Tag Archives: foreign policy

Columns/Op-Eds

Obama 2.0: Who will crash the party?

by Samir Saran and Dr. John C. Hulsman
1st of December 2012
Please find here the link to the original article

Second term presidencies, like second marriages, can be seen as the triumph of hope over experience. George W. Bush met with calamity in Iraq, Bill Clinton was impeached over the Lewinsky scandal, Ronald Reagan suffered through Iran-Contra, Richard Nixon perpetrated Watergate and resigned, and LBJ was engulfed and then devoured by the Vietnam War. Given this doleful record, what can realistically be hoped for in a second Obama term? This time around, will chronically dysfunctional West Asia be a slow bleed that will drain the momentum of the new presidency?

Two major over-arching priorities immediately head the to-do list of President Obama; the first a great danger, while the second presents almost unparalleled political opportunity. The fiscal cliff–and insane joint suicide pact agreed to by the outgoing Congress-promises automatic tax increases and spending cuts totaling $600 billion coming to pass on January 1, 2013. The only way to avoid this contraction to the American economy, which it is estimated would amount to a full 4% of American GDP, thereby casting a feebly recovering American back into recession, would be for the Republican House and the President to reach a broader budget deal amounting to around $1.2 trillion in savings over the next 10 years. So, at least on paper, it is hard choices quickly arrived at or…Armageddon.

Given the stakes (and both parties desire to avoid the wrath of the American people at their persistent inability to behave as grown-ups) it is still more than even money that a patched-up compromise will be reached, a temporary deal which kicks the fiscal can down the road, without actually solving America’s long-term deficit and debt crisis. However, failure to reach such a deal (and it is important not to underestimate how politically divided Washington has become) would practically doom the president’s second term from the start.

Obama’s tremendous opportunity, also best done quickly while the Republican Party is still reeling from its electoral defeat, is to, in terms of policy, lock in the gains made by the creation of his new and seemingly enduring Democratic majority. The President’s winning political coalition for the past two presidential election cycles has led to nothing less than the rejuvenation of the Democratic Party itself. Women, African-Americans, the Professional Classes, the Young, and Hispanics are the basis of the evolving power of the Democrats, who have carried the popular vote in five of the last six presidential contests.

Locking in Hispanics, the fastest growing segment of the American electorate, is a particularly tempting prize. Now comprising a full 10% of the voting public, Hispanics gave the president 71% of their votes this November; the main reason for this is the administration’s efforts to offer amnesty and an ultimate path to citizenship for the roughly 11 million undocumented workers now living in America, and the Republicans’ suicidal desire to punish both them and their children.

In his immediate post-election remarks, the president gave the game away by stressing the need for immigration reform, truly a win-win proposition if ever there was one in politics. If Republicans balk at reaching a compromise over immigration, they will have lost the chance to win over the fastest growing segment of the American electorate for at least the next generation. If they go along with Obama’s proposals, there will be civil war in the GOP, and President Obama will get the lion’s share of the credit anyway. Look for moves to introduce such a policy very early in 2013.

If this is what the White House will do, the great White Whale of the next four years is a simple fiscal question: Can America arrest its trajectory of rather steep decline and enact a Bowles-Simpson style compromise that both raises taxes (as the Democrats dream about) while engaging in entitlement reform of Medicare, Medicaid and Social Security (the Republican’s fondest wish).

In the Bowles-Simpson plan–a bipartisan compromise reached by the president’s own appointed committee in the latter days of his first term-there is a durable blueprint to do this. There would be three dollars in spending cuts for every dollar in tax increases, entitlements would be means tested, and benefits would be cut and doled out slightly later in life, taxes would be simplified, with loopholes and deductions would be curtailed. Such a grand plan would stabilize the American debt rate at around 60% of GDP, thus preserving American economic power for the next generation.

There are two fundamental problems in reaching for the Bowles-Simpson Holy Grail. The first is that it presumes that people in both parties are less ideological than they currently are. It is not just the right-wing Tea Party that is the problem here; House Minority Leader Nancy Pelosi and her left-wing followers have also shown no sign of being able to make the significant compromises that would be necessary to make this whole process work. Without the left agreeing to entitlement reform and the right agreeing to tax rises, the deal will never be done. It is an open question as to whether this level of compromise is now possible in a Washington more ideologically divided than at any time in memory.

The final problem in nailing down this ambitious domestic agenda is that it assumes the world will simply not intrude while America tries to sort itself out. History simply does not work like this. While it is highly unlikely there will be simultaneous: War with Iran, tensions between China and Japan over the Senkakus, the euro-crisis going septic, and Syria’s civil war leading to regional instability or even regional war in the Middle East, there is a very good chance that some of this happens. Any foreign distractions could well doom the domestic-only focus the president is banking on.

