With the advent of Internet, time and distance have become irrelevant. Cross-border communication has turned a lot simpler and easier. The Internet has indeed proved to be an effective tool for converting the globe into an integrated unified space. Even as we increasingly look at the world from the prism of a global village, a sense of insecurity and a feeling of let down have constantly troubled the nation-states across the canvass.
The global village as we proudly speak of is an unreal amalgam of unequal constituents representing diverse regions of contrasting capabilities. We may gloat over it. But globalization has, in its wake, set off a serious of trade-induced and economy-centric skirmishes across the canvass. So much so, there is an increasing tendency among different players in the world theatre to assert their right to protect themselves. The Fortaleza Declaration of heads of state from Brazil, Russia, India, China, and South Africa (the so-called BRICS countries) is the latest evidence in the rise of regional assertion in the global field.
The leaders of the BRICS nations have pulled off a coup of sort in announcing the establishment of a New Development Bank (NDB) with an initial subscribed capital of $50 billion. Significantly, they have chosen to share the capital equally among them. The capital base is to be used for funding infrastructure and “sustainable development” projects in the BRICS countries initially. Other low and middle-income countries will be able buy in and apply for funding subsequent as time progresses. They have also created a $100 billion Contingent Reserve Arrangement (CRA). This is to provide additional liquidity protection to member-nations during balance of payments problems. The CRA, however, is being funded 41 per cent by China, 18 per cent each from Brazil, India, and Russia, and 5 per cent from South Africa. CRA, according to the Declaration, is “a framework for the provision of currency swaps in response to actual or potential short-term balance of payments pressures.’’
More than the establishment of the NDB, the Fortaleza Declaration is remarkable for adoption of ‘one-nation one-vote’ prescription for the proposed bank. The Bretton-Woods institutions — the World Bank and the International Monetary Fund — have structures that aren’t equitable, to say the least. BRICS nations have also amicably settled other issues related to the formation, running and structure of the NDB. The high-five meet also saw the signing of a memorandum of understanding of co-operation among BRICS export credit and guarantee agencies “to improve the support environment for increasing trade opportunities’’ among them. “We recognise that there is potential for BRICS in insurance and re-insurance markets to pool capacities. We directo our relevant authorities to explore avenue of co-operation in this regard,’’ the Declaration said.
The triggering factors
Two factors have clearly triggered the birth of NDB. For one, BRICS have emerged as big economic power, and solidified their ties in terms of commerce with the emerging market economies and developing countries (EMDCs). Together, they are a force to reckon with in the global economy. For another, their disenchantment with the Bretton-Woods institutions has been growing over the years for assorted reasons. The BRICS-sponsored development bank is not an isolated and unique initiative. Similar initiatives had sprung up in the past to blunt the might of Bretton-Woods twin. Development Bank of Latin America (created by Andean nations) in the 60s, the Chiang Mai Initiative in early 2000 (of 10 ASEAN nations plus China, South Korea and Japan) to establish a network of bilateral currency swap pacts in the wake of Asian currency crisis, and the establishment of the Bank of South by Latin American countries in 2009 were the result of escalating dissatisfaction with the U.S.-dominated IMF and World Bank. “We are confronted with persistent political instability and conflict in various global hotspots and non-conventional emerging threats. On the other hand, international governance structures designed within a different power configuration show increasingly evident signs of losing legitimacy and effectiveness, as transitional and ad hoc arrangements become increasingly prevalent, often at the expense of multilateralism,’’ the Declaration said. “We believe the BRICS are an important force for incremental change and reform of current institutions towards more representative and equitable governance, capable of generating more inclusive global growth and fostering a stable, peaceful and prosperous world,’’ it went on to add.
The BRICS bank development comes at a time when reforms at the Bretton-Woods institutions fail to fructify for one reason or the other and with the U.S. and European nations still not reconciled to concede BRICS nations a greater voice in the governance structure of the Bretton-Woods twin. Can the BRICS-sponsored NDB be a fitting alternative to the Bretton-Woods twin? It is easier said than done, however. It all depends on a host of factors. Its ability to put in place a conflict resolution mechanism, devise a robust credit appraisal mechanism, and put in place an effective supervisory regime will all, among others, be under test.
In a way, the BRICS-sponsored bank is akin to a native concept, which has been practiced in Tamil Nadu, the southern part of India. Area-specific Nidhi companies have existed successfully in Tamil Nadu, helping the members (who live in that area) to tide over their financial needs at affordable rate. The lenders, in these instances, have greater understanding of their clients. In the global arena, blocks of nation-states seem to tweak this concept, and tailor it to their larger needs.
>jagannathan.kt @thehindu.co.in
( This article was first published in >The Hindu on July 20, 2014 )