Brics development bank on the cards

The new bank will focus on financing infrastructure development projects and providing auxiliary support for project preparation such as feasibility studies‚ according to a report released by Standard Bank on Monday (25 February).

Standard Bank sees the proposed bank as an attempt to give an institutional underpinning to the Brics grouping‚ with the main ambition of directing development in a manner that reflects the the regions priorities and competencies. Standard Bank believes that the institution would contribute constructively to the development of more robust and inter-dependent ties between the the member states.

Standard Bank expects Brics to establish a working group at the summit.

"The proposed bank is expected to operate as a conduit for funding economic development‚ much like the World Bank. We believe the bank will focus on financing projects linked to regional bilateral projects and have shared interests such as job creation and urbanisation‚ with a particular emphasis on physical infrastructure projects‚" says Jeremy Stevens‚ Standard Bank's Beijing-based economist‚ who is also one of the authors of the report.

"However‚ the bank will not be a counter-weight to other multilateral development banks‚ but rather an auxiliary funding institution‚ aligned to Brics development agenda."

He adds that the success of such a bank will depend on its specialisation‚ rather than creating overlapping agendas with other development financing institutions including the Brazil Development Bank‚ China Development Bank and Export-Import Bank of India.

"A host of pragmatic issues require resolution‚ including the funding source‚ ideal borrower (whether it will be sovereigns or companies in the private sector)‚ types of projects‚ geographical reach‚ bank headquarters and many others‚" Stevens says.

It has been proposed that each of the five member states would initially contribute US$10bn in seed capital to the new bank, which would then aim to borrow from global capital markets by issuing bonds‚ as a non-resident borrower in the US‚ Europe‚ Hong Kong and elsewhere.

"The egalitarian principle behind the proposal for the seed capital is commendable and based‚ presumably‚ on a desire to avoid discrepant influence and political tension created by varying contributions‚ but it is inevitable that the contribution will pressure some members more than others," Stevens says.

"It seems the eventual contribution to the bank‚ and the distribution of the associated risk‚ may vary and influence the fund's decision-making process. Unless pragmatically managed‚ political strains similar to those faced within the IMF may emerge‚" Stevens says.