Building new alliances with BRICS

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“India should not hesitate to join or create other BRICS initiatives that may have strategic implications for global trade, finance, cyberspace, and the larger economic system.” Picture shows Prime Minister Narendra Modi and other leaders at a BRICS summit in Russia. — FILE PHOTO: PTI

The grouping creates space for India to move the contemporary international order towards alternative models of development and governance

India’s assumption of the presidency of BRICS (the Brazil-Russia-India-China-South Africa grouping) last month comes at a time when many are questioning the group’s raison d’être. The economic health of the group is patchy and the contemporary political trajectories of its members are, to put it mildly, pulling in different directions.

The decision to form BRICS was based neither on the attractiveness of the economies of these countries nor on a cozy ideological confluence. To understand the need for this group to exist is to understand the need for flexibility mechanisms to achieve larger geo-economic goals. There is a need for New Delhi to take a long view on the purpose of BRICS and the space it creates for India within the contemporary international order.

Three expansive experiments

This order, as it exists today, is the result of three expansive post-World War II experiments. One was Pax Americana. It was built around the Washington Consensus, the simultaneous expansion of U.S. military might and of military alliances like NATO (North Atlantic Treaty Organisation); the creation of institutions like the World Bank and the International Monetary Fund, serving an Atlantic economic order; and finally the consequent expansion and consolidation of markets and market-led globalisation that undermined and crushed the alternatives.

The second experiment was the creation of the European Union (EU). With a collective desire to avoid the war and destruction witnessed in the first half of the 20th century, Europe’s leaders quickly realised that deeper economic integration and mutual interdependence was the best guarantor of regional stability. The European project was different from the American one. It saw no need to expand its military might, having already closely integrated its security interests with that of the U.S. It became a collective that was — as European leaders are wont to remind us in moments of crisis — primarily a convergence of shared values. Arguably, the greatest successes of the EU were its ability to be able to softly prise out Ukraine and other former satellites of the Soviet behemoth from the Russian sphere of influence, and a renewed vision for Europe that went beyond “Mitteleuropa”. However, with the ongoing refugee crisis, growing entente with China, and the inevitable policy confusion that comes with being a monetary union without being a fiscal union, the European liberal project is seeking better days.

The third and most recent experiment is the emergence of the Chinese global play and the efforts to put together a new world order defined by state control and underwritten by state capitalism. China is also expanding its military might as it seeks to be a Pacific and Asian power. Through initiatives like the “One Belt, One Road”, it is vastly expanding its market access, and selectively drawing in countries that would simultaneously serve China’s strategic as well as economic interests. China is also creating new institutions like the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB), where India has significant stakes. However, the Chinese creation of new institutions is offset by its seemingly unyielding belief that the current rules-based global order is neither fair nor sacrosanct, and a new rule-framing moment is upon the world.

How BRICS lends heft

One may argue that India’s strategic interest must be in the continued existence of an open economic order and, as a rising power, liberal internationalism serves its interests best. Put differently, India could potentially (as its gross domestic product rises in the decades ahead) be the inheritor of the liberal international project for the very same realpolitik reasons as the U.S., and must seek to contribute to it through supporting institutions that serve it even as they cater to India’s national interests. But for this, it needs space within the old order to respond to its unique development and specific needs. It also needs to acquire weight within these institutions that would allow it to reshape the old establishment to work for new stakeholders and respond to contemporary realities. India cannot do this by itself. Given its fiscal and geopolitical constraints, it must engage with all stakeholders who could aid in this endeavour. India’s involvement with BRICS — and the NDB — should be read in this context.

Here, it is important to clarify what BRICS ultimately is: it is not a trading bloc or an economic union per se. Nor is it a political coalition — given the divergent geopolitical trajectories of each country. Brazil, India and South Africa broadly orient themselves towards the liberal end of the political spectrum, China pursues a trajectory that will, sooner than later, put it on a collision course with the U.S., even as it leverages the Atlantic economies in the medium term for its economic growth. And finally, Russia has once again begun to be perceived by NATO as an all-out threat, and not just a “frenemy”. From an Indian perspective, BRICS is a strategic geo-economic alliance that seeks to move the narrative emerging from the Bretton Woods institutions towards alternative models of development and governance — through the sheer weight of the incongruent collective. BRICS helps create new instruments for global relevance and influence for each of its members, and is itself one. Viewed through this prism, the development of BRICS institutions and the effectiveness of the NDB is what will define the success of the coalition in the coming years. For India, the success of the NDB and the AIIB may also ironically allow it a greater role in the institutions established in the middle of the last century.

