BRICS set up bank to counter Western hold on global finances

[jimmy olsen]

Going to need a lot more than $100 billion to be a serious rival

http://finance.yahoo.com/news/negotiations-launch-brics-bank-hit-snag-source-040406826--sector.html

BRICS set up bank to counter Western hold on global finances

By Alonso Soto and Anthony Boadle
Related Stories

FORTALEZA Brazil (Reuters) - Leaders of the BRICS emerging market nations launched a $100 billion development bank and a currency reserve pool on Tuesday in their first concrete step toward reshaping the Western-dominated international financial system.

The bank aimed at funding infrastructure projects in developing nations will be based in Shanghai and India will preside over its operations for the first five years, followed by Brazil and then Russia, leaders of the five-country group announced at a summit.

They also set up a $100 billion currency reserves pool to help countries forestall short-term liquidity pressures.

The long-awaited bank is the first major achievement of the BRICS countries - Brazil, Russia, India, China and South Africa - since they got together in 2009 to press for a bigger say in the global financial order created by Western powers after World War Two and centered on the International Monetary Fund and the World Bank.

The BRICS were prompted to seek coordinated action following an exodus of capital from emerging markets last year, triggered by the scaling back of U.S. monetary stimulus. The new bank reflects the growing influence of the BRICS, which account for almost half the world's population and about one-fifth of global economic output. The bank will begin with a subscribed capital of $50 billion divided equally between its five founders, with an initial total of $10 billion in cash put in over seven years and $40 billion in guarantees. It is scheduled to start lending in 2016 and be open to membership by other countries, but the capital share of the BRICS cannot drop below 55 percent. The contingency currency pool will be held in the reserves of each BRICS country and can be shifted to another member to cushion balance-of-payments difficulties. This initiative gathered momentum after the reverse in the flows of cheap dollars that fueled a boom in emerging markets for a decade. "It will help contain the volatility faced by diverse economies as a result of the tapering of the United States' policy of monetary expansion," Brazilian President Dilma Rousseff said.

"It is a sign of the times, which demand reform of the IMF," she told reporters at the close of the summit.

China, holder of the world's largest foreign exchange reserves, will contribute the bulk of the contingency currency pool, or $41 billion. Brazil, India and Russia will chip in $18 billion each and South Africa $5 billion. If a need arises, China will be eligible to ask for half of its contribution, South Africa for double and the remaining countries the amount they put in. Negotiations over the headquarters and first presidency were reached at the eleventh hour due to differences between India and China. The impasse reflected the trouble Brazil, Russia, India, China and South Africa have had in reconciling stark economic and political differences that made it hard for the group to turn rhetoric into concrete action.

"We pulled it off 10 minutes before the end of the game. We reached a balanced package that is satisfactory to all," a Brazilian diplomat told Reuters.

Negotiations to create the bank dragged on for more than two years as Brazil and India fought China's attempts to get a bigger share in the lender than the others.

In the end, Brazil and India prevailed in keeping equal equity at its launch, but fears linger that China, the world's No. 2 economy, could try to assert greater influence over the bank to expand its political clout abroad. China, however, will not preside over the bank for two decades.

Facing efforts by leading Western nations to isolate Russia for annexing Crimea and stirring revolt in eastern Ukraine, the BRICS summit provided President Vladimir Putin with a welcome geopolitical platform to show he has friends elsewhere, economic powers seen as shaping the future of the world.

The BRICS abstained from criticizing Russia over the crisis in Ukraine and called instead for restraint by all actors so the conflict can be resolved peacefully.

(Editing by Tom Brown and Jonathan Oatis)

[viper37]

Good, less bitching about the destroyer of worlds.

[Valmy]

Now everybody can blame BRICS for their problems!  HURRAH!

[Jacob]

Good play on the part of China. Presiding over the bank is going to be much more useful in two decades, if it even works out.

[The Minsky Moment]

China has a lot more than $100 billion if needed, so that is not the limit.

The reason the BRIS are rallying around China is in part because of the failure to reorganize voting rights at the IMF to reflect present economic realities.

The reason for that failure is . . . no surprise, blockage from the Tea Party crowd.

Yes their antics are amusing to sheilbh, but the fact is that the United States simply cannot afford the luxury of having a Stupid Party around.

[crazy canuck]

the fact is that the United States simply cannot afford the luxury of having a Stupid Party around.

[Valmy]

The reason the BRIS are rallying around China is in part because of the failure to reorganize voting rights at the IMF to reflect present economic realities.

The reason for that failure is . . . no surprise, blockage from the Tea Party crowd.

Huh?  Explain. 

[Jacob]

The reason the BRIS are rallying around China is in part because of the failure to reorganize voting rights at the IMF to reflect present economic realities.

The reason for that failure is . . . no surprise, blockage from the Tea Party crowd.

Huh?  Explain.

My guess is that reorganizing voting rights at the IMF requires US approval, and that US approval requires Congress approval, and that tea party battiness makes such approval impossible to obtain.

[Valmy]

Yes I know there is Congressional involvement with the IMF, I was just curious how the Tea Party was interfering and why.

[The Minsky Moment]

Yes I know there is Congressional involvement with the IMF, I was just curious how the Tea Party was interfering and why.

The news stories on this state that the GOP caucus is divided on the bill, with "conservatives" leading the opposition and holding up the bill.  Heritage - the bottom of the right-leaning think tank barrel - came out against.

[mongers]

China has a lot more than $100 billion if needed, so that is not the limit.

The reason the BRIS are rallying around China is in part because of the failure to reorganize voting rights at the IMF to reflect present economic realities.

The reason for that failure is . . . no surprise, blockage from the Tea Party crowd.

Yes their antics are amusing to sheilbh, but the fact is that the United States simply cannot afford the luxury of having a Stupid Party around.

Really?

Talk about pissing away America's reputation and influence in the world.

[Admiral Yi]

China has a lot more than $100 billion if needed, so that is not the limit.

The reason the BRIS are rallying around China is in part because of the failure to reorganize voting rights at the IMF to reflect present economic realities.

The reason for that failure is . . . no surprise, blockage from the Tea Party crowd.

Yes their antics are amusing to sheilbh, but the fact is that the United States simply cannot afford the luxury of having a Stupid Party around.

Do you mean the US would be happy to give up its blocking share if it weren't for the Tea Party?

Also confused as to the leverage the Tea Party can exert.  Member country contributions come from central banks, not from government revenues (or borrowing).

[The Minsky Moment]

The change in contribution levels must be approved by Congress, regardless of who cuts the check.

While the reduction in the US % is not a cause for celebratory waving of the flag and fireworks, it does accord with the principle that shares at the IMF roughly reflect economic weight - that implies the need for a much bigger share for China.  Better to keep them on board and locked into an institution that reflects postwar Western values rather than encourage them to freelance outside the system.

[Admiral Yi]

OK, didn't know that.

I'll repeat the question you sidestepped: is a bill for the reduction of the US contribution supported in the Senate and the White House?  If so, is it tied to a reduction of similarly overweighted European shares, or is it unilateral?

[The Minsky Moment]

The White House supports; IIRC the US agreed to the change during his first term.  Congress must ratify of course.  I don't know the status in the Senate, although McCain and some of his crowd are supporters.

The US share would only decline slightly and would remain safely above 15%, thus retaining its blocking power as before.  At least for now.

The Euros would remain over-represented but I believe would decline proportionately.