Given this highly ambitious domestic agenda, Obama the second time around is likely to disappoint both the Wilsonian liberals who seek American intervention in troubled regions around the world to promote liberty and protect human rights (think Libya) and the neoconservative hawks who seek greater U.S. commitment to lead the 21st century world through the preponderance and use of its military might (think Iraq). If the first term is any indication, U.S. foreign policy will to continue to develop in a cautious, limited, pragmatic, yet largely reactive manner. There will be few American efforts to order the new multipolar world, or respond proactively to much of anything.

And therein lies the danger. Reactive agendas may result in hasty interventions and unintended outcomes. For one thing, the hurriedly brokered ceasefire between the Hamas and Israel is one that will surely need a revisit sooner rather than later. And this time around who (if anyone) will script the agenda remains the million-dollar question.

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BRICS, Columns/Op-Eds

Article in “Russia & India Report”: Putin 3.0: Creating hedges for the next decade?

Is Putin going to lessen the Russian dependence on stagnant European demand for oil and gas despite the favourable terms of trade and rely on the hard-bargaining China?

May 17th 2012, New Delhi
Please find here the link to the original publication

The Kremlin has recently announced that Vladimir Putin will be skipping the upcoming G8 meeting in the US sighting domestic concerns and will be visiting China on June 5-7 as his first foreign trip since being inaugurated as President. It is clear that Putin views Chinese demand for Russian oil and gas as a hedge against stagnant Western demand, particularly European demand for Russian exports which showed a huge 47% negative year on year variation in 2009 and is unlikely to grow at rates that will sustain the Russian economy for too long. However, China drives a hard bargain and its quest for energy security through import diversification and oil equity means that it will not accommodate for more than a minimum amount of dependence on Russian raw material linkages.

While his predecessor and protégé Dmitry Medvedev repeatedly emphasised the need for Russia to diversify away from its “primitive” focus on the oil and gas sector, Putin seems to be doggedly set on continuing his outlined profit maximisation doctrine by largely relying on the sector to fulfil social spending promises made during his election campaign. Russia recently surpassed Saudi Arabia as the largest producer of crude oil, and holds the world’s largest natural gas reserves.  Approximately 40 percent of the Russian Government’s tax comes from oil and gas related businesses. While Putin has been able to successfully leverage Russia’s natural resource endowments in the past, he is now faced with burgeoning structural problems including huge manufacturing sector inefficiencies, negative demographic trends, deepened socio-economic inequities and populist rebuttals to alleged systemic corruption under his oversight.

The European Union (EU) is Russia’s biggest market and the EU also accounts for around 75 percent of FDI into Russia. According to the European Commission, Russia accounted for 47 percent of overall trade turnover in 2010; a trend which has normalised after the brief disruptions caused by the global financial crisis. However Russia’s competitive advantage with the EU is largely restricted to the trade of fuels and minerals. Even with its massive oil reserves, Russia has lagged behind in the production of petrochemicals and refined oil. While the margins earned on refined oil based products in a globally integrated oil market may not justify expansion of production facilities and there is a distinct competitive advantage in favour of the “Global South” in terms of labour costs and environmental tariffs there are few explanations for the lack of emphasis on developing a profitable export oriented petrochemicals sector in the country. It doesn’t help that the recent socio-political turmoil adds to the disincentives created for any FDI investment flowing into the country.

Indeed Russia exhibits many of the symptoms of the “Dutch Disease”, a term that broadly refers to the deleterious effects of large asymmetric increases in a country’s income, most commonly associated with discovery of natural resources such as crude oil. While there is no consensus about whether the country suffers this affliction and indeed there have been significant per capita income gains as a result of exploitation of raw material wealth, there are real and palpable threats to sustained growth that need to be proactively mitigated by the establishment. A 2007 IMF Working Paper found that some of the exhibited symptoms included a slowdown in the manufacturing sector, an expansion of the services sector and high real wage growth in all sectors. Simultaneously, oil exports have increased by close to 70 percent over the last decade and the value of exports has gone up by around 620 percent during the same time span. Russian crude oil production recently hit an all time high, and Putin is determined to maintain production levels above 10 million barrels per day (about a third of OPEC’s total production) for a “fairly long time”.