BRICS should be an integral part of India’s grand strategy, and a vehicle in India’s journey from being a norm taker to a norm shaper. The bloc offers New Delhi greater bargaining space as India seeks to gain more prominence in institutions of global governance, and shape them in the liberal international tradition with a southern ethos. For instance, India trades more with the global South than the global North. It is the only member of BRICS that is likely to foster an open and rule-based economic architecture with the global South. It is uniquely poised to do so, thanks to New Delhi’s leadership role among the G77 and G33 groupings at the World Trade Organisation and the UN. Actions taken by India in its own developmental interests have the unintended consequence of strengthening the plurilateral economic agenda because it has scrupulously (on most occasions) adhered to the norms of the Washington Consensus. BRICS gives India the room to continue being an important player in the liberal international order while being part of a group which, for the old guard, could potentially emerge as the single most important reason for its dramatic reform.

As with the AIIB, India should not hesitate to join or create other BRICS initiatives that may have strategic implications for global trade, finance, cyberspace, and the larger economic system. Indeed, the U.S. and other European powers should encourage it. Since it does not strive to create disruptive norms, India is the best bet that the international community has to “slingshot” past the illiberal impulses in geopolitics. The Atlantic powers need to recognise that India’s role within BRICS is a bulwark against such impulses, and encourage its leadership in similar plurilateral forums.

(Samir Saran is Vice-President and Abhijnan Rej is Fellow at the Observer Research Foundation.)

BRICS, Columns/Op-Eds, Politics / Globalisation

Waking up to the BRICS

Opinion» Lead August 6, 2014

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BRICS members should democratise the New Development Bank’s functioning if new stakeholders are included in the future. If anything, the NDB must be a template for change, not a mirror to the existing hegemony of money

In his 2001 paper titled “Building Better Global Economic BRICs”, economist Jim O’Neill of Goldman Sachs calculated that “if the 2001/2002 outlook were to be extrapolated, over the next decade, China would be “as big as Germany” and Brazil and India “not far behind Italy” on a current GDP basis. Cut to 2013; Jim O’ Neill’s expectations seem modest. Last year, China was the world’s second largest economy, Brazil ahead of Italy and India just one rank behind in terms of current GDP. In purchasing power parity (PPP) terms, all the BRIC countries were within the top 10, with China and India at second and third position respectively. BRIC, in Wall Street lingo, is an “outperformer.”

Despite the crippling financial crisis, BRIC has done better on pure economic terms than most expectations. But the acronym is today representative of much more than an investment narrative alone. With the inclusion of South Africa, BRIC became BRICS, giving a pluralist and inclusive veneer to an economic idea. This group now has a significant political dimension, as is evidenced by the increasing number of converging positions on political issues.

In a follow-up paper in 2003, titled, “Dreaming with BRICs: The Path to 2050,” Goldman Sachs claimed that by 2050, the list of the world’s largest 10 economies would look very different. It is remarkable then, that in 2014 the list already looks radically different, and it is clear that it is time to “wake up” to the BRICS.

NDB versus existing banks

In this context there were at least two concrete arrangements inked at the sixth BRICS Summit in July, which will have a large economic and political impact. These were the Contingent Reserve Arrangement and the New Development Bank (NDB). Conversations and reportage on these two were shrill, coloured and obtuse in the run-up to the Summit. It continues to follow in the same vein. Indeed the NDB is at once the most celebrated and critiqued outcome of the Fortaleza Summit. Now that we are a few weeks away from its public conception, it is time for a reality check on this widely discussed BRICS achievement.

The first reality is the NDB can neither replace nor supplant the role of the existing development banks. The NDB will not be able to compete with the reach and expanse of existing institutions such as the World Bank, which has a subscribed capital of over $223 billion. The bank borrows $30 billion annually by issuing Triple-A rated debt in international bond markets. Such easy access to capital markets on the back of high promoter creditworthiness allows the bank to have a lower cost of funds. Other development finance institutions enjoy similar financial backing. The Asian Development Bank (ADB) too has a large balance sheet, backed by 67 member nations and a subscribed capital of $162 billion.

