Faced With Western Freeze-Out, BRICS Bank Is a Coup for Russia

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Faced With Western Freeze-Out, BRICS Bank Is a Coup for Russia

By Peter Hobson

“ICH” – “Moscow Times” – – Top of the agenda at the sixth summit of the BRICS developing nations beginning Tuesday is the founding of two multilateral financial institutions designed to erode the dominance of the World Bank and International Monetary Fund as arbiters of the global economic system.
For Russia, the creation of a $100 billion BRICS development bank and a reserve currency fund worth another $100 billion is a political coup. Just as the West freezes Russia out of its own economic system as punishment for its politics in Ukraine, Russia is tying itself into the financial superstructure of the next generation of economic heavyweights: India, Brazil, China and South Africa.

The World Bank and the IMF have come under criticism from the rapidly developing BRICS, who together account for 20 percent of global GDP and 40 percent of the world’s population. In their view, the two financial institutions are dominated by the rich nations of the G7 and attach stringent conditions to their lending that impinge on the economic sovereignty of its members.

Far from assuaging their complaints, efforts to reform the 70-year-old institutions have stalled. Proposed updates to the IMF that would grant increased influence to developing economies have been languishing in the U.S. Congress since 2010 and were blocked once again in April.

If the framework agreements due to be signed at the BRICS summit in Fortaleza, Brazil, are ratified at home, the new bank and the reserve fund could come just in time for the BRICS countries. U.S. tightening of the dollar supply starting last year has caused a wave of crises in developing nations as the cash inflows of the past decade begin to reverse themselves.

Meanwhile, the World Bank estimates the annual need for infrastructure investment in low- and middle-income nations at $1 trillion dollars and rising — far beyond its own capacity. The World Bank reports that it gave out $52.6 billion in 2013, not all of which went to infrastructure projects.

The New Order

Last week, Russian Finance Minister Anton Siluanov shed some light on the mechanics of the fledgling institutions.

The BRICS bank will have starting capital of $50 billion, made up of $10 billion in cash and $40 billion in guarantees, Siluanov told RIA Novosti. Each BRICS country will contribute $2 billion to the starting capital pot. In the longer term, capital will rise to $100 billion.

The bank is to be named the New Development Bank, Siluanov said, signifying that other developing countries are welcome to join, although the BRICS countries’ share will not be allowed to fall below 55 percent.

Likely headquartered in Shanghai, the bank is expected to make its first loans in 2016 and will focus on bi- or multilateral development projects involving companies from participant countries. According to a report for the UN released in March by Columbia University economist Stephany Griffith-Jones, the bank could could ramp up lending to $34 billion per year within 20 years.

While the New Development Bank will be based on equal shares, the $100 billion contingency dollar reserve fund, which Siluanov referred to as a “mini-IMF,” will factor in China’s extra weight. China will contribute $41 billion to the total pool; South Africa will give $5 billion; and Russia, Brazil and India will contribute $18 billion each…..MORE HERE

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Faced With Western Freeze-Out, BRICS Bank Is a Coup for Russia