Institutionalising BRICS

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The setting up of the BRICS funded New Development Bank this year has proved that a process that began tentatively, has garnered synergy and moved forward enough to concretise the idea. But to what extent this group of emerging economies succeeds in evolving a common international agenda for a complex, interdependent world remains to be seen, believes Dr Ravni Thakur

The establishment of the BRICS funded New Development Bank, first mooted by India, and formalised during the Fortaleza Summit on July 14, marks the culmination of several agendas that BRICS set for itself at its inception. Chief amongst these was economic cooperation, as each country felt disadvantaged by the existing structures of international trade and finance. This is indeed a laudable agenda, and a look at recent figures shows that effective trade and common positions within the G20 have indeed been good for these countries. BRICS trade, for example, has increased substantially and today stands at $230 billion.

This sense of comprehensive economic cooperation has been clearly visible since the first Joint Statement of the BRIC country leaders at the first summit held in Yekaterinburg in 2009, and has been repeated at every summit since. The Joint Statement said:

We are committed to advance the reform of international financial institutions, so as to reflect changes in the global economy. The emerging and developing economies must have a greater voice and representation in international financial institutions.1

Like the idea of BRICS countries coming together in a group, the idea for further institutionalising the cooperative agenda amongst BRICS countries was also pushed by Russia. Russian delegates at pre-BRICS Summit think tank meetings raised this issue during every summit.2

An Economic Powerhouse

BRICS as a combined economic unit makes up 20 percent of the global output and its share, according to Forbes, has increased four-fold in the recent decade. Though, like the world economy, BRICS economies have slowed down from an average of seven percent to 4.8 percent, they still represent strong fundamentals.3 The BRICS Development Bank makes its intentions clear as far as the global economic architecture is concerned. BRICS countries are willing to come together to provide collective humanitarian assistance and fund infrastructural development in member countries. They have also offered to help other countries from the developing world. This is an important step forward for BRICS countries to really rise as leaders amongst emerging economies. Apart from the Bank, BRICS has institutionalised multilateral, high-level exchanges at sectoral levels.

China is certainly the largest economy in this grouping, making up 75 percent of the GDP. It will also host the Bank’s headquarters in Shanghai, raising the importance of Chinese staff and infrastructure for the Bank. While all countries have agreed to share equal voting rights and initial capital of $50 billion, China will be the largest funder of the Contingency Reserve Arrangement (CRA) that is being set up to help countries overcome any short term liquidity crisis. China will contribute $41 billion to this fund, while Brazil and India will contribute $18 billion each and South Africa will invest $5 billion, testifying to the relative strength of these economies.4

The real traction and common interests can be identified at the economic levels. Russia’s massive oil reserves can help augment the needs of China and India, both oil dependent countries. India can leverage its IT and services sector, Brazil its agriculture, and other resources and South Africa its minerals.

Issues Complicating Concurrence

However, issues of trade imbalances of other countries with China and the nature of its trade with South Africa, Brazil, India and even Russia, seen as largely resource delivering bases for China’s own enormous needs and large markets for its cheap merchandise, need to be tweaked. These can certainly emerge as issues and the onus will lie with China to ensure that it allows more room for balanced trade with its BRICS partners. Questions have also been asked about who benefits the most from the setting up of a BRICS bank. China is certainly a net gainer, becoming the anchor of a Bank that can have the potential to challenge the IMF and World Bank, and more importantly for China, the Japanese funded Asian Development Bank (ADB). Some have also argued that China will also gain by hiding its investments in Latin America and Africa through the BRICS Bank, rather than being targeted for its huge investments in African and Latin American resource industries. This issue again came to the fore as President Xi Jinping continued to sign deals for oil exploration with Venezuela after the BRICS summit in Fortaleza. Whether the BRICS Bank will also spearhead lending in Yuan, leading to its final convertibility, are questions that may appear in the future.