In many ways, resource based linkages have guided and defined Russian foreign policy since the disintegration of the Soviet Union. Resources have also dictated Russia’s economic fortunes, which have traditionally fluctuated with the price of crude oil. Crude oil has quadrupled in value since the early 2000s, and at the same time, Russia has transitioned into becoming a Middle Income Economy with an incredible number of super–rich. It is interesting to note however, that despite the asymmetric dependence on raw material exports, Russia’s currency has been depreciating. Due to the underinvestment in the manufacturing sector and the overall lack of competitiveness of the domestic goods, import growth has tended to outpace export growth. The current account balance as a percentage of GDP has declined substantially since the mid 2000s and with structural production ceilings being hit in the oil and gas industry, there is uncertainty about where the additional export growth is going to be generated. Putin seems certain that recently announced tax breaks for upstream oil and gas exploration projects and fiscal incentives for M&A activities will help fuel this production growth. Tax breaks have been provided for offshore energy projects with Western companies including Exxon Mobil Corp., Eni SpA and Statoil ASA.  Simultaneously he also plans to raise extra revenues from the resources sector to pacify some of the populist anger that is brewing through increased government spending, in particular by significantly increase extraction tax on gas suppliers.

Putin has an uphill task, to reassure foreign institutional investors of the legitimacy and stability of his political apparatus. In order to achieve competitive advantage in the export of petroleum related products, the Russian Government has ambitious goals to create six regional clusters of world class ethylene (the world’s most widely produced organic compound) production facilities and expects production capacity to reach 11.5 million tonnes per annum by 2030. This projection assumes a fundamental amount of investments and supporting infrastructure capacity building in the form of product pipelines, road and rail links. Distribution and feedstock concerns already plague the industry.

The seemingly irreversible economic meltdown in Europe must act as a trigger to stimulate new ideas and a break out of the traditional resource centric growth mindset in the Kremlin. Developing and emerging countries account for around 50 percent of global GDP in purchasing power parity terms and Russia must look to deepen integration through trade with these markets. China is but one of these and its sino-centric economic startegy may soon be an albatross around its neck. Moreover trade must be on the basis of a diversified basket of products on offer with emphasis on value addition.

The East Siberia-Pacific Ocean (ESPO) oil pipeline which is now operational has enabled Russia to bring oil to its remote eastern coast, from where it supplies to China, Japan and South Korea. The Chinese have been actively lobbying to get all of the oil transported through the ESPO, but Russian oil companies are naturally hesitant as they are unwilling to forgo the higher margins they receive by selling to Western countries. The Russian experience with the hard bargaining Chinese must not colour their prospective engagements with other emerging and developing countries. In the next few decades, global growth will be a function of how such economies in Asia and Africa perform, and in turn, so will Russia’s economic fortunes. Putin would do well to hedge away from dependence on European demand even though terms of trade may be favourable and fall in the comforting squeeze of the Chinese option.

Samir Saran is Vice-President and Vivan Sharan an Associate Fellow at the Observer Research Foundation, New Delhi.

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BRICS, In the News

Discussion with Open Magazine on BRICS: “Not just a talk shop”

29th of March, 2012
Please find here the link to the original article.

It may be an idiosyncratic club, but should it therefore be written off? As leaders of BRICS—Brazil, Russia, India, China and South Africa—gather in New Delhi for a summit to prove that their five-member group is something ‘solid’ (a word Indian PM Manmohan Singh has used in an Indo-Pak context), rather than just another talk shop, critics across the world have not been able to hide their derision. The interests of these countries are far too divergent, they mutter, to result in anything that could matter.

For exponents of the idea, however, the five represent not just a fifth of global output, but also a dynamic geo-economic bloc on the ascendant. It owes its name to a 2001 Goldman Sachs report that projected a world economy under BRIC domination (South Africa was admitted only in 2010) within half a century. Today, it is a club more than a clever acronym, and one with an agenda too. “[The group] seeks political dialogue towards a more democratic multipolar order,” says senior Indian bureaucrat Sudhir Vyas, adding that the global power shift currently underway calls for “corresponding transformations in global governance”.

The buzzword at the Delhi summit is cooperation. Says Bipul Chatterjee of Consumer Unity & Trust Society: “These leaders are likely to float the idea of a development bank to be capitalised by BRICS, or perhaps all developing nations, to fund the development aspirations of the poor world.” This aim has its origin in Manmohan Singh’s 2010 suggestion that the world’s surplus savings be funnelled into emerging economies short of capital for investment in infrastructure and other public utility projects. Says Samir Saran, a BRICS expert with the Observer Research Foundation: “The proposed bank could tap these savings by creating sovereign guaranteed debt instruments to leverage more money for these economies.”

