India has proposed setting up a multilateral bank that would be exclusively funded by developing nations and finance projects in those countries, two government officials with knowledge of the matter said.
The plan has been circulated to the countries in the so- called BRIC group — Brazil, Russia, India and China — as well as to South Africa, an Indian government official said. A Brazilian government official confirmed the proposal.
The plan will be discussed among developing nations alongside the meeting of Group of 20 finance ministers in Mexico City this weekend, the Indian official said, asking not to be identified by name as the proposal isn’t public and is in the early, exploratory phases.
“It would be a welcome thing if it actually happens as BRICS is the fastest-growing bloc in the world,” said Jay Shankar, an economist at Religare Capital Markets Ltd. in Mumbai. “These countries have tried to come together but they failed simply because, besides the aspiration of achieving higher growth, they don’t have anything in common.”
India’s suggestion of a BRICS bank comes as emerging nations strive for greater influence in the International Monetary Fund and other multilateral bodies to match their rising economic heft. Their efforts to end the practice of naming World Bank presidents from the U.S. and the head of the IMF from Europe have so far been rebuffed, stoking frustration.
IMF Growth Estimates
The IMF projects 2012 economic growth at 3 percent in Brazil; 3.3 percent in Russia; 7 percent in India; 8.2 percent in China; and 2.5 percent in South Africa. The U.S. growth this year will be 1.8 percent while the 17-nation euro area will shrink by 0.5 percent, according to the IMF estimates released last month.
Emerging markets have also responded to a G-20 call to strengthen smaller, region-based lending vehicles. Since the collapse of Lehman Brothers Holdings Inc. in 2008 led investors to dump riskier emerging market assets, members of the Inter- American Development Bank, Asian Development Bank and African Development Bank have all approved capital increases allowing them to expand lending.
Some of the efforts, like a proposal to pool foreign currency reserves in South America to lend to cash-strapped governments in the region, have yet to get off the ground.
The Bank of the South, proposed by Venezuelan President Hugo Chavez in 2006, has also yet to make a loan even though nations including Brazil and Argentina, both G-20 members, are among those pledging to contribute $20 billion to its mission of funding infrastructure integration projects in the region.
The proposal for a BRICS bank builds on a pledge leaders from the five nations made at their meeting in April 2011 in China, when they promised in a statement to “strengthen financial cooperation among the BRICS Development Banks.”
The Indian official said the BRICS bank proposal had been floated because existing multilateral bodies haven’t funded developing nations effectively. Major donors to these bodies are facing economic challenges that are limiting their ability to provide aid, he said, adding the proposal will be discussed at a BRICS summit in New Delhi next month.
Brazilian Finance Minister Guido Mantega is favorable to the idea and wants to discuss it further with BRICS counterparts at the G-20 this weekend, said a Brazilian government official who can’t be named because the matter is still being discussed privately.
Emerging nations last year failed to close ranks behind an agreed-upon candidate to head the IMF after Dominique Strauss- Kahn resigned. Christine Lagarde, then the French finance minister, was appointed to the post last June after a rival bid by Mexican Central Bank Governor Agustin Carstens failed to win support.
Officials from Brazil and Mexico have vowed to make the selection of the next World Bank head, traditionally a U.S. citizen, open to candidates from emerging markets after president Robert Zoellick said he will step down when his term ends in June.