In contrast, the NDB will require over half a decade before it can accumulate the stated capital base of $50 billion from within BRICS and another $50 billion (approximately) from other countries and institutions. Indeed, in the immediate term, only a modest $150 million has been promised by each of the BRICS countries. A contribution of $1,850 million thereafter, staggered over five to six years, will require some doing as the BRICS countries are grappling with weak balance sheets, fragile current accounts and other domestic imperatives.

Then, there are other questions that will need to be answered in the days ahead. If China is unable to dominate this institution, will it prefer to prioritise investments through its (proposed) Asian Infrastructure Investment Bank? How soon can the central banks of the member countries devise arrangements to act as depository institutions for the NDB? And, how will the NDB raise funds in different countries? What will be the currency or currencies of choice? All important posers which can be addressed if the resolve is unerring.

Development finance

The second reality is, in spite of its modest economic weight in the initial years, the NDB can change the ethos of development finance irreversibly. Rather than replacing or supplanting existing development finance institutions, the NDB will seek to supplement existing resources. In fact, the World Bank President, Jim Yong Kim, has welcomed the idea of the NDB and acknowledged its potential in infrastructure development and the global fight against poverty.

An important difference could be in the way conditions and restrictions are imposed on loan recipients. Bretton Woods Institutions such as the World Bank have been known to impose conditions for lending that create structural mismatches between project funding, demand and supply. As recently as last year, the World Bank Group decided to restrict funding for new coal plants in developing countries, deciding instead to invest greater resources in “cleaner” fuels. Of course, the World Bank would be well advised to reconsider this decision given lifeline energy needs and the energy access realities in developing countries such as India.

The NDB’s mission must be to create a business structure where borrowing countries are given greater agency in prioritising the kinds of projects they would want funded. Over a decade, this could become the demonstrator project through which the relationship between donors and recipients, lenders and borrowers, will be rewritten. Hopefully this will be in favour of developing economies and will enable the reimagining of economic pathways.

Location and ownership

The third reality — perhaps, the most debated — is that the location of the NDB is immaterial when governance and ownership is equally shared. Location has frequently been confused with ownership, skewed by our imagination of existing institutions such as the World Bank. According to its Articles of Agreement, major policy decisions at the World Bank are made through a Super Majority — 85 per cent of votes. Vote shares in turn are determined by the level of a nation’s financial contribution. With around 16 per cent voting share at the World Bank, the U.S. has a de facto veto. Conversely, BRICS, with 40 per cent of the global population and a combined GDP of $24 trillion (PPP), collectively accounts for a mere 13 per cent of the votes at the World Bank.

As such, the concentration of voting power and headquarter location in Washington DC in the case of the World Bank is merely a coincidence. Japan dominates the functioning of the ADB with a 15.7 per cent shareholding, despite the headquarters being located in the Philippines.

It is also useful to note that previous World Bank presidents have been U.S. citizens and the International Monetary Fund’s (IMF) list of managing directors is composed entirely of Europeans. Even the ADB’s presidents have been Japanese citizens, with almost all of them having served in the Finance Ministry in Tokyo. In this regard, the NDB, with its intention of rotating leadership, seeks to overhaul the existing governance framework prevalent in the international development finance institutions. Through equal shares of paid-in capital in the NDB, there is a clear intention of creating an alternative model that focusses on voting-power parity. The smallest country can negotiate at par with the biggest country.

Will BRICS create a framework that is as democratic in sharing governance space with other investors and stakeholders? This will be something to watch for as the systems and structures evolve. The notion that the NDB has been “Shanghai-ed” is perhaps a shallow understanding of this exciting new initiative.

With an equal voting share, all five countries have to be on board to move in a particular direction. Admittedly, this can be hugely inefficient and troublesome. Therefore, it is incumbent upon BRICS members to ensure that this initial at-par equity in governance does not unexpectedly allow for a super majority like gridlock, restricting decision making because of a lack of consensus. The NDB must be dynamic and lithe, much like the BRICS grouping itself. It would be useful for BRICS members to institute a professional management body for steering everyday operations of the NDB as well as all non-policy related decisions, including those dealing with project funding.

