The world’s major developing nations are laying plans to combine their economic clout in a challenge to the role that U.S.- and European-led institutions such as the World Bank and International Monetary Fund play in global economic affairs.
Meeting this week in Durban, South Africa, the loose consortium known as the BRICS nations — Brazil, Russia, India, China and South Africa — are expected to approve establishment of a “BRICS bank” to fund infrastructure projects in poorer countries. They are also debating creation of a pool of funds to use in times of crisis, similar to what the IMF does with money from its member nations.
The BRICS countries are growing in economic power.
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Ahead of the meeting, Brazil and China agreed to a separate $30 billion currency swap that would allow much of the trade between the two nations to be financed without using dollars or euros as a common means of exchange.
The efforts are modest in relation to the size of the five economies involved and small compared with the world’s annual flow of trade and financing. The bank, for example, would start with an estimated $50 billion; the BRICS countries combined hold about $4.2 trillion in foreign reserves, most of it in China, and have a combined annual economic output of about $15 trillion, about 20 percent of the world total.
But it is the most concrete collective step yet from a group of nations that are expected to drive world economic growth in the coming century and that have developed a sharp sense of competition with the United States and Europe over global economic leadership.
Since 2008, the BRICS nations have been dragged down by a financial crisis that started in the United States and been buffeted by a prolonged recession in Europe. They complain that central banks in major developed nations are setting policy with little regard to the rest of the world, and they have been frustrated over a stalled effort to change the power structure at the IMF to better reflect their role in the global economy.
Documents distributed by Brazil ahead of the meeting spoke of an effort to foster “greater autonomy from the IMF.” In a conference call before the summit, Brazilian Foreign Trade Minister Fernando Pimentel said the aim is not to displace organizations such as the World Bank but to show that there are alternatives to the institutions and financing regimes set up by the United States and Europe.
The proposed development bank, for example, “is not to be a rival to any existing multilateral organization. The objective will be to . . . offer the world economy a new financing tool, or an alternative financing tool, especially for developing nations,” Pimentel said. “The BRICS are an economic and a diplomatic bloc which has consolidated more and more at each summit it has had and each year that it has lasted, and we believe that it is now a permanent economic bloc in the international arena.”
Top officials in Washington have taken note. At a seminar last week, World Bank chief economist Kaushik Basu said that the issues raised by the BRICS nations were in part “a comment on the World Bank” and that the response should be for the bank to “be so effective and good” that no one would see the need for alternatives.