WASHINGTON/BRASILIA Nov 9 Leading emerging
market countries are discussing pooling up to $240 billion in
foreign exchange reserves to protect themselves from short-term
liquidity pressures, according to documents outlining plans by
the five BRICS nations.
BRICS countries China, Russia, India, Brazil and South
Africa announced a working group in June to look into jointly
pooling reserves and creating a new development bank to fund
infrastructure projects in the developing world.
According to the documents, obtained by Reuters, the pool of
central bank money would be available to BRICS facing balance of
payments difficulties. Some, however, are also pushing for a
precautionary credit line, similar to the IMF's that provides
countries with insurance against outside economic shocks.
The move is part of growing frustration among the BRICS and
other developing countries with the continued dominance by the
United States and European countries of global institutions like
the International Monetary Fund and World Bank.
BRICS officials meeting on the sidelines of a recent G20
summit of finance ministers from developed and developed nations
sought to advance their plans ahead of a BRICS leaders' summit
in South Africa in March.
Planned currency swap arrangements would also give BRICS the
ability to lend to each other to keep markets liquid.
Officials at the G20 BRICS meeting, who spoke on condition of
anonymity, said China had emphasized that the size of the
reserve pool needed to be sufficiently big to be taken seriously
Officials believe that the BRICS reserve pool should be
similar in size to the Chiang Mai Initiative of southeast Asian
countries, which was doubled to $240 billion in May to boost
their protection against external shocks.
The Chiang Mai program, first agreed in 2000, has never been
put to use because it would require the country to request a
program from the IMF, which was blamed for insufficient bailouts
during the Asian currency crisis of 1998.
Eswar Prasad, a Cornell University economics professor and
senior fellow at the Brookings Institution in Washington, said
the proposed plan for pooling resources posed a "strong and
serious challenge to existing global monetary arrangements."
"Irrespective of the logic and possible complications of
these schemes to pool their funds, these proposals from the
BRICS may have the salutary effect of prodding global monetary
reforms along at a faster pace," Prasad said.
Countries like China are keen to see its currency, the yuan,
added to the IMF basket of currencies, currently including the
pound, yen, euro and dollar, that make up the IMF unit of
account, the Special Drawing Right.
While a number of the BRICS believe disbursements from the
reserve pool should be made in U.S. dollars, others preferred to
use the SDR.
"In terms of disbursement, the preference would be to use
the US dollar or other reserve currencies, but the view was also
expressed that part of the disbursements could be made available
in BRICS national currencies," according to the documents.
Discussions are also looking at what conditions should be
attached to the reserve pool. One question is whether the scheme
should be linked to an IMF program, which could be a bitter pill
to swallow for any of the BRICS. Some BRICS are arguing for a
partial link to the IMF, with an initial quick disbursement
subject to rules of the pooling.
RESPONDING TO NEEDS
The BRICS are also considering creating a new development
bank to support financing of long-term infrastructure projects
for emerging and developing economies, to meet the pressing need
for roads, railways, ports and electricity.
The BRICS bank would be in competition with the World Bank
and other multilateral development banks, which also provide
loans for infrastructure projects. However, countries like India
are already facing limits on its borrowing from the World Bank.
The BRICS documents noted that existing multilateral
development banks are under capitalized compared to the growing
needs of emerging economies and developing countries.
The new bank would initially issue non-concessionary
project-linked finance to members, meaning that the financing
would be at a higher cost. A small window of low-cost loans
could be considered as the bank expanded, the documents said.
The World Bank and other institutions have long insisted
that lending to poor countries should involve low-interest loans
to avoid pushing up their debts to unsustainable levels.