New Delhi, Sept. 7: India has convinced China and three other emerging economies to create a rival to the 68-year-old World Bank with equal contributions from the five members, rejecting Beijing’s proposal to give more than the rest which would have allowed it to dominate the institution.
The New Development Bank, as the initiative by Brazil, Russia, India, China and South Africa will be called, will start with a capital of $50 billion. The five nations took the decision on the sidelines of the G20 summit near St Petersburg, which was attended by Prime Minister Manmohan Singh.
The rejection of China’s proposal comes after months of quiet but persistent Indian lobbying with the other members of BRICS, as the five-nation grouping is called. Eventually, this resulted in an agreement during the global conclave in Russia, senior Indian officials told The Telegraph.
“We just couldn’t agree to a development bank dominated by one country,” an official said. “That would have ended up being no different from the institutions and financial systems the New Development Bank is trying to present an alternative to.”
Although differences between the BRICS countries persist on elements of the bank’s future and even its location, these nations see the institution as a key component of an alternative to the West-dominated financial system put in place after the Second World War.
While India and other BRICS countries have turned to the World Bank and the International Monetary Fund for assistance in the past, developing nations have frequently complained about the perceived hegemony of the US and other developed nations over these institutions.
In Durban in March, the five nations — home to about 3 billion people or 40 per cent of the world’s population — had decided on a Contingent Reserve Agreement. Under this, they were to create a $100-billion fund that each member could dip into during financial emergencies.
Loosely a BRICS parallel to the International Monetary Fund, the reserve will have differential capital put in by the various members. China, by far the largest of the BRICS economies, will pitch in with $41 billion; Russia, Brazil and India will each contribute $18 billion; and South Africa will give $5 billion.
But unlike the development bank, the contingency reserve did not become the focus of diplomatic tussles. Only the five members can dip into it, and it needs no physical infrastructure — the central bank of each BRICS nation will simply set aside its contribution.
In contrast, the development bank, first pitched formally a year ago, can emerge as an actual rival to the World Bank because all countries, especially other nations in the developing world, can seek assistance from it.
“The development bank is a diplomatic tool to raise the global influence of the BRICS countries,” a Brazilian diplomat in New Delhi said.
When China proposed an initial capital of $100 billion for the development bank, of which it was willing to contribute half, India opposed the move. Over the past six months, India worked to bring the other BRICS nations on its side, officials said.
Russia was the first to be persuaded, followed by Brazil. South Africa, which has the smallest economy among the grouping’s members, eventually came on board. Each member will now contribute $10 billion for an overall capital of $50 billion.
But differences remain over the leadership structure of the bank, and over who will host its headquarters.