Strategic and Security Cooperation

At the security and strategic levels, several extraneous issues weigh in, making mutual accord more complicated. Another important issue is each individual country’s ties with the rest of the world. Here, Russia and China as permanent members of the Security Council and as members of the nuclear five have a definite edge over what were originally the IBSA three – India, Brazil and South Africa. At the geo-political, these three have more common interests together than with China and the US. Russia, especially after the Ukraine crisis, is isolated and is facing sanctions from the EU. The BRICS Summit provided President Putin an alternative economic and international forum. Here, the complexity of each country’s bilateral and world ties will have an impact on the overall manoeuvrability and flexibility of BRICS as a whole.

China’s position on reforms within the Security Council where IBSA members are awaiting membership and its ambiguity on India’s engagement with the international nuclear regime, all cast doubts in India’s mind about the feasibility of working with China within a strategic framework. Again, India’s relationship with Japan, especially since both are partners seeking reform of the Security Council, and Japan’s huge ODA investment in the development of India’s infrastructure plans, are also issues that may not go down well with China. Within the United Nations, for example, while voting on a Security Council resolution, the IBSA block votes together more often than Russia and China. Thus, the IBSA three will have to strike a balance between growing disagreements between Russia and the US over Ukraine, and between China and the US over disputes in the South China Sea.

The idea of BRICS challenging Western hegemony is an old Cold War ideological construct. While China and Russia certainly challenge the West, and do so also within the Security Council, the IBSA three do not always share their perspective. At the domestic political economy level too, the IBSA block shares much more in common, including their democratic political system. They are still in need of investment and technological exchanges with the West, and may not want to be seen as a rigid economic block. India is trying to reignite its own bilateral relationship with the US and would also be wary of becoming hemmed into an all-out anti-West posture. This can, in turn, detract from the attempt of BRICS countries to find alternative solutions to international problems. Bilateral issues and domestic politics within democratic countries can also create setbacks for any convergence on strategic issues.

Perceptions of BRICS as a Group

Apart from the economic rationale behind BRICS, many analysts highlight the ‘soft balancing power’ of member countries designed to counter the unilateralism exhibited by the United States after the collapse of the Soviet Union. According to Robert Pape, it is the asymmetry of international relations that has forced middle power countries to come together.5 Views from the US point out that the rise of BRICS is certainly going to push for a redistribution of power within the international system and argue that the US will have to follow the progress of BRICS countries.

The role of China and its intentions has naturally generated the maximum interest. It is the largest economy and the largest trading partner of most countries in the world. It is also seen as the only real challenge to US supremacy. BRICS, more than SCO, analysts believe, is China’s vehicle for the legitimacy of its international status. For several Chinese scholars, China’s attitude to genuine multipolarity and polycentric power is ambiguous at best.

The setting up of the BRICS funded New Development Bank this year has proved that a process that began tentatively, has garnered synergy and moved forward enough to concretise the idea of a BRICS Bank. The demands for a more equitable economic architecture and institutions have led to growing institutionalisation. This will be followed by gains in trade and common bargaining on trade issues. To what extent this group succeeds in evolving a common international agenda is something that remains to be seen. In the final analysis, BRICS is a grouping of emerging economies that seeks to provide an alternative agenda for handling a complex, interdependent world. Their coming together also ensures that no one country can emerge as a unilateral power in the 21st century.

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Author

Dr Ravni Thakur teaches at the Department of East Asian Studies, Delhi University. She is a Senior Fellow with the Delhi Policy Group and convener China Study Circle.

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    Notes:

    1. BRICS head of summit meet, Yekaternburg, Russia.

    2. See the presentations of A. Vinogradov, ‘BRICS Dialogue Format and its Role in Formation of Multipolarity’, New Delhi Think Tank Summit conference papers, March 2012. This has also been discussed by other Russian scholars at the Beijing Think Tank Summit.

    3. Kenneth Rabpoza, ‘China’s Latest Economic Data Nothing to Cheer About’, Forbes Magazine 2014/07/16 internet edition

    4. Parmit Pal Chaudri, Hindustan Times, July 14, 2014

    5. Robert A Pape ‘Soft Balancing Power Against the United States’, International Security vol. 30, no. 1, pp. 7-45

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