BRICS of a new world

Opinion, July 12, 2014

Original link is here

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BRICS must mitigate the systemic risks posed by imbalances in the global economic system, perpetuated by Western central banks. (Source: Reuters photo)


 

The Fortaleza summit should address the undermining of the multilateral trading system.

Prime Minister Narendra Modi’s first major foreign visit, to the BRICS summit in Fortaleza, Brazil, is in the news for a variety of reasons. But there is little discussion on what is at stake and the possible takeaways for BRICS, and particularly India.

This is a crucial moment for the world, faced with a central European face-off, the long tail of the financial crisis, trouble in the western Pacific, a stalemate on trade and environment, new contests in cyberspace and outer space and a new irrationality in the Middle East. BRICS, particularly India, are vulnerable to downward spirals in any of these areas. India must seek to first protect and then promote its interests at this platform. The new prime minister is the right man for this task and there are five key areas he must navigate.

The first is the big-ticket BRICS-led development bank, proposed at the New Delhi summit in 2012. While China has clear ambitions, a worse outcome would be to allow the creation of a Chinese version of the Asian Development Bank. The new bank must follow a one-country-one-vote formula, and allow other states and institutions to invest capital in return for a minority controlling stake and returns commensurate to their investments. BRICS members must walk the talk on the “equity and fairness” they seek from the West. By allowing each BRICS country equal weight in ownership of the bank, they would demonstrably craft a model for other IFIs to emulate.

The second area is global trade and investment. Through the proposed Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP), developed economies are seeking to redirect trade and investment flows. They will do so by instituting new rules, standards and tariffs, and by gradually dismantling the multilateral system (WTO) that India and others believe to be essential. BRICS must seek to counter the negative externalities from such mega free trade arrangements (FTAs). While it is expected that BRICS will announce export guarantees and agreements on innovation and banking, the members must also commission academic assessments of the impact of imminent mega FTAs and coping strategies.

Third, BRICS must mitigate the systemic risks posed by the imbalances in the global economic system, perpetuated by the central banks of advanced economies. BRICS leaders are expected to launch a foreign exchange reserve fund of $100 billion as a hedging mechanism. This will resemble the Chiang Mai Initiative, put in place by Asean+3 after the Asian financial crisis of the late 1990s. It is essentially a pooling arrangement, with China contributing $41 billion, Brazil, Russia and India $18 billion, and South Africa $5 billion. Indeed, Modi would do well to suggest that BRICS take a principled position on recent policy decisions by Western central banks, already suspected to be fuelling new asset class bubbles.

Fourth, over the years, political content in the outcome statement has increased dramatically. BRICS states will need to discover common approaches on political developments in different regions. In particular, the stability of southwest Asia is critical to India, and as the US withdraws from Afghanistan, there is bound to be a jostle for political capital. Can BRICS catalyse the RIC (Russia, India and China) into discovering a basis for meaningful cooperation in the region? Here, the bilateral meetings on the sidelines will be vital. Similarly, Russian expectations on collective support for its position on Ukraine will need to be delicately managed.

The fifth area pertains to cyber governance and cybersecurity. There are clear differences in the positions of BRICS members. Russia has passed a bill requiring all technology companies to store personal user data on domestic servers. This closely mirrors developments in China that ensure local data storage and government control. Meanwhile, the Brazilians, who hosted the “Net Mundial”, have positioned themselves alongside the US and EU, favouring a multi-stakeholder framework. India sees a greater “state” role as it seeks to connect its “next billion” to the internet. There is an opportunity to recognise these cleavages, and develop a calibrated approach for discovering common digital ground. That each BRICS member has either the US or EU as its most important economic partner in the digital world may help.

The Fortaleza summit will represent the reboot of BRICS. This is a different world altogether, with the Brazilians seemingly reasserting a “Lulaesque” style of external engagement, the Russians defiant and petulant at the same time, the Chinese testing the geographical limits of their economic and political ambitions, and the South Africans seemingly wedded to their regional aspirations. Prime Minister Modi has the biggest political mandate among his BRICS counterparts, and also the weight of the largest expectations.

The writer is vice president, Observer Research Foundation. Views are personal

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