Brics leaders agree to set up $100 billion ‘financial safety net'

The leaders of Brazil, Russia, India, China and South Africa said today at their summit in Durban they have directed their finance ministers and central banks to continue work towards setting up a contingent reserve agreement, initially sized at $100 billion.

The Brics nations first launched the project in June 2012 at their meeting in Los Cabos, to provide a 'financial safety net' for the five countries' economies as and when they come under pressure.

They said today they had concluded such a contingent reserve would have a positive precautionary effect, and help them help each other to "forestall short-term liquidity pressures, provide mutual support and further strengthen financial stability".

They added it would "also contribute to strengthening the global financial safety net and complement existing international arrangements as an additional line of defence".

The statement from the summit today also re-iterated the intention by Brics nations to set up a joint development bank "for mobilising resources for infrastructure and sustainable development projects in Brics and other emerging economies and developing countries" - although final agreement on seed capital and where the bank should be located continued to elude the member countries.

Geoffrey Wood, professor of international business at Warwick University in the UK, said that if the Brics countries can reconcile their "competing agendas" for the bank, it could ultimately "erode the role and status of the IMF and the World Bank".

Wood said there is "little doubt that many nations would welcome an alternative to these bodies", given that the "track record of the IMF and World Bank austerity policies are very mixed".

He noted the lack of agreement over the development bank's initial capitalisation - which the Brics nations today said only "should be substantial and sufficient for the bank to be effective in financing infrastructure" - but Wood said that while "it will certainly be some years before the bank is operational ... in the long term it could have a significant impact".