And most importantly, as discussed earlier, BRICS members should democratise the bank’s functioning if new stakeholders are included in the future. They must find ways to engage the recipients and beneficiaries in its decision-making apparatus. If anything, the NDB must be a template for change, not a mirror to the existing hegemony of money.

(Samir Saran is vice-president at the Observer Research Foundation and available at @samirsaran on Twitter.)

BRICS, In the News, Politics / Globalisation

BRICS Development bank will be good for members,especially India-Strategic Policy Expert

BRICS, Columns/Op-Eds, In the News, Politics / Globalisation

First Xi-Modi meeting finds common ground

Global Times | July 20, 2014 19:33

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When India and China meet, the world watches” were the words Chinese President Xi Jinping used to capture the interest generated by his first meeting with India’s new Prime Minister Narendra Modi.

Whether the world was watching or not, the public in both countries keenly followed the first interaction between the two Asian leaders on the sidelines of the BRICS summit in the Brazilian town of Fortaleza.

The meeting passed the initial hurdle of establishing camaraderie between the two leaders. The images and videos that have found their way across the news and social media portrayed a favorable body language and easy chemistry. That the meeting, slated for 40 minutes, lasted nearly twice as long also signals the importance both leaders attached to this engagement.

The meeting can be captured in two words: pragmatic optimism.

That Modi chose to address the contentious border issue in his very first meeting demonstrated a sense of political realism. The Indian leader understood that such a vital element of the partnership cannot be swept under the carpet, even as the BRICS summit itself was gearing up to announce some very positive outcomes.

That Xi also chose to underscore the need for finding an early solution demonstrates their acknowledgement of the negative implications of this lingering border dispute on the larger relationship.

Both countries surely realize that any further economic integration will inevitably hit the political wall if an early solution to this legacy dispute is not discovered.

While it may seem an onerous task, a degree of progress has already been made.

During the previous decade, a great deal of effort has been invested by the empowered special representatives to discover a mutually acceptable and creative solution. In fact, those in the know suggest that it is not impossible to finalize a settlement. What was lacking was the political leadership capable of implementing the same.

With two strong leaders, there exists a golden opportunity to move beyond the border defense cooperation agreement signed last year to one that is conclusive and sustainable.

However, the serious nature of the conversations around the border issue did not deter the two strong leaders from making a strong and optimistic case for deeper economic cooperation and coordination.

The leaders discussed an enhanced role for China in the Indian economic story. The new Indian leadership seems ready to invite large Chinese investments in industrial parks, infrastructure and other key sectors of the economy. At the same time, India seeks reciprocity from China by allowing more efficient and larger market access to Indian goods and services.

Both of these measures would help balance the current large trade deficit in favor of China.

The convergence in the positions of the two countries on most global economic and political governance issues helped the BRICS arrive at an acceptable framework for the new development bank and contingent reserve arrangement. This growing proximity was specifically established when Xi invited India to the APEC summit later this year.

These are early days for Xi and Modi. There are plenty of hurdles that will need to be managed. There is a whole universe of professional naysayers on both sides and in other parts of the world that will exploit negative developments.

Both leaders will have to carry along their security and strategic establishments with them; not the easiest groups to handle. They also have to manage and guide the public mood in favor of more robust ties with each other.

The recent interaction emphasized people-to-people relations and tourism, and perhaps that is one of the ways to do this.

But the crucial factor that can help transform this bilateral is Modi himself. For the first time, the Chinese will interact with an Indian leader who can be politically strong in safeguarding India’s sovereign interests, while at the same time being very welcoming in embracing China economically.

The author is vice president and senior fellow with Observer Research Foundation in Delhi. opinion@globaltimes.com.cn

BRICS, In the News

नरेंद्र मोदी ब्राज़ील से क्या लाएँगे?

समीर सरन

उपाध्यक्ष, ऑब्ज़र्वर रिसर्च फाउंडेशन

मंगलवार, 15 जुलाई, 2014

ब्राज़ील में हो रहा ब्रिक्स शिखर सम्मलेन प्रधानमंत्री के रूप में नरेंद्र मोदी का पहला महत्वपूर्ण अंतरराष्ट्रीय दौरा है.

यह ब्राज़ील, रूस, भारत, चीन और दक्षिण अफ़्रीक़ा का संयुक्त मंच है.