The other area of mutual interest is trade. As a booster, of help would be an agreement among the five countries’ central banks to grant one another access to loans in local currencies. Saran says the BRICS platform would “offer the five ‘R’s: rupee, rouble, renminbi, rand and real” for trade payments as part of a test settlement mechanism, “before internationalising these currencies”. The goal here is to reduce dependence on the US dollar as an international means of exchange.

Sceptics do not see much coming of it. Yet, it is worth noting that the five have managed to get this far as a club without letting bilateral bickering get in the way. This in itself is commendable. Perhaps BRICS bashers should wait a while before writing it off.

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BRICS, Columns/Op-Eds

BRICS, Steel, Mortar….and Money – Analysis of the 4th BRICS Summit in New Delhi

by Samir Saran and Vivan Sharan
4th of April 2012
Please find here the original link to the article.

With the Delhi Declaration, BRICS nations, which met recently in the Indian capital, have shown that they have the steel to stand up to traditional power structures, a cohesive vision to jointly respond to development challenges through institutionalisation of concrete mechanisms, and the determination to channel monetary power to strengthen markets, businesses and trade. The Declaration indeed gives insight into the gradual transformation of BRICS, from essentially a response mechanism crafted to address the various development challenges posed by the global financial crisis, to a forward looking entity seeking to enact and enable real global transformation.

The Delhi Declaration extends over 50 paragraphs which are all encompassing in some sense and address many relevant themes for BRICS countries and the developing world at large. The Declaration is significantly more impressive and comprehensive than the 16 paragraph Joint Statement of the BRICS Leaders at the first summit held at Yekaterinburg in 2009 and the sketchy and macro statement of purpose at Sanya last year. The Action Plan within the Delhi Declaration consists of 17 steps which will deepen intra-BRICS engagements. There are three prominent narratives that define the Delhi Declaration – reaffirmation of the UN framework for global governance, disappointment with financial regimes shaped in the mid 20th century and a confidence to tap into economic opportunities that exist within BRICS.

The Delhi Declaration has stamped the intent of BRICS nations to coordinate and collectively respond to global security challenges within appropriate frameworks that give precedence to fundamental principles such as international law, transparency and sovereignty. BRICS members have recognised and re-emphasised the centrality of the UN in dealing with regional tensions and they have explicitly outlined this for specific cases including the Arab-Israeli conflict, the Syrian imbroglio and the contentious Iranian nuclear programme.

The Declaration unambiguously states that “plurilateral initiatives” that go against the fundamental principles outlined earlier, will not be supported by BRICS. The Declaration is clearly against actions such as asymmetric trade protectionism, unilaterally imposed sanctions and taxes imposed on businesses. The EU’s Aviation Tax is one such example from contemporary policymaking. In terms of trade, there is strong emphasis on operating within legal instruments such as the WTO and institutions such as the UNCTAD for furthering the inclusive development efforts through consensus and technical cooperation.

The aftershocks from the financial crisis are still a cause of concern to the BRICS nations. The pre-occupation with Europe has distracted attention from the social transformation programmes and poverty alleviation efforts among BRICS members. The Delhi Declaration has spelt out the “immediate priority” of restoring market confidence and getting global growth back on track. The steps to address such concerns will include attempts to rebalance global savings and consumption, furthering of regulatory and supervisory oversight in the financial markets, increasing the voice of developing and emerging nations in global financial governance and the institutionalisation of financial mechanisms to redirect existing capital to tackle development imperatives.

The BRICS members have therefore announced a working group led by the Finance Ministers of the individual nations, in order to examine the “feasibility and viability” of a BRICS Development Bank. When formed, such an institution will likely be able to shift and contextualise the development discourse within and outside BRICS and therefore is one of the most significant actionable outcomes. It is evident that such a multilateral institution is not meant to compete with existing ones, but rather, to enhance lending and investment to create sustainable development trajectories. Contrary to expectations several high ranking Chinese policymakers, including the Assistant Foreign Minister, Ma Zhaoxu, have supported the idea.

The BRICS members have clearly outlined that the purpose and nature of Bretton Woods Institutions such as the World Bank, must shift from being essentially a mediation instrument to enable North-South cooperation, to one which can actually prioritise “development issues” and overcome the “donor-recipient dichotomy”. They have also called upon the World Bank to mobilize greater directed resources and enable development financing at reduced costs through financial innovations and improved lending practices. Indeed for BRICS, the focus on World Bank and IMF reforms has remained constant through the years, yet the Delhi Declaration articulates these concerns more lucidly than ever before.

