The BRICS summit in Durban underlined both the importance and limitations of this grouping, especially from India’s standpoint. The announcement of a Contingent Reserve Arrangement and the intention to create a new Development Bank suggests that this grouping could be more than a talking shop.
Yet the idea of such a Bank has some distance to go before it becomes reality. Further, whatever steps the BRICS may have taken on the economic and financial front, the grouping is punching well below its weight on political and security issues.
BENEFITS OF A BANK
The idea of a development bank was initially mooted by India. It stemmed from the fact that the principal problem facing emerging and developing economies was lack of long-term financing and investment in capital stock. So far, such infrastructure projects were mostly financed by the World Bank and other international financial institutions.
But the outlay and orientation of these traditional lenders has left much to be desired. The BRICS are sitting atop a pile of foreign exchange reserves — they account for almost 40 per cent of global foreign exchange holdings — and are well placed to create a bank that would step into this critical breach.
That said, there is no agreement yet among these countries on the scale of the effort. China has apparently suggested an initial contribution by each country to the tune of $100 billion and offered to make good any shortfall. The others have baulked at this suggestion and have sought more consultations.
New Delhi’s main concern appears to be that the new bank should not replicate patterns of shareholding and decision-making that prevail in the existing international financial institutions.
China’s dominance in the new entity is to some extent unavoidable. Its GDP, at about $7.5 trillion, is about $1.5 trillion more than that of the other four countries put together. It accounts for over 60 per cent of the foreign exchange reserves held by the BRICS. Yet this need not be a matter of overriding concern to India.
For one thing, China is quite likely to agree to more equitable arrangements than those prevailing in the Bretton Woods institutions. The BRICS bank will give China a much desired multilateral setting in which to expand its profile as an international lender and to divert its foreign exchange reserves from the default option of investing in US treasury bonds.
For another, India is among the main countries that would benefit from long-term debt for infrastructure development bankrolled by the Chinese. Indian companies are undoubtedly interested and the Indian government accepts that this is the case. Yet, in practice, the government has not walked the talk by facilitating the entry of Chinese capital into India. Strategic concerns are allowed to choke a perfectly sensible financial conduit.
India would do well to learn from China’s adroit use of Japanese capital and direct investment to buttress its economic growth.
The creation of a development bank apart, the BRICS could do more to intervene cohesively in other pressing economic concerns. The summit declaration notes that measures taken by developed economies to revive their flagging economic fortunes could have downside risks for emerging economies. Think of Japan’s recent attempt to keep the Yen down to boost its competitiveness and the attendant risk of competitive devaluation by other major economies.
But mere declarations are unlikely to help. The BRICS will have to import such questions in to other forums such as the G20. Indeed, one of the principal advantages of BRICS summits is the knock-on effects that these consultations could have in other multilateral platforms.
TRADE PACTS
Another area where these countries could gainfully coordinate their efforts is international trade.
The US is spearheading two major initiatives that will have serious consequences for emerging economies and the international trade regime. On the one hand, the US and the EU are negotiating a transatlantic free trade agreement. On the other, the US is pushing for the enlargement of the Trans-Pacific Partnership (TPP).
The TPP was originally signed by Brunei, Chile, New Zealand and Singapore in 2005. It has since drawn the interest of five other countries: Australia, Malaysia, Peru, Japan and Vietnam.
Until recently, Japan had not been very eager to come on board. And without Japan’s presence, the TPP would not have the necessary heft. Prime Minister Shinzo Abe has, however, announced that Japan would join the negotiations and that joining the TPP was a strategic objective of his government.
The TPP has a tripartite agenda: a regular FTA with provisions for protecting intellectual property; creation of investor-friendly regulatory frameworks and policies; and emerging issues, including environmental standards; and measures to ensure that state-owned companies “compete fairly” with private companies. This is clearly an attempt to create new norms in international trade.
The US evidently hopes that it will compel the emerging economies, especially China, to eventually join the TPP on these terms —much as it managed to get China to accede to the APEC and WTO. In any event, the BRICS will have to resist the establishment of such norms and push for an equitable international trade regime.
POLITICAL CONSENSUS
While the economic interests of these countries may be aligned in the present context, their positions on international political institutions and developments remain divergent. Russia and China are in no hurry to enlarge the UN Security Council and are content to issue soothing statements about supporting the international aspiration of the other three countries.
Even when the BRICS share common political interests — as in opposing externally driven regime change in Syria — their interest in and ability to shape the situation remains in question.
This is partly because on international political issues — as opposed to economic ones — Russia and China are status quo powers. By contrast, countries such as India, Brazil and South Africa, which seek a role commensurate with their current standing, have not only to uphold existing institutions and norms but also demonstrate greater creativity in dealing with major crises.
Last year, these three countries had briefly attempted to facilitate a political settlement in Syria. It may be time to revive that initiative.
The writer is Senior Fellow at the Centre for Policy Research, New Delhi and author of 1971: A Global History of the Creation of Bangladesh, Permanent Black/Harvard University Press (forthcoming).