BRICS nations on Wednesday decided to establish a new development bank to finance infrastructure projects and to create a $100 billion contingency fund to tackle any financial crisis in emerging economies, in what is seen as a major win for India's campaign to reform global financial architecture.
The decision was taken at the BRICS Summit in Durban which also launched a Business Council to encourage investment and trade in member countries and to expand business cooperation.
"Following the report from our finance ministers, we are satisfied that the establishment of a New Development Bank is feasible and viable.
"We have agreed to establish the New Development Bank. The initial contribution to the Bank should be substantial and sufficient for the Bank to be effective in financing infrastructure," the 'eThekwini' (Durban) Declaration said at the end the Summit of leaders of the five countries (Brazil, Russia, India, China and South Africa).
"We considered that developing countries face challenges of infrastructure development due to insufficient long-term financing and foreign direct investment, especially investment in capital stock.
"This constrains global aggregate demand. BRICS cooperation towards more productive use of global financial resources can make a positive contribution to addressing this problem," the BRICS leaders, including Prime Minister Manmohan
Singh said in a statement after the two-hour summit.
However, the leaders did not decide on the capital for the proposed bank leaving it to the finance ministers to negotiate this and other issues before September.
The statement also said the initial contribution to the bank should be substantial and sufficient for it to be effective in funding infrastructure.
The development bank, mooted by India at the last year's Summit in Delhi, was originally proposed to be started with a capital of $50 billion with $10 billion from each of the members.
Incidentally, differences appear unresolved with reservations from South Africa and Brazil over the contribution.
Hailing the development bank initiative along with the other leaders, Singh said it gave him great satisifaction to note that one of the ideas that they discussed first in New Delhi -- that of instituting a mechanism to recycle surplus savings into infrastructure investments in developing countries -- has been given a concrete shape during the Durban Summit.
"Our finance ministers will now work to develop the details of the project," he told a joint press conference with the other leaders.
Besides host President Jacob Zuma, new Chinese President Xi Jinping, Russian President Vladimir Putin and Brazilian President Dila Rouseff participated in the summit.
In his address, Zuma said the summit decided to enter formal negotiations to establish a BRICS-led new development bank based on their own considerable infrastructure needs, amounting to $4.5 trillion over the next five years and to cooperate with the other emerging markets and developing countries in future.
Briefing reporters after the summit, Finance Minister P Chidambaram said India a big idea -- BRICS Development Bank at the Delhi summit last year and "that is now a reality".
"Both the ideas (BRICS development bank and Contingency Reserved Arrangement) have been recommended by the finance ministers and have been approved by the leaders. Whatever the individual views of the finance ministers, the leaders have wholeheartedly welcomed the establishment of the Bank and the CRA," he said noting the Brazilian President's remarks that the capital of the Bank must be commensurate with the challenges and goals of the Bank.
He said Putin fully supported establishment of the Bank while China had always been enthusiastic in supporting the Bank.
The BRICS leaders called for reform of the international financial institutions to make them more representative and to reflect the growing weight of the five-member grouping and other developing countries.
"We remain concerned with the slow pace of the reform of the International Monetary Fund (IMF). We need to implement, as agreed, the 2010 IMF Governance and Quota Reform.
"We urge all members to take all necessary steps to achieve an agreement on the quota formula and complete the next general quota review by January, 2014," the Declaration said.
Photograph: Rogan Ward/Reuters