Given that intra-BRICS trade has been consistently on the rise over the past decade, BRICS Leaders have endorsed the conclusion of the Master Agreement on Extending Credit Facility in Local Currency under the BRICS Interbank Cooperation Mechanism and the Multilateral Letter of Credit Confirmation Facility Agreement between their respective EXIM/Development Banks. Such steps to mitigate market risks and enable local currency transactions will only add to the existing momentum and build resilience in BRICS economies to global business cycle fluctuations and exchange rate volatilities. Notably, BRICS have also endorsed the market led efforts to set up a BRICS Exchange Alliance between the major stock exchanges of BRICS, which will enable investors to efficiently allocate capital across BRICS economies and invest in the BRICS growth story.

The unity and purpose of BRICS has been the target of speculation and scepticism from various quarters. With the Delhi Declaration, BRICS members have been able to assuage such doubts as they have begun to create a credible hedge against traditional global narratives of security and development. They have simultaneously been able to project that there is resolution within the group to deal with issues that are not only of immediate concern but even those that will need attention in the future. The Delhi Declaration paves the way for the institutionalisation of BRICS cooperation, making BRICS a significant transcontinental and politically united force. In Sanya BRICS spread wide to include South Africa; in Delhi they went deep to include substance.

Samir Saran is Vice-President and Vivan Sharan an Associate Fellow at Observer Research Foundation. The Foundation hosted the BRICS Academic Forum in March this year. 

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BRICS, In the News

Samir on Russia TV: Interview on BRICS Summit, New Delhi.

http://www.youtube.com/watch?feature=player_embedded&v=wmS11HnNbk0#!

The BRICS countries’ leaders are preparing for their annual meeting. These countries make up 42 percent of the world’s population and a quarter of its landmass. They are also responsible for 20 percent of the Global GDP and
own a whopping 75 percent of the foreign reserve worldwide. In these tough times for world economics these countries are trying to find a solution for the situation.

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BRICS

Fourth BRICS Summit – Delhi Declaration / Samir live on BBC World News

Was on BBC this morning….was asked to discuss BRICS….

Ques 1 – China will dominate BRICS because of its money and might?

Ques 2 – How will India counter China at the BRICS?

Ques 3 – How can this group work together without common ideology (or something like that)?

Was at my charming best while basically saying…China will be an important player in any grouping – why only BRICS….the questions are posed incorrectly…BRICS is not a platform for India countering China….it is indeed an opportunity to take the edge of the bilateral …..and some people do not see common ideology as being necessary….(this Euro Centric fetish for “Common Humanity”) and with our individual and rich experiences we can find ways to developing pathways (unique) for an equitable and prosperous future….

Synergy and Complimentarity are the operative words and BRICS are rich with these possibilities.

For some in India as well – it is all a zero sum game….maybe it is …but they need to know the rules of arithmetic are changing and the nation state may not be the unit of measurement any more – The BRICS Stock Exchange is the business thumbs up to BRICS and the 4th Academic Forum was the “experts” support to it….many more to follow….

The skeptics can continue to earn their salaries…while we build a new platform 🙂

The Political will is expressed in the Delhi Declaration and it is positive, decisive and firm on what the BRICS need to do together and how they need to interact with the developed world on many common issues. I am certain that in this instance the BRICS surprised themselves …..in what they were able to agree to ….In Sanya the BRICS went wider and added South Africa….In Delhi the BRICS went deeper and added substance….

Happy BRICS Day

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Fourth BRICS Summit – Delhi Declaration
March 29, 2012
Please find here the full version as PDF: Declaration Fourth_BRICS_Summit

1. We, the leaders of the Federative Republic of Brazil, the Russian Federation, the

Republic of India, the People’s Republic of China and the Republic of South Africa,

met in New Delhi, India, on 29 March 2012 at the Fourth BRICS Summit. Our

discussions, under the overarching theme, “BRICS Partnership for Global Stability,

Security and Prosperity”, were conducted in an atmosphere of cordiality and warmth

and inspired by a shared desire to further strengthen our partnership for common

development and take our cooperation forward on the basis of openness, solidarity,

mutual understanding and trust.

2. We met against the backdrop of developments and changes of contemporary global

and regional importance – a faltering global recovery made more complex by the

situation in the euro zone; concerns of sustainable development and climate change

which take on greater relevance as we approach the UN Conference on Sustainable

Development (Rio+20) and the Conference of Parties to the Convention on Biological

Diversity being hosted in Brazil and India respectively later this year; the upcoming

G20 Summit in Mexico and the recent 8th WTO Ministerial Conference in Geneva;

and the developing political scenario in the Middle East and North Africa that we

view with increasing concern. Our deliberations today reflected our consensus to

remain engaged with the world community as we address these challenges to global

well-being and stability in a responsible and constructive manner.

