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WORLD NEWS

Brics Agree to Base Development Bank in ShanghaiBank to Finance Infrastructure Projects in Emerging-Market Countries

Updated July 15, 2014 6:09 p.m. ET

FORTALEZA, BrazilThe leaders of the Brics countries took another step toward

carving a larger role for themselves in the global financial system when they agreed

Tuesday to base a new development bank in Shanghai.

The New Development Bank, as it will be called, is intended to finance infrastructure

projects in the founding members of Brazil, Russia, India, China and South Africa, and in

other emerging-market countries as well.

The NDB still needs approval from each Brics countries' lawmakers, which could take

years. But when it is finally set up, the bank will provide an alternative source of financing

for the Brics and other emerging markets and give them much greater control over

funding decisions that affect them directly.

"There will be a very powerful means to prevent new economic difficulties in the world

scenario and creating the bank will also establish the basis for huge macroeconomic

changes," Russian President Vladimir Putin said. The bank "will allow us to undertake

joint plans regarding out development."

The Brics now account for about 20% of the world's gross domestic product, Mr. Putin

said. As their economies have grown, and taken on more importance in global trade, the

Brics and other emerging-market countries have clamored for a bigger say in global

economic decisions.

The Brics and other emerging-market countries have vast needs for financing of

infrastructure projects, according to the chief executive of Brazilian development bank

BNDES, who estimated the need for long-term project finance at about $800 billion.

The new institution, whose first chief executive will be from India, will start out with capital

of $50 billion, to be paid in equally by all five Brics countries. Capital is planned to grow

Russian President Vladimir Putin, Indian Prime Minister Narendra Modi, Brazilian President Dilma

Rousseff, Chinese President Xi Jinping and South Africa's Jacob Zuma gathered at the Brics summit.

Agence France-Presse/Getty Images

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WSJ In-Depth

eventually to $100 billion, according to the memorandum released after the meeting in

Brazil of the heads of government of the five countries.

The Brics have been trying for years to reform the International Monetary Fund and the

World Bank, the backbone of the world's global financial structure, to give emerging

markets more influence over those institutions, but with little success.

"In the IMF and the World Bank, the U.S. and a handful of allies really do make almost all

the decisions, and the vast majority of the worlddoesn't really have a voice," said Mark

Weisbrot, co-director of the Center for Economic and Policy Research, in Washington,

D.C. "The fund has lost most of its influence on the middle-income country in the last 15

years. This is part of the process of change in these international institutions."

The Brics countries on Tuesday called on the members of the IMF to implement reforms

to the organization that were agreed on in 2010, and for members to agree to a new

formula for voting rights at the IMF.

The World Bank finances development projects around the world, and the IMF is the

lender of last resort to countries that don't have the dollars to pay their foreign debt. The

IMF in particular is widely disliked among countries that need its help, because of the

stringent budget control conditions it usually places on governments in return for its help.

The Brics agreed to create a so-called Contingent Reserve Arrangement, in which each

country's central bank would put aside a designated amount to be used in case of a

currency crisis. China will contribute $41 billion, South Africa $5 billion and the other

Brics $18 billion each, for a total of $100 billion.

The contingency fund also needs approval from lawmakers and it is unclear when it will

be ready, said Brazilian Finance Minister Guido Mantega.

Brazilian President Dilma Rousseff said the fund will help reduce volatility as the U.S.

unwinds its monetary-expansion policies. "We want to contribute to stability," she told

reporters late Tuesday.

The establishment of the bank was subject to the usual horse-trading among world

leaders. New Delhi was also vying to host the bank, but in the end the Indians had to

make do with naming the first president of the lender.

The first chairman of the board of governors will be Russian, and the first chairman of the

board of directors will be Brazilian. The first regional center of the bank will be set up in

South Africa while the headquarters are established in China.

Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com and Paulo Trevisani at

paulo.trevisani@wsj.com

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