BRICS bank to defy Western clout in global finances

BRASILIA, July 11 Fri Jul 11, 2014 1:05pm EDT

BRASILIA, July 11 (Reuters) - Leaders of the BRICS emerging market nations meet next week to launch a development bank and emergency reserves fund, an ambitious challenge to Western-run multilaterals that have shaped global finances since the end of World War Two.

Brazil, China, India, Russia and South Africa on Tuesday will sign off on the new institutions after two years of tough negotiations, a major step for the diverse group known more for its anti-Western rhetoric than coordinated action.

The BRICS will pool an initial $50 billion in the bank, with each country contributing an equal amount, and seek to gain international clout by offering developing nations alternative financing to the World Bank and International Monetary Fund, long dominated by the United States and Europe.

"This is symbolically important. It signals dissatisfaction of the BRICS countries with their position on the global economic stage," said Charles Collyns, global economist with the Institute of International Finance, which represents the world's major private banks and financial institutions.

"The fact that they are able to get together and agree on setting up these institutions is an important symbol of their rising importance," Collyns said.

The bank will be called the New Development Bank, not the BRICS bank, which leaves the door open for other emerging nations such as Turkey, Mexico, Indonesia and Nigeria to join as partners at a later date.

Many of the bank's rules of operations, such as future investment in private projects, will be decided after its formal creation at next week's summit in the Brazilian city of Fortaleza. The bank is expected to make its first loan in 2016.

CHINESE THREAT?

BRICS leaders will decide on Tuesday which country will hold the first five-year presidency of the bank and whether it will be headquartered in Shanghai or New Delhi.

Fears that China, whose economy is larger than that of all the other BRICS put together, could hijack the bank to serve its own interests have cast doubt on its future.

"The BRICS don't want to see a world in which China substitutes the United States as the global hegemon. Brazil and some of the others are very concerned with the rise of China," said Oliver Stuenkel, a professor at the Getulio Vargas Foundation in Sao Paulo who has written extensively about the BRICS.

The BRICS will also set up a $100 billion contingency reserves pool, which could start operating by 2015 to help any of its members if they are hit by a sudden exodus of foreign capital.

The BRICS group is at the forefront of a growing chorus of emerging and developed nations that complain the IMF and World Bank impose belt-tightening policies on them in exchange for loans while giving them little say in deciding the terms.

The New Development Bank and the reserves fund are a response to failed attempts to increase the BRICS' influence within the IMF at the center of the post-war Bretton Woods monetary order created by the United States and Europe.

The BRICS' voting powers at the IMF do not reflect the tremendous rise of their economies, which now make up nearly one fifth of global GDP and sustain 40 percent of the world's population.

The term BRICS was conceived in 2001 by Goldman Sachs economist Jim O'Neill as a catchy way to group together emerging world economic powers. In 2009, leaders of the countries embraced the name and began holding annual summits with an eye on boosting their collective influence globally.

Although the BRICS continue to grow at a faster pace than most developed nations, their economies have slowed sharply in recent years. Some worry the slowdown could hinder their influence in the global financial system even if they remain engines of world growth.

"The BRICS' weight on the global stage is closely linked to their economic performance," said Pedro da Motta Veiga, head of the Center of Development and Integration Studies in Rio de Janeiro. "They are not the same booming BRICS of a decade ago and that could diminish their clout." (Additional reporting by Anthony Boadle; Editing by Todd Benson, Editing by Tom Brown)

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