West and World Bank are no longer in with the Brics

Brazil, Russian, India, China and South Africa will discuss a proposal to set up a development bank at their fourth summit in New Delhi today.

The five account for 45 per cent of global population and a quarter of the global economy at $13.5 trillion (£8.5tn).

Increasingly crucial for world growth, the Brics have long argued for more influence in and reform of western institutions, set up postwar and which dominate aid and trade policy without making headway on tackling issues such as poverty.

US president Barack Obama’s decision last week to continue the tradition of nominating an American as World Bank chief – over candidates from other nations, as the Brics had wanted – may add to momentum for an entirely new alternative.

Brics leaders held their first summit in 2009 and have sought to increase their influence to reflect their growing economic clout. But with radically different economies and systems of government, and competing priorities, they have often struggled to find common cause.

A new international lender could rival the World Bank and Asian Development Bank, which focus on lending to poor nations to speed development and reduce poverty. It’s unclear if it could also perform a role in bailing out countries in crisis – a function, led by the International Monetary Fund.

Brazilian trade minister Fernando Pimentel said in Brasilia last week that the Brics would sign a deal at the summit to study the creation of the bank.

And Sudhir Vyas, a senior Indian foreign ministry official, said on Monday the Brics would have to determine how the bank would be structured and capitalised. Such an ambitious project would take time, he said.

“We don’t set up a bank every ordinary day,” he said.

The leaders are also expected to sign agreements allowing individual development banks to extend credit to other members in local currencies, a step towards replacing the dollar as the unit of trade between them.

China, seeking to advance the use of its yuan currency, believes the new bank could offer developing nations more say in how funds are invested, and “downgrade the risk of ups and downs in other international currencies,” Chinese foreign ministry official Li Kexin said.

But experts cautioned that a lack of unity in foreign policy could undermine their goal. They failed to unite behind a single World Bank candidate.

“They have to get their act together politically,” said Sreeram Chaulia, world politics analyst at Jindal School of International Affairs just outside Delhi. “It is much more challenging to form a collective security agenda.”

What the five Brics have in common, however, is a focus on eradicating poverty, securing food and energy supplies, developing infrastructure and gaining new technologies. They may also talk about a common position on climate change.

It is also not clear how the Brics would manage a multilateral bank. China, with foreign currency reserves of $3.2tn, might want to permanently lead the bank, which India and Russia would not accept.

Unlike the US and European countries that underpin the IMF and World Bank, the Brics include a variety of political systems, from authoritarian China and Russia to the South African, Indian and Brazilian democracies.

Jim O’Neill, chair of Goldman Sachs Asset Management, who coined the Bric acronym in 2001 as a way to encapsulate the shift in global growth towards emerging markets, with South Africa added in 2010, predicts the bloc’s GDP will exceed the US’s within three years and sees China as the biggest economy by 2027.

“For different reasons, each has got some serious policy issues to deal with here that will determine whether they continue down the path we got everybody so excited about,” he said yesterday.