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July 15, 2014

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Shanghai to host support bank for BRICS nations

SHANGHAI is favorite to become the headquarters of a development bank being launched by the BRICS group of emerging market nations.

Brazil, Russia, India, China and South Africa are due to sign off on the new institution today, along with an emergency reserves fund, after two years of negotiations, a major step for the group.

Russian presidential adviser Yuri Ushakov told Kremlin reporters late last week that the bank will be based in Shanghai, citing discussion papers prepared by the member countries.

Earlier, Russia’s finance minister said India was vying with China to host the new infrastructure lender.

“The bank’s headquarters will be located in Shanghai. This is fixed in the documents,” Ushakov said.

In a further sign that an agreement had been reached on the headquarters, an Indian government official yesterday played down the debate and said the country’s top priority was to make sure members of the institutions all had equal voting rights, unlike Western-run multilaterals they seek to challenge, such as the World Bank.

“Equitable shareholding is the principal goal for India,” the official said.

Second on India’s list of concerns was giving the bank a name that would allow non-BRICS nations to join in future, the official said.

China’s Ministry of Finance did not immediately respond to a request for comment.

In a short statement before leaving for the BRICS annual summit that started in Brazil yesterday, Indian Prime Minister Narendra Modi gave his stamp of approval to the name “New Development Bank” — a name widely circulated in recent days.

Modi, who took office in May, is due to meet with China’s President Xi Jinping at the summit for the first time since his election.

The BRICS will pool an initial US$50 billion in the bank, with each country contributing an equal amount, and seek to gain international influence by offering developing nations alternative financing to the World Bank and International Monetary Fund, long dominated by the United States and Europe.

Many of the bank’s rules of operation, such as investment in private projects, will be decided after its formal creation at the summit in the Brazilian city of Fortaleza. The bank is expected to make its first loan in 2016.

The BRICS will also set up a US$100 billion contingency reserves pool as an alternative to the International Monetary Fund and that could start operating by next year to help any of its members if they are hit by an exodus of foreign capital.

The BRICS group is at the forefront of a growing chorus of emerging and developed nations that complain the IMF and World Bank impose belt-tightening policies in exchange for loans while giving them little say in deciding terms.

The proposed bank and the reserves fund are a response to failed attempts to increase the BRICS’ influence within the IMF, at the center of the post-war Bretton Woods monetary order created by the US and Europe.


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