इस यात्रा में मोदी पहली बार इन देशों के प्रमुखों से मुलाक़ात करेंगे. अपने दो दिवसीय दौरे के पहले दिन ही उनकी दो महत्वपूर्ण बैठकें हैं.

इस सम्मेलन के दौरान पाँच ऐसे मुद्दे हैं जो भारत की दृष्टि से महत्वपूर्ण रहेंगे.

इस यात्रा से नरेंद्र मोदी को क्या हासिल हो सकता है? जानने के लिए पढ़िए ऑब्ज़र्वर रिसर्च फ़ाउंडेशन के उपाध्यक्ष समीर सरन का विश्लेषण.

रिश्ते बेहतर करने का मौक़ा

यूक्रेन के मुद्दे पर रूस और यूरोपीय संघ के बीच एक तनावपूर्ण स्थिति बनी हुई है. वहीं पूर्वी एशिया के दूसरे देशों के साथ चीन के रिश्ते तनावपूर्ण चल रहे है.

ऐसे में रूस, चीन और भारत के संबंध काफ़ी महत्वपूर्ण हो जाते हैं.

सम्मलेन के बहाने द्विपक्षीय संबंधों को सुधारने का भी मौक़ा मिलेगा, चाहे वो भारत चीन के रिश्ते हों या भारत और रूस के बीच.

ब्रिक्स वित्तीय संस्थान?

ब्रिक्स देशों के पास अब यह अच्छा मौक़ा है जब वो अपना एक अलग वित्तीय संस्थान और विकास का एक अलग मॉडल बना पाएं.

इस बार उम्मीद की जा रही है कि सम्मलेन के दौरान कंटिंजेंसी फ़ंड, ब्रिक्स विकास बैंक के गठन की औपचारिक घोषणा हो जाए.

जो देश इस तरह के कंटिंजेंसी फ़ंड का समर्थन कर रहे हैं वो वर्ल्ड बैंक और अंतरराष्ट्रीय मुद्रा कोष यानी आईएमएफ़ की मुख्य धारा में नहीं हैं.

आपसी व्यापार

व्यापार तीसरा बड़ा महत्वपूर्ण मुद्दा है क्योंकि अमरीका और यूरोपीय संघ के बीच खुले व्यापार का समझौता होने वाला है.

अगर यह समझौता हो जाता है तो वैश्विक सकल घरेलू उत्पाद यानी जीडीपी का 66 प्रतिशत आपस में सम्मिलित हो जाएगा.

इस समझौते का भारत, चीन, रूस और दक्षिण अफ़्रीक़ा पर असर पड़ेगा.

अमरीका और यूरोपीय संघ के बीच समझौता ब्रिक्स देशों के लिए एक बड़ी चुनौती है क्योंकि यह विश्व व्यापार संगठन की अहमियत को कम करने वाला है.

क्षेत्रीय सुरक्षा और स्थिरता

क्षेत्रीय सुरक्षा और स्थिरता एक महत्वपूर्ण मुद्दा है.

पश्चिमी एशिया में हालात काफ़ी चिंताजनक हैं. अफ़ग़ानिस्तान में राष्ट्रपति चुनाव को लेकर भी काफ़ी कड़वाहट है. अमरीकी फ़ौजें इस साल अफ़ग़ानिस्तान से वापस जा रही हैं.

भारत को अपने आर्थिक विकास के लिए इलाक़े में क्षेत्रीय स्थिरता और राजनीतिक शांति चाहिए.

भारत के लिए यह ज़रूरी होगा कि चीन और रूस इसमें उसका सहयोग करें.

पिछले पाँच सालों की समीक्षा

यह ब्रिक्स देशों की छठी बैठक है.

यह मौक़ा है जब भारत को पिछले पांच सालों में अपनी उपलब्धियों की समीक्षा करनी चाहिए, उसके बाद भविष्य की रणनीति तय होनी चाहिए.

लैटिन अमरीका के देशों से संबंध बढ़ाने का भी यह अच्छा मौक़ा है क्योंकि भविष्य में ऊर्जा और खाद्य सुरक्षा के लिए हमें इन्हीं देशों की तरफ़ देखना पड़ेगा.

