32. BRICS – PAST, PRESENT & FUTURE

32. BRICS – PAST, PRESENT & FUTURE

What is BRICS? Why do these countries hold summits? Do they have enough in common to make a difference in the global economics and politics? What have they achieved?

What are the BRICS?

In 2001, Jim O’Neill, then Chief Economist of Goldman Sachs, coined the acronym for Brazil, Russia, India and China as the largest emerging markets economies. He expected them to grow faster than the developed countries and to play an increasingly important role in the world.

And so they have. In the last 15 years, Brazil, Russia, and India have caught up with the smallest G7 economy (Italy) in terms of nominal GDP, while China has overtaken Japan and became the second largest economy in the world. Together, BRIC’s nominal GDP is similar to that of the EU or US and is likely to overtake both in the coming few years.

In 2009, BRIC countries held their first summit. In 2010, South Africa asked to join and was invited – thus transforming BRICs into BRICS.

Why does the world need the BRICS?

Jim O’Neill’s point has been that the world is changing. The leading role of the Group of Seven (G7) and, more broadly, of the Organisation for Economic Cooperation and Development (OECD) is no longer undisputed. Most multi-lateral institutions were designed in the era when the West dominated the world. The US and Europe are over-represented in the IMF and the World Bank. Together with Japan, they control most regional development banks as well.

This imbalance has been especially clear during the recent global financial crisis when the need for participation by non-G7 countries became evident. This resulted in reviving the Group of 20 (G20) and proposals to redistribute voting rights in international financial institutions. But change has been slow and Western countries continue to control the international financial institutions.

This is why BRICS summits are so important. These meetings provide a unique forum where non-OECD leaders can discuss global challenges and co-ordinate their actions within and outside global institutions. The small size of the club and the absence of OECD partners helps in shaping the discussions at the summit.

What have the BRICS nations achieved?

Even though BRICS are now playing a far more important role in the global economy, they have not yet managed to get their act together. Even on key issues like selecting a successor to Dominique Strauss-Kahn at the IMF, BRICS countries were not able to put forward a credible alternative to the conventional approach that IMF should be run by a Western European. Nor have they been able to speak with one voice about the most important global economic and financial challenges – co-ordination of monetary and fiscal policies, macroprudential regulation, development aid etc.

Do they have enough in common to get things done?

BRICS countries are very different — both in terms of their resources and in terms of their values and goals. The only thing they all have in common is, well, membership of BRICS. Brazil and India are democratic, China and Russia are not. Brazil and Russia export hydrocarbons, China and India are net importers. China and Russia are permanent members of the UN Security Council – the others are not. Structure of financial systems, levels of income, education, inequality, health challenges also differ substantially within BRICS. This is why it is very hard to speak with a unified voice and to co-ordinate action. The fact that BRICS have not really established anything tangible yet should not be a disappointment.

What could they do?

This problem of inaction will soon be overcome. BRICS now have a clear leader than can address the issue of internal differences in goals and resources. BRICS is quickly becoming a China-led club. Unlike 15 years ago, China’s nominal GDP is now larger than that of the other club members combined. The same its true with net international financial position, outward Foreign Direct Investment and development aid.

China’s leadership has finally turned the long-debated plan for a  “BRICS Bank” into a reality. The BRICS have founded the New Development Bank (NDB), which will become a major regional development bank – the first one without OECD-countries’ membership (unless of course Greece joins.)

The establishment of NDB (head-quartered in Shanghai) suggests international financial institutions should have been more flexible in adjusting their governance to accommodate the increased role of BRICS in the world. NDB is not likely – at least initially – to outperform existing development banks in terms of skills and project quality. However, it will be the first tangible multi-lateral project fully owned by the non-OECD countries – in a sense confirming that Jim O’Neill’s vision was correct.

However, the very fact that the only tangible BRICS project is NDB is also telling. NDB is taking off exactly because it fits into China’s grander New Silk Road or “One Belt, One Road” vision. NDB is in this sense proof that the BRICS club – like Shanghai Cooperation Organization – is now led by China. In summits, BRICS’ leaders will talk as equals but whenever BRICS is up to something real, it will be following China’s strategy.

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The New Development Bank (NDB), formerly referred to as the BRICS Development Bank, is a multilateral development bank operated by the BRICS states. The bank's primary focus of lending will be infrastructure projects.

The BRICS Contingent Reserve Arrangement (CRA) is a framework for providing protection against global liquidity pressures. This includes currency issues where members' national currencies are being adversely affected by global financial pressures.

At the 2015 BRICS summit in Russia, ministers from BRICS nations, initiated consultations for a payment system that would be an alternative to the SWIFT system.

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With an eye on a divided leadership in the West — as was evident in the recent G-7 summit — the BRICS leaders have committed with unprecedented emphasis to the principles of “democracy” and “multilateralism” in the Johannesburg declaration. Democracy is mentioned half-a-dozen times in the declaration, which, Indian government interlocutors feel, is noteworthy, since at least two member-countries in the grouping are socialist and non-democratic countries. In the Xiamen declaration, democracy was mentioned thrice, mostly in the context of a democratic global order.

Multilateralism was mentioned 23 times in the Johannesburg declaration, as against seven times in the Xiamen declaration last year. This assumes significance in the wake of the US, under President Donald Trump, acting unilaterally on several occasions — from the Israel-Palestine issue to Iran, and withdrawing from multilateral pacts like JCPOA and TPP. It has also withdrawn from UNESCO and 

UN Human Rights Council.

Indian interlocutors said that the seeping of democratic order, and the consequent democratisation of the BRICS order, has been an Indian imprint on the Johannesburg declaration, which is different from previous BRICS declarations. The emphasis on inclusivity has also increased in the Johannesburg declaration, as “inclusive” was mentioned 19 times, as compared to 9 times in the Xiamen declaration.

“These are the most important takeaways from the Indian point of view, that we have been able to put democracy and inclusiveness in the lexicon in a more pronounced manner,” one of the Indian interlocutors told The Indian Express. Sources said that the Chinese lexicon of a prosperous, shared future and win-win cooperation from previous SCO summits has now given way to a more Indian and South African lingo — of a representative world order approach.

The BRICS leadership has also given a message of solidarity and geopolitical maturity, officials privy to the negotiations told The Indian Express, as against the rancour and divisive tone in the G-7 summit.

Sources said that Prime Minister Narendra Modi discussed the above issues with Chinese President Xi Jinping and Russian President Vladimir Putin. Xi said that as major emerging market economies, as well as vindicators and contributors of the current international order, China and India should strengthen bilateral cooperation while exploring a new model for regional cooperation, upholding multilateralism, championing economic globalisation and striving for a more just and rational international order, Xinhua reported.