Durban: In a major move aimed at reforming the global financial architecture, the BRICS finance ministers Tuesday agreed on the setting up of a development bank to fund infrastructure and development projects in the five-nation grouping of emerging powers.
"We are reporting to the Heads (of governments) that the BRICS bank is feasible and viable," Finance Minister P Chidambaram told PTI after a meeting with his counterparts from Brazil, Russsia, China and host South Africa in this port city ahead of the summit on Wednesday.
The agreement came after weeks of negotiations among the five emerging economies in a move aimed at changing the rules of governance in global governance, especially the Bretton Woods institutios like the World Bank and International Monetary Fund.
The summit formally opened tonight with a cultural programme and a dinner hosted by South African President Jacob Zuma but main discussions will be held Wednesday. A 'Durban Declaration' will be released at the end of the summit.
Senior Indian negotiators have said that the BRICS bank initiative will be cleared at the level of the heads of government when the summit adopts the report of the finance ministers.
Issues including capital, membership and governance still dog the BRICS bank over which a final document may get ready by next year. Still it may take years before it finally gets going, Indian sources said.
Hailing the BRICS bank initiative, FICCI President Naina Lal Kidwai, who is leading the Indian delegation at the BRICS business forum, said first it will lead to credit enhancement as existing banks alone were not able to fund projects in the countries because of the tenure of the loans and deposits they have.
The BRICS bank can also borrow from other banks to pitch in with the much-needed capital, she said.
The BRICS bank will focus on funding infrastructure and development projects in the BRICS and other emerging economies and developing countries in a direct challenge to the way the World Bank and IMF do their business.
However, Indian negotiators are also conscious of the fact that issues like capital, membership and governance are yet to be thrashed but before the summit can put a seal of approval on launching the BRICS bank.
Discussions are on over the capital for the development bank, initially envisaged to be set up with a corpus of USD 50 billion, to be shared equally by the five members. Now Indians are a little cautious over the enthusiasm of Chinese to pick up higher stakes in the capital if some members find it difficult to come up with their share.
The other issues are whether the membership should be confined to just the group's members are should it be open to including developed economies as members. Also whether the development bank should fund projects on differential rates of interest or whether it should be at the market rates to sustain itself as a viable unit in the long run.
Also whether the bank should be on the lines of the Bretton Woods institutions like the World Bank and IMF but with no dominance to one country in the quota and voting rights, Indian sources said.
The finance ministers would present the report for the heads of government (President Zuma of South Africa, Xi Jinping of China, Vladimir Putin of Russia and Dilma Rouseff of Brazil and Prime Minister Manmohan Singh) Wednesday who are expected to approve the roadmap for the creation of the bank.
The final document on setting up the bank could be ready by next year and from then on it could take a few years to start operations of the bank.
The setting up of the bank has been generally welcomed as a very important step which can address gaps and challenges in critical sectors. The public and private sectors in these countries could be expected to seize the opportunities and evolve collaborations at the level of group, bilateral as well as third country collaborations.
The other major issue at the summit is the need for reforms of global governance architecture, including the international financial institutions. There is a feeling in the BRICS and developing countries that the global institutions are yet to reflect the changing global picture where the emerging economies are playing a larger role.
Another agenda for the BRICS economies is to work with the international community in keeping the multilateral trading system stable, curb trade protectionism and push for a comprehensive and balanced outcome of the Doha round.
In 2011, BRICS economies accounted for almost 27 percent of the global gross domestic product in purchasing power parity terms and 20 percent of global gross domestic product in nominal terms.
Data shows that merchandise imports from the world into the BRICS countries has gone up from USD 2.2 trillion in 2010 to USD 2.8 trillion in 2011. Likewise, the global merchandise exports of the BRICS countries have gone up from USD 2.5 trillion in 2010 to USD 3 trillion in 2011.
The BRICS countries have been a major destination for global FDI inflows.
Data shows that FDI flows to BRICS economies from the world increased from USD 232 billion in 2010 to USD 280 billion in 2011, which is almost 18 percent of total global FDI flows.
Further, the BRICS countries have also emerged over time as an important source of FDI. In 2011, outward FDI flows from the BRICS countries was to the tune of USD 1.45 billion.
The combined foreign exchange reserves of member countries are estimated at USD 4.3 trillion, BRICS accounts for approximately 40 percent of global reserves.
In 2011, most of the BRICS economies witnessed a GDP growth that was either close to or much higher than the world average. The same trend was repeated in 2012 and as per IMF's projections, all BRICS nations, except South Africa, will once again better or match the global average growth rate in 2013.