Brics to create financial safety net creating a joint pool of reserves to be used if any country faces sudden capital flight.
Work on the initiative has already begun with the aim of an agreement at the 2013 Brics summit and demonstrates the concern among strong emerging economies that they will feel the cold winds of contagion from a deepening eurozone crisis. The size of the proposed safety net is expected to be announced on Tuesday.
Brics to create financial safety net
Chris Giles in Los Cabos
The Brics nations announced late on Monday that they would begin a process to build a financial safety net, creating a joint pool of reserves to be used if any country faces sudden capital flight.
Based on the Chiang Mai initiative between Asian countries, the proposal between Brazil, Russia, India, China and South Africa, would go far beyond existing agreements between the five emerging economies.
Work on the initiative has already begun with the aim of an agreement at the 2013 Brics summit and demonstrates the concern among strong emerging economies that they will feel the cold winds of contagion from a deepening eurozone crisis. The size of the proposed safety net is expected to be announced on Tuesday.
Guido Mantega, Brazil’s finance minister, said the Brics nations were strengthening their financial integration to underscore the faith investors should have in their economies and the move should also improve global confidence. “By creating financial solidarity among us, we will be even safer and stronger than we already are,” Mr Mantega said.
Separately Anton Siluanov, Russia finance minister, told the Financial Times on Monday that the country was setting aside €40bn to shore up the economy in case the eurozone crisis escalated further.
A statement from the Brics nations said the five had discussed swap arrangements between their currencies as well as a pooling of reserves. The move goes further than previous initiatives to create a joint development bank between the Brics nations.
China and Japan are the two biggest contributors to the Chiang Mai initiative, a pan-Asian network of bilateral currency swap agreements that grew out of the regional financial crisis of the late 1990s.
The Brics nations also confirmed that they would contribute to a recapitalisation of the International Monetary Fund and would announce the precise sums they have offered on Tuesday. Expectations at the Group of 20 summit in Los Cabos were that the G20 would announce that the total additional sums pledged to the IMF would be higher than the $430bn agreed in April.
With the US not participating in the latest recapitalisation, the Brics nations insisted that the strings attached to their promises had more to do with gaining influence in international financial institutions.
“It’s going to be the first time the fund is capitalised without the US, which reflects the importance of emerging markets,” Mexican president Felipe Calderón said at the weekend.
Mr Mantega made it clear, however, that the promises of additional funding were tied to “an understanding that the reforms of the fund’s quotas, which will result in a greater voting power for emerging countries, will be implemented according to the timetable agreed by the G20 in 2010”. At the moment, many powerful economies, including the US, have not ratified the 2010 agreement.
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