BRICS mulls bailout fund

Updated: 2012-06-19 12:09

By Wu Jiao in Los Cabos and Ariel Tung in New York (China Daily)

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BRICS mulls bailout fund

From left, Brazilian President Dilma Rousseff, Russian President Vladimir Putin, Indian Prime Minister Manmohan Singh, Chinese President Hu Jintao and South African President Jacob Zuma pose for a group photo in Los Cabos, Mexico, on Monday. Lan Hongguang / Xinhua

The BRICS countries said Monday that they're considering setting up a foreign-exchange reserve pool and a currency-swap arrangement as financial problems threaten to spread across the global economy.

Leaders of the five-member group -Brazil, China, India, Russia and South Africa - also said it is "willing to make a contribution" to increase the International Monetary Fund's ability to rescue troubled economies.

China's President Hu Jintao on Monday morning joined counterparts from the other BRICS nations in the Mexican resort of Los Cabos ahead of the start of the Group of 20 summit.

According to the Chinese foreign ministry, the leaders discussed both the currency swap and foreign-exchange reserve pool ideas and tasked their finance ministers and central bank chiefs to implement them.

Swap arrangements, which allow nations' central banks to lend to each other to keep markets liquid, and the pooling of foreign-exchange reserves are contingency measures aimed at containing crises such as the one roiling the eurozone, analysts said.

Contributions to this "virtual" bailout fund, as Brazil's Finance Minister Guido Mantega put it, would be tied to the size of each BRICS member's currency reserves, he said.

The two measures discussed Monday may also be seen as part of a broader move by emerging markets to move away from a reliance on the dollar and the euro, as well as on the IMF, which requires strict conditions for its loans, the Wall Street Journal said.

The five leaders also discussed BRICS' participation in replenishing the IMF's lending capital.

The BRICS leaders stressed that ensuring the IMF is well capitalized is conducive to helping resolve global economic and financial challenges. The bloc is willing to contribute to those goals, the Chinese ministry said.

The leaders also urged the IMF to carry out promised reforms of its quota and governance systems.

Mexico, which is hosting the G20 summit Monday and Tuesday, has said it will use the meeting to push the world's largest economies to increase IMF resources and build the fund's capacity to intervene in the European debt crisis.

BRICS countries including China made unspecified funding pledges at the IMF's April meeting in Washington.

A boost in IMF funding makes sense and gives emerging economies such as China a greater role, according to Yukon Huang, senior associate at the Carnegie Endowment for International Peace and a former World Bank country director for China.

"Support for a larger IMF role solves several problems. Any solution involving the IMF represents a more collective and coordinated approach and is thus less politically driven and more sustainable since it implies that the right policy actions have been agreed on," Huang told China Daily.

"And if the increased liquidity is not enough, then proposals such as a currency swap and pooling of reserves provide other options. These measures were supported by China as well as affected countries during the Asian financial crisis 15 years ago to provide assurance that additional resources could be available if needed," he said.

The BRICS now boast about 42 percent of the world's population and more than a quarter of its land mass. According to IMF estimates, the five had a combined nominal gross domestic product of $13.6 trillion in 2011, about 19.5 percent of the global total.

Since 2010, more than 50 percent of global growth has come from the BRICS, and it has become an important force in easing the international financial and economic crisis, driving regional and global economic growth.

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(China Daily 06/19/2012 page1)