3. BRICS is a platform for dialogue and cooperation amongst countries that represent

43% of the world’s population, for the promotion of peace, security and development

in a multi-polar, inter-dependent and increasingly complex, globalizing world.

Coming, as we do, from Asia, Africa, Europe and Latin America, the transcontinental

dimension of our interaction adds to its value and significance.

4. We envision a future marked by global peace, economic and social progress and

enlightened scientific temper. We stand ready to work with others, developed and

developing countries together, on the basis of universally recognized norms of

international law and multilateral decision making, to deal with the challenges and the

opportunities before the world today. Strengthened representation of emerging and

developing countries in the institutions of global governance will enhance their

effectiveness in achieving this objective.

5. We are concerned over the current global economic situation. While the BRICS

recovered relatively quickly from the global crisis, growth prospects worldwide have

again got dampened by market instability especially in the euro zone. The build-up of

sovereign debt and concerns over medium to long-term fiscal adjustment in advanced

countries are creating an uncertain environment for global growth. Further, excessive

liquidity from the aggressive policy actions taken by central banks to stabilize their

domestic economies have been spilling over into emerging market economies,

fostering excessive volatility in capital flows and commodity prices. The immediate

priority at hand is to restore market confidence and get global growth back on track.

We will work with the international community to ensure international policy

coordination to maintain macroeconomic stability conducive to the healthy recovery

of the global economy.

6. We believe that it is critical for advanced economies to adopt responsible

macroeconomic and financial policies, avoid creating excessive global liquidity and

undertake structural reforms to lift growth that create jobs. We draw attention to the

risks of large and volatile cross-border capital flows being faced by the emerging

economies. We call for further international financial regulatory oversight and reform,

strengthening policy coordination and financial regulation and supervision

cooperation, and promoting the sound development of global financial markets and

banking systems.

7. In this context, we believe that the primary role of the G20 as premier forum for

international economic cooperation at this juncture is to facilitate enhanced

macroeconomic policy coordination, to enable global economic recovery and secure

financial stability, including through an improved international monetary and

financial architecture. We approach the next G20 Summit in Mexico with a

commitment to work with the Presidency, all members and the international

community to achieve positive results, consistent with national policy frameworks, to

ensure strong, sustainable and balanced growth.

8. We recognize the importance of the global financial architecture in maintaining the

stability and integrity of the global monetary and financial system. We therefore call

for a more representative international financial architecture, with an increase in the

voice and representation of developing countries and the establishment and

improvement of a just international monetary system that can serve the interests of all

countries and support the development of emerging and developing economies.

Moreover, these economies having experienced broad-based growth are now

significant contributors to global recovery.

9. We are however concerned at the slow pace of quota and governance reforms in the

IMF. We see an urgent need to implement, as agreed, the 2010 Governance and Quota

Reform before the 2012 IMF/World Bank Annual Meeting, as well as the

comprehensive review of the quota formula to better reflect economic weights and

enhance the voice and representation of emerging market and developing countries by

January 2013, followed by the completion of the next general quota review by

January 2014. This dynamic process of reform is necessary to ensure the legitimacy

and effectiveness of the Fund. We stress that the ongoing effort to increase the

lending capacity of the IMF will only be successful if there is confidence that the

entire membership of the institution is truly committed to implement the 2010 Reform

faithfully. We will work with the international community to ensure that sufficient

resources can be mobilized to the IMF in a timely manner as the Fund continues its

transition to improve governance and legitimacy. We reiterate our support for

measures to protect the voice and representation of the IMF’s poorest members.

10. We call upon the IMF to make its surveillance framework more integrated and

even-handed, noting that IMF proposals for a new integrated decision on surveillance

would be considered before the IMF Spring Meeting.

11. In the current global economic environment, we recognise that there is a pressing

need for enhancing the flow of development finance to emerging and developing

countries. We therefore call upon the World Bank to give greater priority to

mobilising resources and meeting the needs of development finance while reducing

lending costs and adopting innovative lending tools.

12. We welcome the candidatures from developing world for the position of the

President of the World Bank. We reiterate that the Heads of IMF and World Bank be

selected through an open and merit-based process. Furthermore, the new World Bank

leadership must commit to transform the Bank into a multilateral institution that truly

reflects the vision of all its members, including the governance structure that reflects

current economic and political reality. Moreover, the nature of the Bank must shift

from an institution that essentially mediates North-South cooperation to an institution

that promotes equal partnership with all countries as a way to deal with development

issues and to overcome an outdated donor- recipient dichotomy.

13. We have considered the possibility of setting up a new Development Bank for

mobilizing resources for infrastructure and sustainable development projects in

BRICS and other emerging economies and developing countries, to supplement the

existing efforts of multilateral and regional financial institutions for global growth and

development. We direct our Finance Ministers to examine the feasibility and viability

of such an initiative, set up a joint working group for further study, and report back to

us by the next Summit.

