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21 Jul 2015 14:53
Russian President Vladimir Putin greets South African President Jacob Zuma at the Brics summit in Ufa on July 9. (Sergei Karpukhin, Reuters)
Officials from the world’s
largest emerging nations launched the New Development Bank (NDB) on Tuesday, the
second of two new policy banks heavily backed by Beijing that are being pitched
as alternatives to existing institutions such as the World Bank.
Also known as the Brics bank, it follows soon after the
establishment of the China-led Asian Investment Infrastructure Bank (AIIB). The
new bank will fund infrastructure and development projects in Brics countries -
Brazil, Russia, India, China and South Africa.
The ceremony on Tuesday concludes a lengthy wait since the
NDB was first proposed in 2012.
Disagreements over the bank’s funding,
management and headquarters had slowed its launch.
“Our objective is not to challenge the existing system
as it is but to improve and complement the system in our own way,” NDB president Kundapur Vaman Kamath said.
He added that after a meeting with the AIIB in Beijing, the
NDB had decided to set up a “hotline” with the AIIB to discuss
issues, and to forge closer ties between “new institutions coming together
with a completely different approach”.
The bank is considering raising funds by issuing a
“substantial” amount of bonds in member markets to help mitigate
costs arising from exchange rate fluctuations, he said.
Chinese Finance Minister Lou Jiwei said the NDB’s support of
infrastructure projects will help “ease long-running bottlenecks faced by
emerging and developing countries, and help them speed up, adjust and upgrade
The ceremony, held in Shanghai where the NDB’s headquarters
are located, was relatively low-key in comparison to a June signing of the
articles of agreement for the AIIB in Beijing, which was attended by delegates
from 57 countries and President Xi Jinping.
“From our standpoint we are really looking forward to
cooperating with the new institutions ...
The Japan-led Asian Development Bank, in a statement quoting
its president Takehiko Nakao, said it hoped to explore opportunities to co-finance
projects with the NDB.
The NDB will have an initial capital of $50-billion to be
equally funded by the five members who will have equal voting rights. The capital
will be expanded to $100-billion within the next couple of years.
The members will also establish a reserve currency pool
worth over another $100-billion. China has pledged to contribute $41-billion,
Brazil, India and Russia will each contribute $18-billion, while South Africa
will contribute $5-billion.
Kamath, a former executive with India’s largest private bank
ICICI Bank, told Reuters earlier this month that the NDB plans to issue its
first loans in April next year. - Reuters
The Brics account for a fifth of the world’s economic output and 40% of its population.
For Russia, hit by Western sanctions over its role in the Ukraine crisis that have cut off access to Western funding, thwarted investment and contributed to an economic downturn, greater cooperation among the Brics nations is key.
Its economy has also suffered because of the fall in the global price of oil, its main export, and it has been looking for new markets since relations with the West sank to their lowest point since the Cold War over the Ukraine crisis.
But the diverse group, which has been meeting regularly since 2009, has struggled to come up with unified actions, often instead focusing on criticising the West.
have an open mind in terms of the instruments we will use for funding
projects,” said NDB president Kamath.
“Should we approach the financial markets, the
capital markets in five Brics countries
to raise local-currency funds so that in a way we break the challenge
and the cost of dealing in hard currencies where the exchange rate
continues to impact you for a long, long time? Could we start by making
substantially large bond issuance in the domestic market?”
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