Brics Bank :will It be reality

Portfolio Management
Mohit Shah- 45 Vishal Jain- 24 Pooja gokani- 12 Sejal zaveri- 58 Imran patel- 35 Arzoo shah- 41

Acknowledgement
We would like to express our gratitude to Prof. Kapil for giving us this topic for our project as it gave me the opportunity to go beyond the book and look at the topic from a more practical point of view. It broadened my horizons and improved my understanding of this topic.

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Brics bank:Introduction Brics:Dream or Reality Brics bank:No thanks!IMF and World Bank are bad enough Recent articles on Bric bank Bibliography

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Brics bank:Introduction

The BRICS Development Bank is a proposed development bank of the BRICS nations. Its establishment was agreed to by BRICS leaders at the 2013 BRICS summit held in Durban, South Africa on 27 March 2013. Among its goals is to provide funding for infrastructure projects, and create a "Contingent Reserve Arrangement" worth $100 billion which will help member countries counteract future financial shocks. BRICS is a group of countries including Brazil, Russia, India, China, and South Africa.

Brics:Dream or Reality

First they embarked on a brick by brick development for themselves. Now they have jointly agreed to fund $4.5 trillion in infrastructure projects for themselves and for the developing world. The BRICS are at it. Having established themselves as the new face of global economy, Brazil, Russia, India, China and South Africa (BRICS) recently decided to set up their own joint development bank. Preparations for the bank are planned to be completed by 2014 BRICS Summit. Exact details of the vision, mission, function, and operations of the BRICS Development Bank have not been finalised yet. But development industry watchers say the institution is expected to a hybrid of the children of Bretton Woods, namely the World Bank and the International Monetary Fund. The move was initially seen as a challenge to mainstream global development lenders such as the World Bank and the Asian Development Bank. However, both these global lenders have in fact welcomed the BRICS proposal. Leaders from both the World Bank and Asian Development

Bank have dismissed the views that BRICS Development Bank will be threat to them. Instead, they have termed BRICS bank as a complimenting factor in the global development lending business. Still it is not going to be an easy ride for BRICS Development Bank. If formed, the bank will have significant impact on global political economy. Mulling on this note, Isobel Coleman of Council of Foreign Relations makes an important point. Coleman said that unlike the World Bank, the BRICS Development Bank cannot be expected to promote values like democracy, competitiveness, better governance, transparency, human rights, freedom of speech and related affairs. This is largely because the BRICS can hardly claim to have a unified political view - Brazil has a democracy, Russia is marked by entrenched oligarchy, while China has a unique state-led capitalist model run by single party. Then there is a voting problem. If the BRICS bank ends being mainly financed by China - which is what Beijing wants at the moment - then China will have a global institution at its hands just as the US and EU have their grips on the IMF and World Bank. If these are not enough barriers to materialisation of BRICS bank, here is another major one: The IMF is still tight-lipped about the whole deal. While the ADB and World Bank welcomed the news, all that the IMF could say "we e following this initiative with great interest".

Recall that the IMF has had a tendency to dominate the market of global lenders of the last resort. This tendency surfaced when the agency joined the US government to shoot down the idea of Asian Monetary Fund in 1997.

In 1997, Japan - along with China - offered $100 billion to help create an Asian Monetary fund. But, according to Nobel laureate Joseph Stiglitz, the US Treasury did everything in its position to squelch the idea and the IMF joined in. "The reason for IMFs position was clear: While the IMF was a strong advocate of competition in markets, it did not want competition in its own domain and the Asian Monetary Fund would have provided that," Stiglitz wrote in 2002. Keeping these ideological and historical threads in mind, BRICS are up for a daunting challenge. Winning this battle is crucial for them to prove that they are the new economic masters of the world.

Brics bank:No thanks!IMF and World Bank are bad enough

Led by China, the five BRICS states (Brazil, Russia, India, China, South Africa) plan to set up a development bank of their own. This is loosely characterized as an IMF and World Bank rival, which is to say an unholy combination of the two. Does this mean the fast-growing graduates of the Developing World are finally coming together as a potent force? It does not. Chen Yuan, the veteran of the China Development Bank, has been tasked with making this ill-defined BRICS Bank a reality, but as of yet there is no plan even on paper. The new institution might support infrastructure projects in the nondeveloped world, or leverage a stronger presence for China and its four friends anywhere they find takers, but so far it is still a phantom project.