(बीबीसी संवाददाता सलमान रावी से बातचीत पर आधारित)
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BRICS, In the News, Politics / Globalisation

India leading BRICS Bank bodes well for future says Samir Saran

BRICS Summit’s decision to establish a development bank gives a sense of achievement for India as well as fellow nations. India has invested the most in the Bank after much deliberation during the last years. Author and commentator Samir Saran says that with India having the bank’s stewardship, it is a welcome start to a financial institution such as the BRICS Bank. The Bank should not be seen as if it is in competition with other international financial institutions. Rather, it should be viewed as an additionality. BRICS Bank will cater to the scarcity gap, changing the ethos of financial institutions. The Bank’s headquarters being in Shangai should not deter India’s hopes as we will have the bank’s stewardship during these formative years and this will be fruitful to the economy.

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BRICS, In the News

Five emerging nations plan a development bank of their own

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by Mehboob Jeelani , Fortune

July 15, 2014, 9:53 PM EDT

Leaders of big developing nations hope to create an alternative to the World Bank and International Monetary Fund, as a sign of independence.

Leaders of five big emerging nations plan to create a bank to fund development projects plus an emergency reserve to counter the powerful World Bank and the International Monetary Fund.

The plan was announced Tuesday at the annual BRICS summit, an acronym taken from the name of the participating countries – Brazil, Russia, India, China and South Africa. The idea is to create an alternative to the major international lending sources so as not to be so dependent on them for money and as a symbol of political strength.

The development bank – funded with $100 from the five member states – will be headquartered in Shanghai and, in its first phase, headed by an Indian president. Although China will be bank’s largest donor, each nation will own an equal share of the bank and have an equal say in governance and policy making. Another $100 billion will be allotted to an emergency reserve fund.

BRICS countries account for 42% of the world’s population and represents $6.14 trillion in annual trade. They contribute roughly 20% of the world’s economy based on GDP.

The BRICS summit took place against the backdrop of Russia’s annexation of Crimea, a Russia-China natural gas deal and the change of government in India. The proceedings were therefore of utmost importance to the U.S from a foreign policy standpoint.

“I think the big message to me coming out of the summit is BRICS are trying to create a safety net that means if the U.S. and Europe tried to isolate and sanction one of them they have something to fall back on,” said Thomas Wright, a fellow at the Brookings Institution who focuses on international relations. “The most worrying parts are that they didn’t say anything critical of Russia on Ukraine. Basically they sent out a message that they had no problem with anything with what Putin was doing.”

BRICS was established just prior to 2008 financial crisis with Brazil, Russia, India and China. Two years later, they welcomed South Africa to the club. The member nations vary in their economic health and, in some cases, are undergoing economic problems. But they’ve found a diplomatic and political rationale to exist that Wright described as being based on the idea that “not to have all roads go through the West.”

While Russian President Vladimir Putin boldly expresses his views on BRICS—that he’ll press other emerging markets to find ways to prevent “sanction attacks” by the U.S.—other leaders are cautious about their response.

“Together we should think about a system of measures that would help prevent the harassment of countries that do not agree with some foreign policy decisions made by the U.S. and their allies, but would promote a civilized dialogue on all points based on mutual respect,” Putin said in The Moscow Times.

In the past, the BRICS have struggled to reach a consensus. First they could not agree on a candidate to head the International Monetary Fund or the World Bank in 2011 and 2012. Then recently India and South Africa signaled they may backtrack on a trade agreement initially endorsed by all five countries. Many experts perceived it as a group too “splintered” to make any change.

With today’s summit, BRICS managed to break that perception and move forward to realign the economic balance for future development. “It is an achievement for the countries who have not significantly sat on the high table on economic and political governance matters,” said Samir Saran, senior fellow and vice president at Observer Research Foundation, a New Delhi based think-tank. “It is going to create a new ethos of economic governance.”

