Defending the move by BRICS nations to set up a bank, China said developing world had been left with few options but wants the Governments to allocate the initial seed money.
If Beijing had its way, after leaders of the five countries approve the pacts for local currency trade and the bank on Thursday, the idea could be forwarded to other emerging countries at the forthcoming G-20 summit in Mexico. This is an idea that India and Brazil had also suggested at the G-20 Finance Ministers' meeting.
China expects a broad consensus to emerge at the BRICS Ministerial meeting on Wednesday, a day before the summit proper and its Foreign Ministry official Li Kexin is hoping that India - as chairperson of BRICS till the next summit and draft-country for the action plan - will be able to draw up a realistic timetable of follow up meetings to make it a reality.
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Explaining the need for Government money in the initial capitalisation of the Bank, BRICS specialist at the influential Chinese Academy of Social Sciences Li Zhongmin said this would ensure good credit ratings from Moody’s and Standard & Poor which in turn would enable the bank to raise finance at lower interest rates.
“BRICS countries have been left with few other options. One avenue is utilisation of foreign exchange reserves, which all BRICS countries have in ample quantity, for infrastructure development in BRICS and other developing countries. But routing foreign exchange reserves through multilateral financial institutions such as the IBRD, ADB and IMF will not give these countries enough say over utilisation because their voting power still remains small.
In Beijing, his senior Song Hong touched on two aspects – the inability of multilateral banks to finance huge infrastructure projects world-wide as “they are short of money in trying to save the Eurozone and Japan’’ and extending the concept of BRICS banks to include other countries. “On the BRICS bank, there is some different opinion from the Indian side. They want to go further and set up a South-South Bank. This is a very interesting proposal,’’ he told visiting Indian journalists last week.
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Speaking at the inauguration of the Chinese Press Centre, the only one set up so far, Mr. Li said the other option would be to establish a bank. Even the host country is yet to set up a media centre but this could be because bulk of the Foreign Ministry’s media team was with Prime Minister Manmohan Singh in Seoul for the Nuclear Security Summit.
China, Mr. Li said, wanted internationalisation of local currency. This could be done by cross border currency swaps or using the local currency for settlement and foreign direct investment. “This is quite possible. It needs to be realised that any one country cannot move currency globally, BRICS must act together. They should focus on the real economy which is their strength and not the financial market which any way accounts for a very miniscule percentage of their GDP, ‘’ he counselled.