14. Brazil, India, China and South Africa look forward to the Russian Presidency of

G20 in 2013 and extend their cooperation.

15. Brazil, India, China and South Africa congratulate the Russian Federation on its

accession to the WTO. This makes the WTO more representative and strengthens the

rule-based multilateral trading system. We commit to working together to safeguard

this system and urge other countries to resist all forms of trade protectionism and

disguised restrictions on trade.

16. We will continue our efforts for the successful conclusion of the Doha Round,

based on the progress made and in keeping with its mandate. Towards this end, we

will explore outcomes in specific areas where progress is possible while preserving

the centrality of development and within the overall framework of the single

undertaking. We do not support plurilateral initiatives that go against the fundamental

principles of transparency, inclusiveness and multilateralism. We believe that such

initiatives not only distract members from striving for a collective outcome but also

fail to address the development deficit inherited from previous negotiating rounds.

Once the ratification process is completed, Russia intends to participate in an active

and constructive manner for a balanced outcome of the Doha Round that will help

strengthen and develop the multilateral trade system.

17. Considering UNCTAD to be the focal point in the UN system for the treatment of

trade and development issues, we intend to invest in improving its traditional

activities of consensus-building, technical cooperation and research on issues of

economic development and trade. We reiterate our willingness to actively contribute

to the achievement of a successful UNCTAD XIII, in April 2012.

18. We agree to build upon our synergies and to work together to intensify trade and

investment flows among our countries to advance our respective industrial

development and employment objectives.We welcome the outcomes of the second

Meeting of BRICS Trade Ministers held in New Delhi on 28 March 2012. We support

the regular consultations amongst our Trade Ministers and consider taking suitable

measures to facilitate further consolidation of our trade and economic ties. We

welcome the conclusion of the Master Agreement on Extending Credit Facility in

Local Currency under BRICS Interbank Cooperation Mechanism and the Multilateral

Letter of Credit Confirmation Facility Agreement between our EXIM/Development

Banks. We believe that these Agreements will serve as useful enabling instruments

for enhancing intra-BRICS trade in coming years.

19. We recognize the vital importance that stability, peace and security of the Middle

East and North Africa holds for all of us, for the international community, and above

all for the countries and their citizens themselves whose lives have been affected by

the turbulence that has erupted in the region. We wish to see these countries living in

peace and regain stability and prosperity as respected members of the global

community.

20. We agree that the period of transformation taking place in the Middle East and

North Africa should not be used as a pretext to delay resolution of lasting conflicts but

rather it should serve as an incentive to settle them, in particular the Arab-Israeli

conflict. Resolution of this and other long-standing regional issues would generally

improve the situation in the Middle East and North Africa. Thus we confirm our

commitment to achieving comprehensive, just and lasting settlement of the Arab-

Israeli conflict on the basis of the universally recognized international legal

framework including the relevant UN resolutions, the Madrid principles and the Arab

Peace Initiative. We encourage the Quartet to intensify its efforts and call for greater

involvement of the UN Security Council in search for a resolution of the Israeli-

Palestinian conflict. We also underscore the importance of direct negotiations

between the parties to reach final settlement. We call upon Palestinians and Israelis to

take constructive measures, rebuild mutual trust and create the right conditions for

restarting negotiations, while avoiding unilateral steps, in particular settlement

activity in the Occupied Palestinian Territories.

21. We express our deep concern at the current situation in Syria and call for an

immediate end to all violence and violations of human rights in that country. Global

interests would best be served by dealing with the crisis through peaceful means that

encourage broad national dialogues that reflect the legitimate aspirations of all

sections of Syrian society and respect Syrian independence, territorial integrity and

sovereignty. Our objective is to facilitate a Syrian-led inclusive political process, and

we welcome the joint efforts of the United Nations and the Arab League to this end.

We encourage the Syrian government and all sections of Syrian society to

demonstrate the political will to initiate such a process, which alone can create a new

environment for peace. We welcome the appointment of Mr. Kofi Annan as the Joint

Special Envoy on the Syrian crisis and the progress made so far, and support him in

continuing to play a constructive role in bringing about the political resolution of the

crisis.