BRICS, In the News, Politics / Globalisation

India lauds BRICS bank set up to counter Western hold on global finances Jul 16

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New Delhi, July 16 (ANI): Experts and leaders, on Wednesday welcomed the setting up of $100 billion BRICS bank and a currency reserve pool aimed at reshaping the Western-dominated international financial system. Leaders of the five top emerging markets in BRICS nations consisting of Brazil, Russia, India, China and South Africa, sealed the deal to foster financial and development cooperation and keep the monetary tap running in the face of a financial meltdown like the 2008 crisis. A senior researcher at the New Delhi-based Observer Research Foundation think-tank, Samir Saran, said bank would help emerging and developing nations to mobilize resources for infrastructure and development projects. BJP leader Subramanian Swamy, welcomed the setting up of the bank, adding that the previous Congress -led government had committed to the Chinese demand to have the bank being headquarted in Shanghai

BRICS, Columns/Op-Eds, In the News, Politics / Globalisation

BRICS needs doses of steroids to prosper

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By Samir Saran & Vivan Sharan Source:Global Times

Illustration: Liu Rui/GT

The political leaders of BRICS member countries are facing pivotal national moments.

Brazilian President Dilma Rousseff is simultaneously navigating her socialist and internationalist moment, after a face-off with the Americans on the NSA spying saga. She has reasserted Brazil’s propositional role in the global order by hosting the ambitious NETmundial – Global Multistakeholder Meeting on the Future of Internet Governance.

Russian President Vladimir Putin’s European misadventures have gotten him embroiled in a controversial international debate on sovereignty, while his country’s economy struggles to overcome structural flaws.

On the back of a decisive popular mandate, the new Indian Prime Minister Narendra Modi faces tough regional challenges, even as he tries to revive industrial output and create jobs.

Chinese President Xi Jinping is in charge of an administration which has courted altercations on various fronts while in search of a new and sustainable model for economic growth.

And recently re-elected South African President Jacob Zuma has to contend with both a weak political mandate and rising socioeconomic inequity, while attempting to reconcile differences with African neighbors.

Each of the BRICS leaders is faced with significant challenges. How useful will coordination and cooperation at the BRICS platform be for each of them? The BRICS platform itself will first need doses of steroids if it is to remain viable.

This past year has been quite unsettling for those interested and invested in BRICS. Economic growth of the member countries has been below par. The external economic environment has not been favorable either.

The promise of BRICS is based on new economic and political opportunities. The group is lean and lithe by design and therefore has the right ingredients to make for a 21st century cooperation and coordination platform. Both these characteristics were on display when the group met in India in 2012, where a number of forward-looking economic and political decisions were made. However, neither critical decision-making nor effective implementation has been on display over the last year. Relating to this, there are five concerns that must be addressed at this year’s BRICS summit.

First of all, the focus of the previous summit was clearly on African issues. The eThekwini Declaration in 2013 focuses on unlocking Africa’s potential, regional integration for Africa’s growth and the New Partnership for Africa’s Development. With the continued moderation of growth rates, the grouping must prioritize domestic economic imperatives and close commercial ties rather than narrowly focus on a single region or use the platform for regional grandstanding.

The second concern follows directly from the first. BRICS members have large stakes in the international system and share the common aspiration of becoming global agenda-setters. Indeed, they must not continue to be passive recipients of rules and standards in vital areas such as global trade and investment.

Third, the new areas of cooperation listed in last year’s declaration outlining areas for immediate collaboration are strikingly vague. As a result of myopic drafting, a rather counter-productive role reversal has taken place. The interactions between non-government stakeholders have started to lag behind inter-governmental interactions.

Governments have limited vocabulary and dynamism compared with the private sector and civil society and intra-BRICS cooperation must be unfettered and creative. An example is the BRICS Exchange Alliance, a market-led initiative to integrate financial trading platforms. Such concrete efforts must be replicated rather than endlessly expand the list of issues to cooperate on for the sake of seeming ambitious.

The fourth concern relates to the veritable silence on BRICS engagements in the world media following the high-profile summit last year. Perception-building must take greater precedence at this summit. This must be aided by the timely dissemination of information on actions such as the setting up of the Contingency Reserve Fund and a BRICS-led development bank.

And finally, perhaps the most critical issue for the five BRICS leaders, who will meet at the sunny shores of Fortaleza, will be practical goal-setting. This will be an exercise in planning and coordination to maintain continuity as well as honing in on objectives for the long term. If there is an opportunity to be seized in cross-leveraging political and economic ties, it will be in the coming years.

Samir Saran is a vice president and Vivan Sharan is an associate fellow at Observer Research Foundation, Delhi. opinion@globaltimes.com.cn

BRICS, Columns/Op-Eds, In the News, Politics / Globalisation

BRICS of a new world

Opinion, July 12, 2014

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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