Story of the new Development Bank to be headed by K V Kamath
The idea of promoting a new institution to fund infrastructure and development in Brazil, Russia, India, China and South Africa (BRICS) and other developing economies gathered momentum after 2010, when BRICS realised that governance reforms at the IMF weren’t quite coming along. These countries accounted for 20% of global GDP, had huge currency reserves, and were home to over 40% of the world’s population, but their strength was not reflected in the global financial order — specifically, in the structure of international institutions such as the IMF and World Bank. The 2008 crisis, according to this group, exposed inadequacies and deficiencies of the monetary and financial system. The World Bank, it said, must reflect the vision of all its members, and promote partnership without ‘donor-recipient dichotomy’.
At the Delhi Summit of 2012, BRICS heads directed their finance ministers to study the feasibility and viability of such a lender. The aim was to promote a new development bank for projects in their countries and other developing nations, and to supplement efforts of the IMF, World Bank, ADB, etc. At the 2013 Summit in South Africa, it was decided that they would have their bank, having been convinced that it was feasible and viable. The concept took concrete shape at the next Summit in Brazil in 2014.
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The bank will have a capital base of $ 100 billion and an initial subscribed capital of $ 50 billion, shared equally by the five shareholders. The bank’s headquarters will be in Shanghai, with a regional centre in South Africa. India has appointed the first president, K V Kamath. The first chairman of the Board of Governors will be a Russian nominee; the first head of the Board will be from Brazil.
Mindful of the threat to their local currencies and the impact of monetary policies or interest changes in the West, BRICS nations have signed up for a Contigent Reserve Arrangement or CRA worth $ 100 billion. Should there be short term pressures on balance of payments, or an attack on their currencies, they will have recourse to this pool.
BRICS has set its sights on pushing IMF, World Bank and others to reform faster. The operationalisation of the bank might lead to global lenders lowering rates and relaxing terms of disbursement. Project lending may benefit with more funding options, especially if the five BRICS nations work closely together. But sceptics point to China’s global ambitions — it has been pushing ahead with the Asian Infrastructure Investment Bank, which even countries like the UK are lining up to join.