What is most striking about this first really tangible BRICs initiative is its lack of originality. Everything so far points to the BRICs bank mimicking one or more of the Bretton Woods institutions that western nations devised after WWII with the objectives of supporting war recovery and spurring (peaceful) postwar development. (Whether their track record on development really makes them such good models for imitation is a question for another day.) At the core of the planned development bank of the BRICs is a large void: an apparent lack of a central mission these countries want to collectively accomplish. Their development bank-project amounts more to an announcement that they will have one, too just like the established economic powers. Theyre free to have one, of course. The BRICs nations are already enmeshed in the status quo structure of international development finance, as it is, though they are clearly not satisfied with the role they play in the IMF and World Bank. China especially, which has long demanded a larger role in the Bretton Woods institutions, has a valid point. But these institutions seem a strange model to emulate: China is renowned for offering no-strings development aid, particularly in Africa, as opposed to the tied or limited aid that usually comes from the development banks or bilateral deals. The western concern has been that its own development aims, whether in the field of human rights, public health, or improved

governance, will be shot to bits if aid recipients can get unconditional deals from China. What the supposed BRICs bank could do, though, is heighten Chinas influence in places perceived as outside of its current realm of influence, yet more amenable to suasion by Russia, India, or Brazil. That would allow China to render services (or cash and credits as needed) via the other four BRICS. Aidlaundering, as it were. This also makes sense of South Africas membership: While the country doesnt fit the rapid-growth criteria of the other four, it is in the mix for prestige and an African presence. None of this will necessarily have profound geopolitical repercussions: The BRICs have not yet proposed their own trading bloc, and deal with their share of trade tensions within the group. Particularly Brazil and South Africa lock horns on agricultural products. They arent trying to stop the planned Trans Pacific Partnership anchored by the US. They say they are committed to the WTO principles of free trade as an aspiration of the postwar world trade order. They are certainly not planning a Euro-style currency bloc, although China keeps pushing for Renmimbi convertibility to establish its currency as an eventual competitor for the dollar. They dont have treaties of mutual defense and support, and they continue to embrace all the status quo institutions of international relations, in short global governance: the UN, WTO, G20, and the various development banks. The BRICs alliance is probably best seen as a collective effort to secure greater leverage in all these longstanding institutions, and generally to be seen as the champion(s) of less developed nations in their decision-making processes. Not an unreasonable goal, but not a very exciting one especially since the BRICs agenda doesnt trump the BRICs members extant individual obligations as members of the Bretton Woods institutions, or their commitments and treaty obligations with the rest of the developed and developing world.

The BRICs are waiting expectantly, and not necessarily vulturelike, to see what their opportunities in a multipolar world will be. Everyone assumes the so-called unipolar world revolving around the United States is on its way out (if it isnt already), and (to the extent the Eurozone is counted as part of the U.S. orbit) it isnt daring to predict that will happen sooner, rather than later. Its fair enough to extrapolate from todays trends a trajectory for the global economy, but it would be folly to assume it cant come out any other way. And if it werent to happen soon, expect the loose BRICs-alliance to break apart before long. Russia needs China much more than the reverse, and the longstanding territorial rivalries between China and India are seething just below the surface. Brazil may be better placed to play a leading role in the economies of the southern hemisphere than get enmeshed in global power-plays. Russia isnt growing so fast these days, Chinas growth has been bogged down by systemic corruption and increasingly obvious environmental and social limits, and slowed down by design, to achieve a hope-for sustainability instead of a crash. The BRICs, by pushing modification of the old order while pretending to proclaim a new one, merely reinforce the global preference for gradual evolution of global economic relations, not a revolution led by newly-wealthy players on the global stage. This makes sense, given that wealth has been won by adopting western-style markets and at least to some extent newfound respect for the rule of law in international relations.

Recent Articles Brics bank:A reality check

The South African Finance Minister, Pravin Gordhan expressed jubilation on the eve of the BRICS summit saying: We made very good progress, the leaders will announce the details (about the BRICS bank). The BRICS bank is poised to be an alternate economic pole in the post-Cold War world. With this sentiment, perhaps none of the members of the grouping would disagree. As the international financial system is not in a good shape, with economies in the parts of the north are in shambles, it is perhaps a prudent decision on part of the leaders of the grouping to think of an alternative system in comparison to the Bretton Woods structures of International Monetary Fund (IMF) and World Bank. As the two-day summit takes place in the port city of Durban in South Africa, the expectations certainly galore. The media is abuzz that many novel things will be announced, among which the creation of the bank will be a core achievement of the summit. South Africa expects that the bank will play a key role in its development in funding projects like infrastructure. The South African President, Jacob Zuma appeared enthusiastic about the prospects of the bank and argued, BRICS provides an opportunity for South Africa to promote its competitiveness.

HOT TOPIC: BRICS Certainly a lot of deliberations and negotiations have gone into the bank idea. Indias Finance Minister, P. Chidambaram told the press that We are reporting to the Heads (of governments) that the BRICS bank is feasible and viable. The tentative plan is that each country will have to contribute seed money of $10billion. The bank is expected to emerge as a flagship bank not only for the members of the grouping but also of the whole developing south. Chinese President, Xi Jinping during his speech in Tanzania, before arriving at Durban summit, elaborated his countrys role as an emerging power and argued that his country is interested in the growth of Africa, while respecting their dignity and independence. With $8.25 trillion, Chinas GDP is almost twenty times higher than South Africa at $390 billion. An impartial assessment would make it clear that further deliberations need to go into the making of the bank. The establishment of the bank can be a cherished goal. But ideals themselves do not make reality as appropriate flesh and bone have to be supplied to give concrete shape to ideas. My assessment reveals that there are three areas on which fleshing out of differences between the members of the grouping need to take place. These areas include: design, leadership and location. The current summit, as reports suggest, may include in its final statement the idea of establishment of bank. But, unless these three issues are addressed the BRICS bank idea may not be an enduring one.

