India and four other countries in the BRICS formation at its fifth summit in the South African port city announced the setting up of a new international bank, but failed to arrive at a consensus regarding its details. The BRICS development bank will primarily fund infrastructure projects in member countries and other developing countries.
Significant among the contentious issues is the initial authorised capital – while China is keen to keep it at $100 billion and seek an upper hand by contributing a larger portion, India wants to keep it at $50 billion with equal contribution from all members.
The summit meeting of the leaders of Brazil, Russia, India, China and South Africa concluded with the eThekwini Declaration, called so after the Zulu name for Durban. The declaration called for reforming the “global governance architecture”, demanding in particular that the next director general of the IMF be from the developing world, and Russia and China supporting the aspiration of the other three to “play a larger role in the UN”. Russia and China are already permanent members of the UN Security Council.
The declaration also announced the formation of a Contingent Reserve Arrangement (CRA) amongst BRICS countries, a $100-billion fund to help the member nations tide over liquidity crunch. “This is more a precautionary measure,” said finance minister P Chidambaram who met with counterparts from other BRICS countries to finalise the proposal. Forty one per cent of the fund will be from China; India, Brazil and Russia will pledge 18% each while South Africa will contribute 5%.
“The big idea that was announced in Delhi BRICS summit last year was the development bank. That is now a reality,” Chidambaram said.
“Developing countries face challenges of infrastructure development due to insufficient long-term financing and foreign direct investment, especially investment in capital stock. 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 eThekwini declaration said.
The statement said the new bank would supplement the existing efforts of multilateral and regional financial institutions for global growth and development.
Chidambaram said issues regarding capital, membership and governance of the BRICS bank are still outstanding. “There is a lot of work to be done before the next summit in March 2014,” the finance minister said. "BUt the leaders are enthusiatic about it and the issues will be sorted out."