Summit tipped to announce establishment of bank

Leaders at the BRICS summit in Durban, South Africa, are expected to decide to set up a development bank.

Such a bank is being seen as a further effort by the five member nations to broaden the bloc's scope and representation in international economic affairs, especially in the financial field.

Wang Junwen, president of the China Association of International Trade, says the bank would strengthen collaboration among BRICS members. "The bank would raise the profile of BRICS nations, particularly in international financing. It is another effort they are making to change the global economic structure, reflecting multi-polarity."

Simon Freemantle, a research analyst with Standard Bank of South Africa, sees the proposed bank as a harbinger of cooperation.

"(It) contributes constructively to the development of more robust and interdependent ties between the BRICS members. We see the bank as an attempt to give an institutional underpinning to the BRICS grouping."

The development bank, which was first discussed at the fourth summit in New Delhi last year, will focus on mobilizing resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries.

Last month Standard Bank published a report in which it talked of the proposed bank, saying the Durban summit could be expected to produce something about its aims, structure and governance. The report says it would be best if the bank first concentrated on financing economic development inside the BRICS, on projects linked to intra-BRICS bilateral multipliers and shared interests.

The report tips that the five members will initially contribute $10 billion in seed capital to the bank.

"The bank would then borrow from global capital markets, becoming a non-resident borrower in the US, Europe, Hong Kong and elsewhere," Freemantle says.

Han Xiushen, a researcher with the Chinese Academy of International Trade and Economic Cooperation, says emerging markets and developing economies need infrastructure construction. "Most of these countries have tight fiscal conditions and are in financial straits internally and externally," she says.

By some estimates, developing economies' demand for investment is worth between $1.25 trillion and $1.5 trillion. "Multilateral development banks cannot deal with that kind of demand," Han says.

The establishment of a development bank is expected to give developing economies a greater voice in the international financing area. Han says the bank's ultimate aim would be to direct BRICS development and the priorities of other developing economies.

However, Freemantle says the bank's establishment throws up several challenges and questions. "A host of pragmatic issues require resolution, including the funding source, ideal borrower, types of projects, geographical reach, bank headquarters and many others."

If the issues are left unresolved, political and commercial strains are the likely result, he says.

Han says that the way operational challenges are dealt with will be critical.

"We should bear in mind that BRICS countries are known for their economic growth, but they are also known for a lack of experience in running such a bank. Running such a bank efficiently and with integrity would not be that easy."

A business council and a BRICS think tank are also expected to be the outcome of the Durban summit, the bloc's fifth.

yanyiqi@chinadaily.co.cn