The design of the bank has not yet been fully finalised. Perhaps these questions are to be analysed in detail. First, what will be the criteria for membership of the bank? Will it be confined only to the members of the grouping, or any country including developing and developed be allowed to be a member of the bank? Will there be a system of quota as per the size of economy of participating country as in case of Bretton Woods structures, or all participating members will have equal voice? Will the bank allow differential interest rates in sanctioning loans to countries, or will it have a standard interest rate through all cases? Unless these issues are fleshed out in detail, the problems will galore later even if the bank is established. Russian Finance Minister, Anton Siluanov struck the right chord when he argued, There is positive movement, but there is no decision on the creation of the bank, further adding Instructions will be given to speed up the process. He hinted that in the forthcoming G-20 meeting in April the members will further deliberate on this issue. As per the leadership of the bank is concerned, it more veers around the decision making process within the bank. Unless there is coordination among the members on this issue as to what has to be the exact modicum in arriving a decision, the bank will fail to realise its purpose. If the bank is modeled in the line of Bretton Woods structures, the very purpose of the bank will be put into question as it is aimed at providing a playing field to developing countries. The very BRICS members have questioned the working of IMF and World Bank. If the models of these banks are adopted, then certainly China will have more weight than other members of the grouping. The point then is whether the bank will be led by a particular member, China, or it has to be a collective body with each members having equal voice. Unless this issue is settled, the bank will have to confront problems in future.

The location issue is quite significant as well. Russian Finance Minister, Anton Siluanov argued that A decision on the location of the bank and funding still needs to be made. The location of the bank in a city will not only raise the profile of that city but also of the country in which it is located; it will provide a vantage point to the country itself. An analogy can be made here. The location of the United Nations and Bretton Woods structures in New York in the US has provided the country advantages. Had these institutions been established in a city in Asia or Africa the politics among nations perhaps could have been different. There seems to be underlying friction as to the site for this bank. There may be branches of the bank in all member countries though headquarter of the bank certainly will have its special charm. A news report highlighted the differences and pointed out that, instead of the detractors of the grouping, it is the differences within the grouping that have marred the evolution of consensus among the members. This lack of consensus is a major obstacle against establishment of the bank. The BRICS idea is certainly a trend setter in world politics. Despite its myriad fallacies, it is no doubt that the emergence of BRICS indicates that the world is no more confined to ideological blocs or rivalries, rather the world has become more polycentric. The very philosophy underlying BRICS needs to be applied in the establishment of the bank. It will be fine if the final statement of the summit mentions the establishment of the bank in near future, while leaving scope for further deliberations on the issue. Perhaps by the time next summit takes place in 2014, these issues will be sorted out, and BRICS will add bricks to the bank and emerge a more solid, vibrant and effective international power centre.

Brics bank:Set to become reality

NEW DELHI: The leaders of India , China, Russia, Brazil and South Africa are likely to announce the agreement to form a BRICS bank in Durban on Wednesday, setting their finance ministers the tough task of thrashing out vexed issues related to the capital, membership and governance of the financial institution supposed to cater to the development needs of members of the grouping. Sources said the leaders of the five-member BRICS grouping will accept the recommendation of the finance ministers to set up the bank. The group of finance ministers is likely to suggest a roadmap for dealing with thorny issues, such as the corpus, who should be its members and whether voting rights should be proportionate to the contributions of member countries. The bank was conceived to meet the infrastructure needs of members an acute concern particularly for India and Brazil after the proposal to set up an international infrastructure bank exclusively for the purpose failed to take off. The foreign exchange reserves will be a buffer against volatility of international capital and speculators. On the issue of corpus, China is keen that the development bank should start with $100 billion. As against this, India seems to be more comfortable with a rather modest amount of $50 billion, given the financial health of BRICS countries. India is wary of China's offer to do the heavy lifting for others, who may not arrange the funds, as it will help China dominate the functioning of the development bloc. Sources pointed out that a corpus of $50 billion would be adequate for the grouping, and

compares favourably with World Bank's $278 billion. The concern to ensure democratic functioning of the proposed bank is the driver also for the debate over whether voting rights of member countries should be in proportion to their respective contributions . India cannot be expected to be very enthusiastic about the linkage between contributions and say in governance , having seen how the US, with 17.5% voting rights, continues to dominate functioning of the World Bank. FMs will be required to sort out the issue of whether membership of BRICS bank should be limited to members of the grouping or should be thrown open to others. India is not keen to have the bank headquartered in the country.

Bibliography
www.guardian.co.uk www.brecorder.com www.timesofindia.com www.wikipedia.com