The BRICS development bank is
starting to take shape. Brazil, Russia, India, China and South Africa will each
make an initial capital injection of $10 billion to fund the bank, which means the
bank will start out with US$ 50 billion in capital. The idea is to establish a
joint bank to provide funding for infrastructure projects and sustainable
development in the five countries and even for other emerging markets and
developing countries.
The development bank will lend to
private and public companies in order to make sure more people will benefit
from the bank’s capital. Governments outside the BRICS group can also be
favored if they propose social or green projects (biofuel, for instance). Even
nuclear power plants might receive money, a kind of project the World Bank does
not fund due to social and environmental issues. Currently, 50 of the 66
nuclear reactors under construction are in the BRICS countries.
The new
development bank wants to be an alternate lender to the World Bank and
other finance bodies. The five nations have been struggling to change their
role in the World Bank and in the International Monetary Fund (IMF). The BRICS
countries have been important borrowers from the World Bank and they also have
been increasing their contribution to IMF. The five nations want the IMF to
reform its quota system to enhance their representation. The current voting
policy in IMF does not reflect, for instance, the enormous changes in the
global economy over the past few decades. The new development bank, therefore,
might provide a bargaining power.
After a
disappointing performance last year, the BRICS countries can make investors
happy again in 2013. Last week, David Hauner, head of
fixed-income strategy for emerging Europe, the Middle East and Africa in Bank of America Merrill Lynch, said investors
should buy the BRICS bonds and equities this year. “What we’re saying about
emerging markets is that the BRICs are back,” said in an interview in Abu Dhabi.
“Last year a lot of people were saying that the BRICs are finished and of
course we had disappointing growth in all of them. Now this year we see a
recovery.”
According to
Hauner, emerging markets are expected to record economic growth of 5.2% this
year compared to 4.9% in 2012. The BRICS countries might be on the spotlight
and, again, China might present the best growth rate. “Our own global asset
allocation suggests that you should be overweight equities, overweight emerging
market bonds, should be overweight high yield.”
Globally,
however, the International Monetary Fund (IMF) continues to expect a modest
economic growth of 3.5% in 2013. Within the BRICS countries, Brazil growth
might disappoint again. The largest economy in Latin America might grow 3.5%, a
better rate just comparing to South Africa (2.8%). China growth rate might
reach 8.2%, followed by India (5.9%) and Russia (3.7%).
