Leaders of emerging powers Brazil, Russia, India and China (BRIC) and South Africa held talks in Brasilia Brazil with leaders of Argentina, Chile, Colombia, Ecuador, Venezuela and other Latin American countries.
The five BRIC nations have agreed to create a $50 billion bank that will fund infrastructure projects and will also have a $100 billion dollar reserve fund for crisis situations. The Brazilian president Dilma Rousseff claimed that the bank was not an attempt to move away from the Washington-based IMF: "On the contrary, we wish to democratize it and make it as representative as possible."
Even though the BRICS bank will be used to benefit BRICs countries for now Rousseff left open the possibility that the fund could be used to aid other developing nations such as Argentina that is facing the risk of a default on $1.3 billion in debts after the country lost a court case with hedge funds in a US court.
Head of the Argentine cabinet Jorge Capitanich said: "We need development banks that act as tools to finance infrastructure works and increase competitiveness, unlike development banks with the extortionist tools of developed nations."
The new bank will be have its headquarters in Shanghai. Chinese news agency Xinhua heaped praise on creation of the new bank: "The plans of the emerging-market bloc of BRICS to establish a development bank usher in a long-awaited and helpful alternative to the Western-dominated institutes in global finance," China has been boosting its trade with Latin America. In 2013 two-way trade totaled $261.6 billion.
Marcos Troyjo, a professor of international and public affairs at Columbia University said: "This is about the consolidation of BRICS 2.0, If BRICS 1.0 was about capturing investor attention to the scale of their economic relevance, BRICS 2.0 is about embarking on institution building."
In an interview with Democracy Now, Nobel prize-winning economist Joseph Stiglitz welcomed the development: Stiglitz claims that existing institutions simply do not have enough funds to provide for the needs of developing and poorer countries. He also faults the governance of the IMF and World Bank dominated by the US and Europe: So, this new institution reflects the disparity and the democratic deficiency in the global governance and is trying to restart, to rethink that.
Finally, there have been a lot of changes in the global economy. And a new institution reflects the broader set of mandates, the new concerns, the new sets of instruments that can be used, the new financial instruments, and the broader governance. Realizing the deficiencies in the old system of governance, hopefully, this new institution will spur the existing institutions to reform.
Stiglitz notes that China had reserves of more than $3 trillion. and It could put the reserves to much better use than investing them in US treasury bills. He said that his Chinese colleagues claim that to put money in US treasury bills is like putting meat in a refrigerator and then pulling out the plug since the real value of the money declines. They say that better uses are needed for the funds and the development bank would provide those uses.