Location of BRICS bank remains a thorny issue

Initial discussions had suggested that the bank be located in Shanghai. However, India has turned down the suggestion

Ahead of the annual BRICS (Brazil, Russia, India, China and South Africa) Summit in Durban next week, differences have cropped up over the location of the proposed BRICS Development Bank.

Initial discussions had suggested that the bank be located in Shanghai. However, India has turned down this suggestion, officials involved in the discussions told Business Standard.

"This is something that cannot be decided so easily. All five countries have to agree to this proposal. The working group has made some suggestions on the location, paid-up capital, manpower and equity base. All these issues will have to be discussed," said a senior official. (BRICS DATA SHEET)

During the summit next week, a feasibility report on the bank would be presented to all the leaders. Finance ministers from the BRICS countries had finalised the report last month. The report also talks of the probable location of the bank, which is now in contention.

During the last summit, which took place here last year, finance ministers from the five countries were asked to set up a joint working group to study the proposals and present a report within a year's time. The original idea to create such a bank, which will seek to finance the development needs of developing and least developed countries, was mooted in China in 2011.

The issue might be discussed during a meeting between Prime Minister Manmohan Singh and his Chinese counterpart Li Keqiang. The meeting is scheduled to take place on the sidelines of the summit on March 27, which will be taking place after a meeting of the BRICS Economic Forum on March 25, and BRICS trade ministers meet and BRICS Business Forum on March 26.

Although it will be a Brics-led South-South Development Bank, which will be funded and managed by the BRICS and other developing countries, non-Brics or the developed countries will also have the option to put their equity in it, depending on their ability.

"It will take another whole year before the contours can be finalised to the satisfaction of all its partners," said another official who did not want to be identified.

The proposed bank would be the developing worlds' answer to Bretton Woods institutions - World Bank and International Monetary Fund (IMF). In a joint statement issued during the last summit, leaders had stated that they were concerned about the "slow pace of quota and governance reforms" in the IMF. On World Bank, the leaders said that the "nature of the Bank must shift from an institution that essentially mediates North-South cooperation to an institution that promotes equal partnership with all countries as a way to deal with development issues and to overcome an outdated donor- recipient dichotomy."

However, experts are of the view that the conceived demarcation of the proposed bank from international and multilateral institutions, particularly Bretton Woods institutions, will not strengthen the position of emerging economies.

"Development banks established by economic or regional congregations should have a purpose that is non-conflicting with Bretton Woods institutions. Otherwise, we may end up seeing a spaghetti bowl of such development banks, just like the one that we see of regional trade blocs," said Faisal Ahmed, associate professor of international business, FORE School of Management.

Last year, leaders from the five BRICS countries had set a target of achieving intra-Brics trade of $500 billion by 2015. On the sidelines of the last G20 meeting in Mexico, Brics leaders had discussed swap arrangements among national currencies and reserve pooling.