BRICS Countries to Set Up Development Bank to Rival to the World Bank

The BRICS countries – Brazil, Russia, India, China and South Africa – have agreed to establish an international bank on the lines of the World Bank to finance infrastructure programs in their territories.

The announcement came this week at the BRICS summit in Fortaleza, Brazil. The bank will be headquartered in the Chinese city of Shanghai and the first president of the bank will come from India.

Reports say the bank will start off with US$50 billion in initial capital, but aims to raise this figure to US$100 billion within months. Analysts believe the capital for the bank will be split equally among the member countries.

Talk of the BRICS development bank was in the air for a long time, because China and India have often demanded a larger role in the management of international funds like the World Bank and International Monitory Fund (IMF).

Moreover, they were concerned that the World Bank and IMF were largely controlled by developed nations like the United States.

How Can Brazil Benefit?

India and Brazil are likely to benefit largely by the BRICS bank as their cash-crunched treasuries are presently finding it extremely difficult to finance the infrastructure programs they have already announced.

Brazil, which will stage the Olympic Games in 2016, has embarked on a string of programs to bolster its infrastructure. Moreover, Brazil’s economy is slowing down as demand for mineral resources has declined in China.

The South American country grew just 0.2% in the first three months of this year. And with elections coming up in October, the Brazilian government faces the daunting task of raising money for its infrastructure programs.

The good news is the funds of BRICS bank will also be used to deal with short-term liquidity pressures, promote further economic cooperation and strengthen the global financial safety net.

Brazil has huge natural resources to tap and a smaller population to feed than its BRICS peers. And it attracted around US$62 billion in foreign direct investment in 2012, making it the largest recipient of FDI in the world after China and the United States.

If planned properly, analysts say, Brazil can use the BRICS bank to put its finances in order and bolster infrastructure.