICS bank” to fund infrastructure projects in poorer countries. They are also debating creation of a pool of funds to use in times of crisis, similar to what the IMF does with money from its member nations.
Preliminary talks made good progress Tuesday, Finance Minister Pravin Gordhan of South Africa said. Member states have basically agreed on setting up a bank with seed capital of $50 billion, but how much each country would contribute and the voting structure of the board have yet to be defined.
Ahead of the meeting, Brazil and China agreed to a separate $30 billion currency swap that would allow much of the trade between the two nations to be financed without using dollars or euros as a common means of exchange.
The efforts are modest in relation to the size of the five economies involved and small compared with the world’s annual flow of trade and financing. The bank, for example, would start with an estimated $50 billion; the BRICS countries combined hold about $4.2 trillion in foreign reserves, most of it in China, and have a combined annual economic output of around $15 trillion, about 20 percent of the world total.
But it is the most concrete collective step yet from a group of nations that are expected to drive world economic growth in the coming century and that have developed a sharp sense of competition with the United States and Europe over global economic leadership.
Since 2008, the BRICS nations have been dragged down by a financial crisis that started in the U.S. and been buffeted by a prolonged recession in Europe. They complain that major developed-nation central banks are setting policy with little regard to the rest of the world, and they have been frustrated over a stalled effort to change the power structure at the IMF to better reflect their role in the global economy.
Documents distributed by Brazil ahead of the meeting spoke of an effort to foster “greater autonomy from the IMF.” In a conference call before the summit, Brazilian Trade Minister Fernando Pimentel said the aim is not to displace organizations such as the World Bank but to show there are alternatives to the institutions and financing regimes set up by the U.S. and Europe.
The proposed development bank, for example, “is not to be a rival to any existing multilateral organization. The objective will be to . . . offer the world economy a new financing tool, or an alternative financing tool, especially for developing nations,” Pimentel said. “The BRICS are an economic and a diplomatic bloc which has consolidated more and more at each summit it has had and each year that it has lasted, and we believe that it is now a permanent economic bloc in the international arena.”
The Durban meeting, however, may add weight to the argument that the BRICS nations have strong common aims — in creating alternatives to the dollar in international finance, for example, or in pushing for changes at the IMF and World Bank. Brazil in particular has been outspoken about an overhaul of the IMF board that is waiting on U.S. approval. China, meanwhile, has by default invested much of its annual trade surplus into low-yielding U.S. Treasury bonds and could use the development bank or currency pool as a potential alternative.
“The sheer frustration at lack of reforms on other fronts seems to be binding these countries together,” Cornell University economist Eswar Prasad said. “These economies are keen to find ways to work around an international monetary system that they feel is stacked in favor of richer advanced economies.”