Snip ~ "The World Bank is interested in partnering the development bank proposed by the top five emerging economies, its president Robert Zoellick said Friday, but he listed possible hurdles in the way of creating such a multilateral lending agency"
March 30, 2012
BRICS - Dollar dominance challenged
Leaders of five countries – Brazil, Russia, India, China and South Africa, also called BRICS – who met in Delhi on Thursday, have one tangible achievement to their credit: they signed agreements to encourage trade in local currencies instead of the dollar. This will cut their transaction costs and limit the dollar dominance. They asked the rich nations to adopt responsible financial policies and avoid creating excess liquidity through low interest rates, which also lead to volatility in global commodity prices. The five emerging economic powers, which account for almost half of the world population and a fifth of its output, came together under the BRICS umbrella in 2009 to press for reforms in the West-dominated global financial system. Their economies were destabilised, first by the 2008 financial turmoil, post-US sub-prime crisis, and then by the sovereign debt crisis in the Euro Zone.
It was, therefore, in order for the Delhi summit to demand reform of the IMF and the World Bank. Since World Bank president Robert Zoellick’s five-year term is ending in June, the BRICS members expressed support for a candidate from a developing country. To counter influence of the US-dominated financial institutions, India suggested a South-South Development Bank. The proposal was left for the BRICS finance ministers to study and may take a lot of effort, resources and political will to materialise since the members have divergent interests and opinions.
For instance, India, Brazil and South Africa compete for a permanent seat in the UN Security Council. China is not very supportive of India getting this honour. Still, at a separate meeting, spoiled partly by Tibetan protests, Prime Minister Manmohan Singh could extract a promise from Chinese President Hu Jintao to encourage greater Indian exports since the trade imbalance is heavily in China’s favour. The Delhi summit called for dialogue, instead of military intervention, in dealing with violence in Syria and Iran’s nuclear ambitions. Disregarding US pressure, BRICS recognised Iran’s right to pursue a peaceful nuclear energy programme. Inherent conflicts notwithstanding, BRICS is going on the right track, albeit slowly.
The World Bank is interested in partnering the development bank proposed by the top five emerging economies, its president Robert Zoellick said Friday, but he listed possible hurdles in the way of creating such a multilateral lending agency.
Brazil, Russia, India, China and South Africa have asked their finance ministers to study the possibility of setting up a development bank that they hope could offer an alternative to the U.S.-dominated World Bank.
"It's not an easy sort of task," Mr. Zoellick said at a news conference.
The Brics members need to agree on capital composition, governance structure, location, and on the person who would head the organization, he added. Getting a top credit rating to ensure access to cheap cash would also be one of the key challenges for the Brics bank, Mr. Zoellick cautioned.
The Brics members Thursday signed two pacts that would allow their export-import banks to offer credit in local currencies. The move, which is aimed at boosting trade among the countries, underscores a growing resolve to tighten financial cooperation.
Mr. Zoellick said the World Bank, already a partner of regional development banks, would be open to sharing its knowledge on global operations and even pursuing opportunities for joint financing with the proposed Brics bank.
"I suspect we would be able to complement each other," he said.
The World Bank, which plans to lend India at least $1.8 billion annually to fund development initiatives, said its International Finance Corp. unit will invest $1 billion in the South Asian country this year.
The World Bank group has so far invested $42 billion in Asia's third-largest economy, Mr. Zoellick said, while expressing his confidence on India's potential to grow at about 7%.
He added that the global economy remains under pressure as tension between Iran and the West threatens to squeeze crude oil supplies and push up prices
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