BRICS bank to be headquartered in China but its first president will be an Indian

Brazil: In a major victory for India,the BRICS Summit decided to establish the newdevelopment bank with an initial authorised capital of $100billion for which the initial subscribed capital will beequally shared by the founding members, a point New Delhiemphasised to prevent by domination by anyone of the members.

The agreement on establishing the bank and a contingencyreserve arrangement with an initial size of 100 billion dollars came at a Summit meeting of the five-nation groupingin which Prime Minister Narendra Modi launched his first multilateral engagement with global leaders.

The new development bank of the group of BRICS countries will be headquartered in Shanghai, China, with the presidency initially held by India, Brazilian president Dilma Rousseff said on Tuesday.

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The deal was reached after intense last-minute negotiations to settle a dispute between India and China over the headquarters of the new bank, which will have initial capital of $100 billion to invest in infrastructure projects.

The new development bank’s Africa regional centre will beestablished in South Africa and currently with theheadquarters. “We direct our Finance Ministers to work out themodalities for its operationalisation,” the leaders said inthe Fortaleza Declaration adopted at the Summit.

India’s insistence on the equal sharing of the initialsubscribed capital was based on the premise that BRICS bank should not fall into the practices of the Bretton Woodsinstitutions like the IMF and the World Bank dominated by the United States.

Hailing the establishment of the bank and the CRA, Modisaid in the plenary session that the bank would now benefit not only the member-nations but also the developing world.The two institutions would now be a new instrument of safeguarding the economic stability in the context of thegreat international financial volatility.

He said there was a great need for reforms of the UNSecurity Council and international financial institutions to reflect the ground realities and to create a new financialarchitecture.

Noting that it is his first BRICS Summit, Modi said helooks forward to working with the leaders and building frompersonal bonds in the days to come. He said BRICS entered the second cycle of Summits todayat a time when instabilty is growing in many regions.For a climate of peace and stability, it calls for newerlevels of cooperation, he said.

“I believe for the first time an institution like BRICSbrings together a group of nations on the basis of futurepotential rather than existing prosperity. The very idea isforward-looking. BRICS must provide a united, clear basis fora peaceful and stable world”, the Prime Minister said.Modi said that along with the reform of the UNSC andinternataional financial organizatgions, the WTO regime shouldalso be reformed so that an open trading regime is necessaryfor a strong global trading arrangement that must address theaspirations of the developing world

Leaders of the BRICS group - which consists of Brazil, Russia, India, China and South Africa - are holding a summit in the Brazilian city of Fortaleza.

The agreement on the new development and the CRA wassigned by ministers from five countries, including Minister of State for Finance Nirmala Sitharaman in the presence of Modiand Presidents of China, Russia, South Africa and host Brazil.

The Declaration said BRICS as well as other emergingmarkets and developing countries continue to face significantfinancing constraints to address infrastructuregaps and sustainable development needs.It is in this backdrop that one has to seed the signingof the agreement for establishing the new development bank formobilizing resources for infrastructure and sustainabledevelopment projects in BRICS and other emerging anddeveloping economies, it said.

Based on sound banking principles, the Declaration saidthe bank will strengthen cooperation among BRICS countries and
will supplement the efforts of multilateral and regionalfinancial institutions for global development, thus"contributing to our collective commitments for achieving thegoal of strong, sustainable and balanced growth".

It said the BRICS Contingent Reserve Arrangement (CRA)with an initial size of US$ 100 billion will have a positive precautionary effect, help countries forestall short-termliquidity pressures, promote further BRICS cooperation, strengthen the global financial safety net and complementexisting international arrangements.

The agreement is a framework for the provision ofliquidity through currency swaps in response to actual orpotential short-term balance of payments pressures, accordingto the Declaration.

The BRICS also signed a Memorandum of Understanding onCooperation among BRICS Export Credit and Guarantees Agenciesthat will improve the support environment for increasing tradeopportunities among the member-countries.

“We appreciate the progress our Development Banks havemade in enhancing and strengthening the financial ties among BRICS countries. Given the importance of adopting innovationinitiatives, we welcome the conclusion of the Cooperation Agreement on Innovation within the BRICS Interbank CooperationMechanism”, said the Declaration.

Pointing to the potential for BRICS insurance andreinsurance markets to pool capacities, the Summit directedthe relevant authorities to explore avenues of cooperation inthis regard, said the Declaration.

With inputs from Agencies