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BRICS ready to provide development funds

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 The New Development Bank will mobilize resources for infrastructure and sustainable development projects The New Development Bank will mobilize resources for infrastructure and sustainable development projects Picture: www.ronmamita.files.wordpress.com

On Feb. 25, at a Cabinet meeting chaired by Prime Minister Narendra Modi, India cleared the way for the creation of the proposed five-nation BRICS bank, the New Development Bank (NDB), which will mobilize resources for infrastructure projects, and provide short-term liquidity to emerging economies in case of payment crises. Modi’s Cabinet responded promptly to a Ministry of Finance request of Feb. 10 to ratify the NDB and allocate funds.

India thus became the second of the five BRICS nations - Brazil, Russia, India, China, and South Africa - to ratify the NDB. On Feb. 20, the Russian State Duma had ratified the $100 billion BRICS bank, which will serve as a pool of money for infrastructure projects in the five nations, and challenge the dominance of the Western-led World Bank and IMF. While China’s city of Shanghai will headquarter the bank, India will hold the presidency for the first six years once the Bank becomes operational. The Modi government has not yet named the president.

In clearing the BRICS’ other instrument, the Contingent Reserve Arrangement (CRA), set up at the 6th Annual Summit at Fortaleza, Brazil last Summer, the statement said: “The establishment of the bank will help India and other signatory countries to raise and avail resources for their infrastructure and sustainable development projects. It would also reflect the close relations among BRICS countries, while providing a powerful instrument for increasing their economic cooperation.”

 Global financial threat
Under the terms of the agreement signed by the BRICS leaders at Fortaleza, the NDB’s mandate is to “mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries.” To accomplish this goal, the Bank will “support public or private projects through loans, guarantees, equity participation and other financial instruments.” The initial subscribed capital of $50 billion will come from initial payments of $10 billion from each of the five BRICS members. Total authorized capital of the Bank will be $100 billion. Membership in the bank will be open to all members of the United Nations, and each member’s voting power will be equal to its subscribed shares in the Bank’s capital stock. The Bank’s governance will consist of a Board of Governors, a Board of Directors, and a President.

The CRA, meanwhile, “is a framework for the provision of support through liquidity and precautionary instruments in response to actual or potential short term balance of payments pressures.” Its initial $100 billion in committed resources will come in tranches: 41% from China, 18% each from Russia, India, and Brazil, and 5% from South Africa. BRICS nations will hold 55% of the voting power, and outside their domain, no country will be allowed more than 7% of votes.
The CRA’s two main instruments will be a liquidity instrument for providing funds in response to balance of payment problems and a precautionary instrument for permitting access to funds ahead of anticipated balance of payment problems. It would act as an additional line of defense against the IMF-created financial destabilization of countries which have brought about decades of economic devastation throughout the developing nations in Africa, Ibero-America, and Asia.

To set up the Bank and CRA, all five BRICS nations must ratify the proposal. On Feb. 19, South Africa’s Cabinet approved sending the ratification instruments over to its parliament. Brazil’s Senate has yet to take up ratification, but the head of the powerful National Federation of Industry (CNI) issued a call on Feb. 10 for it to do so quickly.

India, under the Modi government, has begun to concretize its plans to develop infrastructure-aided economic linkages with its neighbors. Presenting the 2015-16 annual budget, Finance Minister Arun Jaitley, on Feb. 28, proposed that India set up manufacturing hubs in four Southeast Asian countries, as part of its “Act East” policy.

 The Bank will provide loans for infrastructure development. Visiting Washington last August, South African President Jacob Zuma made clear to Business Reporter why the developing nations should look forward to the NDB. He said the IMF had few success stories to show, despite the often austere regimens it imposes on troubled economies in return for emergency loans.

US Dollars
There is yet another role of the NDB that the BRICS member-nations are working on. One of the major problems that has caused untold misery to many developing nations over the years is manipulation of dollar-denominated currency market.

To further weaken the nation, IMF economists “restructure” the beleaguered nation’s economy and finance, calling for devaluation of its currency, curtailing all vital developmental and life-protecting plans, and imposing austerity. Such policies have killed millions, removed many able leaders, destroyed political processes, and have created a political environment where only those who are beholden to the West, and willing to carry out the IMF-World Bank-dictated policies, could be permitted to survive.

It is likely that at the April board meeting of the NDB, another subject of discussion will be the usage of each other’s currencies in lieu of the dollar. At the Fortaleza summit, the BRICS leaders had announced that the New Development Bank would help its member-countries to avoid the adverse effect of dominance of the dollar, and the dollar-backed IMF and World Bank, in world trade. The process might have begun already. Russia and India Report (RIR), in a Feb. 28 article, titled “Goodbye dollar? BRICS set to enhance trade in national currencies,” said Russia is well ahead in planning a transition to making trade settlements in rubles and yuan. “In the long-term, of course, settlements in the ruble and yuan are very promising,” Putin said at the Asia-Pacific Economic Cooperation (APEC) summit, in November in Beijing. After his statement, Russia’s largest bank, Sberbank, began financing letters of credit in yuan and performed the first transactions in yuan with one of Russia’s largest companies. The two countries aim for a broader use of the yuan and the ruble in mutual settlements in various industries, including defense, telecoms, energy, and mining.

In March 2014, Brazil signed a deal with China to trade in its own currency, to protect itself from dollar fluctuations. Likewise South Africa, has been trying to enter into bilateral agreements with other member-countries of the group as a step towards replacing the dollar as the main unit of mutual trade and investments.

RIR also reported that India and Russia have set up a Joint Working Group (JWG) to work out an “appropriate mechanism” for rupee-ruble trade.
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Last modified on Friday, 20 March 2015 17:38

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