BRICS countries to set up their own IMF
The
BRICS countries (Brazil, Russia, India, China and South Africa) have
made significant progress in setting up structures that would serve as
an alternative to the International Monetary Fund and the World Bank,
which are dominated by the U.S. and the EU. A currency reserve pool, as a
replacement for the IMF, and a BRICS development bank, as a replacement
for the World Bank, will begin operating as soon as in 2015, Russian
Ambassador at Large Vadim Lukov has said.
Brazil
has already drafted a charter for the BRICS Development Bank, while
Russia is drawing up intergovernmental agreements on setting the bank
up, he added.
In addition, the BRICS
countries have already agreed on the amount of authorized capital for
the new institutions: $100 billion each. “Talks are under way on the
distribution of the initial capital of $50 billion between the partners
and on the location for the headquarters of the bank. Each of the BRICS
countries has expressed a considerable interest in having the
headquarters on its territory,” Lukov said.
It
is expected that contributions to the currency reserve pool will be as
follows: China, $41 billion; Brazil, India, and Russia, $18 billion
each; and South Africa, $5 billion. The amount of the contributions
reflects the size of the countries’ economies.
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By
way of comparison, the IMF reserves, which are set by the Special
Drawing Rights (SDR), currently stand at 238.4 billion euros, or $369.52
billion dollars. In terms of amounts, the BRICS currency reserve pool
is, of course, inferior to the IMF. However, $100 billion should be
quite sufficient for five countries, whereas the IMF comprises 188
countries — which may require financial assistance at any time.
The
BRICS countries are setting up a Development Bank as an alternative to
the World Bank in order to grant loans for projects that are beneficial
not for the U.S. or the EU, but for developing countries.
The
purpose of the bank is to primarily finance external rather than
internal projects. The founding countries believe that they are quite
capable of developing their own projects themselves. For instance,
Russia has a National Wealth Fund for this purpose.
“Loans
from the Development Bank will be aimed not so much at the BRICS
countries as for investment in infrastructure projects in other
countries, say, in Africa,” says Ilya Prilepsky, a member of the
Economic Expert Group. “For example, it would be in BRICS’ interest to
give a loan to an African country for a hydropower development program,
where BRICS countries could supply their equipment or act as the main
contractor.”
If the loan is provided by the IMF, the equipment will be supplied by western countries that control its operations.
The
creation of the BRICS Development Bank has a political significance
too, since it allows its member states to promote their interests
abroad. “It is a political move that can highlight the strengthening
positions of countries whose opinion is frequently ignored by their
developed American and European colleagues. The stronger this union and
its positions on the world arena are, the easier it will be for its
members to protect their own interests,” points out Natalya Samoilova,
head of research at the investment company Golden Hills-Kapital AM.
Having
said that, the creation of alternative associations by no means
indicates that the BRICS countries will necessarily quit the World Bank
or the IMF, at least not initially, says Ilya Prilepsky.
In
addition, the BRICS currency reserve pool is a form of insurance, a
cushion of sorts, in the event a BRICS country faces financial problems
or a budget deficit. In Soviet times it would have been called “a mutual
benefit society”, says Nikita Kulikov, deputy director of the
consulting company HEADS. Some countries in the pool will act as a
safety net for the other countries in the pool....
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