In a major achievement for India in its campaign for reforming the international financial architecture, BRICS nations decided on Wednesday to establish a new development bank to finance infrastructure and to create a $100 billion contingency reserve arrangement to tackle any financial crisis in the emerging economies.
The decision was taken at the BRICS Summit in Durban which also launched a Business Council to encourage investment and trade in member countries and to expand business cooperation.
Leaders of the inter-continental grouping including Prime Minister Manmohan Singh, met here this morning for an extended session and accepted the report of their finance ministers saying "we are satisfied that the establishment of a new development bank is feasible and viable."
"We considered that developing countries face challenges of infrastructure development due to insufficient long-term financing and foreign direct investment, especially investment in capital stock," he said.
"This constrains global aggregate demand. BRICS cooperation towards more productive use of global financial resources can make a positive contribution to addressing this problem," the leaders said in a statement after the two-hour summit.
However, the leaders did not decide on the capital for the proposed bank leaving it to the finance ministers to negotiate this and other issues before September.
The development bank, mooted by India at the last year's summit in Delhi, was originally proposed to be started with a capital of $50 billion with $10 billion from each of the members.
Incidentally, differences appear unresolved with reservations from South Africa and Brazil over the contribution.
Hailing the development bank initiative along with the other leaders, Mr Singh said it gave him great satisifaction to note that one of the ideas that they discussed first in New Delhi - that of instituting a mechanism to recycle surplus savings into infrastructure investments in developing countries - has been given a concrete shape during the Durban Summit.
"Our finance ministers will now work to develop the details of the project," he told a joint press conference with the other leaders.
Besides host president Jacob Zuma, new Chinese president Xi Jinping, Russian president Vladimir Putin and Brazilian president Dila Rouseff participated in the summit.
In his address, Mr Zuma said the summit decided to enter formal negotiations to establish a BRICS-led new development bank based on their own considerable infrastructure needs, amounting to $4.5 trillion over the next five years and to cooperate with the other emerging markets and developing countries in future.
Briefing reporters after the summit, Finance Minister P Chidambaram said India gave two big ideas -- BRICS Development Bank and a Contingency Reserve Arrangement (CRA) at the Delhi summit last year and "they have now become a reality".
"Both the ideas have been approved by the leaders. Whatever the individual views of the finance ministers, the leaders have wholeheartedly welcomed the establishment of the Bank and the CRA," he said noting the Brazilian President's remarks that the capital of the Bank must be commensurate with the challenges and goals of the Bank.
He said Mr Putin fully supported establishment of the Bank while China had always been enthusiastic in supporting the bank.
Mr Chidambaram said India wants a nearly complete document before leaders meet for the summit in Brazil in March next year.
He said the initial authorised capital of the Bank was $50 billion but it was decided not to take a call at the first stage. It was agreed that the countries would work it out later. It depends on the members' capacity to contribute. A lot of work has to be done in the next 12 months on capital, membership, governance and domicile issues. There is an internal programme which divides the task and he hoped officials would be able to complete these.
On the contingency reserve arrangement, the minister said India is comfortable with a fund of anything between $50 billion and $100 billion.
There was agreement that China, which has a huge foreign exchange reserve, will contribute 41 billion while it will be 18 per cent for others except South Africa which will contribute $5 billion.
He said the likelihood of any of the five countries to resort to the CRA for overcoming liquidity is not there. It was only a precautionary measure that can lend stability to the system.
Mr Chidambaram said India was happy with the setting up of the BRICS business council and the BRICS think tank.
He noted Putin's remarks that the five BRICS countries account for 27 per cent of the GDP and total of $5 trillion which make it the important and significant group which can influence discussions in the G 20, IMF and other multilateral institutions.
"If these five countries work together more closely in the days to come, they will become a power in the international matters," he said.
India, like the other BRICS nations, has been campaigning for reforms of international financial and political institutions to reflect the current day realities. It wants reforms of the Bretton Woods institutions like the World Bank and the IMF and the UN Security Council.
In the development bank, the finance ministers would still have to decide first on its capital, membership and the location besides governance issues.
Opinion is divided on whether to confine membership to just the BRICS nations or to allow others like developed economies. Also India feels there is need for caution about excessive contribution by any one nation to the capital which could lead to that country having a dominant and influential role.
In this context, the Chinese readiness to pick up stakes on behalf of those not in a position to contribute is viewed with reservations by India.
South Africa, as the chair, is said to be keen on locating the development bank.
In his speech at the summit, Prime Minister Singh said the BRICS platform has evolved tremendously since the first summit at Yekaterinburg in 2009.
"Our agenda now encompasses diverse areas, including global economic developments, peace and security, reforms of the political and economic institutions of global governance, international trade, sustainable development and food and energy security. We have just concluded very fruitful discussions on many of these issues," he said.
The Prime Minister also proposed a five-point roadmap for the BRICS for consolidating and deepening the existing cooperation.
"First, our foremost challenge is to respond to the persisting weaknesses in the global economy, the financial crisis overhang and the inevitable long term structural changes in the post-2008 world," he said.
"Recognising that BRICS countries will remain key drivers of global economic growth, we should further sustain our growth by harnessing the vast opportunities for expanding trade and investment ties between ourselves.....We should also seek increased cooperation in manufacturing and services sectors. The measures agreed upon today will help us to meet these objectives," Mr Singh added.
Second, the Prime Minister said, the external focus of BRICS research and development cooperation tended to be on the developed world. It would be useful though to encourage collaboration between institutions in BRICS countries because the experiences and solutions will have relevance for each, particularly in areas like energy, food security, education, health care, sustainable development and IT-enabled public services.
The BRICS should also make economic development more broad-based and inclusive not only as a moral imperative but a pragmatic approach to make the global economy more sustainable. That would enhance political and social stability in vulnerable parts of the world.
Fourth, the BRICS countries should work more cohesively in international forums to advance the agenda of sustained global economic recovery and promote a balanced outcome on issues such as trade, sustainable development and climate change in a manner that protects shared interests of the entire developed world.
"Finally, we should work for a reform of global institutions of political and economic governance that reflects contemporary realities and equips them more effectively to deal with emerging challenges. In particular, reform of the UN Security Council and the IMF are urgently needed," the Prime Minister said.
Referring to the multiple economic and security challenges, the Prime Minister said terrorism, piracy and the emerging threats from cyber-space were important security concerns for the BRICS.
"It is incumbent upon us to use our collective voice and capacity and make an effective and meaningful contribution to addressing these challenges and fostering global stability and security," he said.
In his speech, Chinese president Xi Jinping voiced his support to reform of the global governance system and it make more inclusive while promoting peace and development. He said China has set itself two grand goals -- one of doubling the GDP by 2049 to mark 100 years of Communist Party rule and another of raising the per capita income by 2020 to make the country a moderately prosperous society.
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