22. The situation concerning Iran cannot be allowed to escalate into conflict, the

disastrous consequences of which will be in no one’s interest. Iran has a crucial role to

play for the peaceful development and prosperity of a region of high political and

economic relevance, and we look to it to play its part as a responsible member of the

global community. We are concerned about the situation that is emerging around

Iran’s nuclear issue. We recognize Iran’s right to peaceful uses of nuclear energy

consistent with its international obligations, and support resolution of the issues

involved through political and diplomatic means and dialogue between the parties

concerned, including between the IAEA and Iran and in accordance with the

provisions of the relevant UN Security Council Resolutions.

23. Afghanistan needs time, development assistance and cooperation, preferential

access to world markets, foreign investment and a clear end-state strategy to attain

lasting peace and stability. We support the global community’s commitment to

Afghanistan, enunciated at the Bonn International Conference in December 2011, to

remain engaged over the transformation decade from 2015-2024. We affirm our

commitment to support Afghanistan’s emergence as a peaceful, stable and democratic

state, free of terrorism and extremism, and underscore the need for more effective

regional and international cooperation for the stabilisation of Afghanistan, including

by combating terrorism.

24. We extend support to the efforts aimed at combating illicit traffic in opiates

originating in Afghanistan within the framework of the Paris Pact.

25. We reiterate that there can be no justification, whatsoever, for any act of terrorism

in any form or manifestation. We reaffirm our determination to strengthen

cooperation in countering this menace and believe that the United Nations has a

central role in coordinating international action against terrorism, within the

framework of the UN Charter and in accordance with principles and norms of

international law. We emphasize the need for an early finalization of the draft of the

Comprehensive Convention on International Terrorism in the UN General Assembly

and its adoption by all Member States to provide a comprehensive legal framework to

address this global scourge.

26. We express our strong commitment to multilateral diplomacy with the United

Nations playing a central role in dealing with global challenges and threats. In this

regard, we reaffirm the need for a comprehensive reform of the UN, including its

Security Council, with a view to making it more effective, efficient and representative

so that it can deal with today’s global challenges more successfully. China and Russia

reiterate the importance they attach to the status of Brazil, India and South Africa in

international affairs and support their aspiration to play a greater role in the UN.

27. We recall our close coordination in the Security Council during the year 2011, and

underscore our commitment to work together in the UN to continue our cooperation

and strengthen multilateral approaches on issues pertaining to global peace and

security in the years to come.

28. Accelerating growth and sustainable development, along with food, and energy

security, are amongst the most important challenges facing the world today, and

central to addressing economic development, eradicating poverty, combating hunger

and malnutrition in many developing countries. Creating jobs needed to improve

people’s living standards worldwide is critical. Sustainable development is also a key

element of our agenda for global recovery and investment for future growth. We owe

this responsibility to our future generations.

29. We congratulate South Africa on the successful hosting of the 17th Conference of

Parties to the United Nations Framework Convention on Climate Change and the 7th

Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol

(COP17/CMP7) in December 2011. We welcome the significant outcomes of the

Conference and are ready to work with the international community to implement its

decisions in accordance with the principles of equity and common but differentiated

responsibilities and respective capabilities.

30. We are fully committed to playing our part in the global fight against climate

change and will contribute to the global effort in dealing with climate change issues

through sustainable and inclusive growth and not by capping development. We

emphasize that developed country Parties to the UNFCCC shall provide enhanced

financial, technology and capacity building support for the preparation and

implementation of nationally appropriate mitigation actions of developing countries.

31. We believe that the UN Conference on Sustainable Development (Rio+20) is a

unique opportunity for the international community to renew its high-level political

commitment to supporting the overarching sustainable development framework

encompassing inclusive economic growth and development, social progress and

environment protection in accordance with the principles and provisions of the Rio

Declaration on Environment and Development, including the principle of common

but differentiated responsibilities, Agenda 21 and the Johannesburg Plan of

Implementation.

32. We consider that sustainable development should be the main paradigm in

environmental issues, as well as for economic and social strategies. We acknowledge

the relevance and focus of the main themes for the Conference namely, Green

Economy in the context of Sustainable Development and Poverty Eradication

(GESDPE) as well as Institutional Framework for Sustainable Development (IFSD).

33. China, Russia, India and South Africa look forward to working with Brazil as the

host of this important Conference in June, for a successful and practical outcome.

Brazil, Russia, China and South Africa also pledge their support to working with

India as it hosts the 11th meeting of the Conference of Parties to the Convention on

Biological Diversity in October 2012 and look forward to a positive outcome. We will

continue our efforts for the implementation of the Convention and its Protocols, with

special attention to the Nagoya Protocol on Access to Genetic Resources and the Fair

and Equitable Sharing of Benefits Arising from their Utilization, Biodiversity

Strategic Plan 2011-2020 and the Resource Mobilization Strategy.

34. We affirm that the concept of a ‘green economy’, still to be defined at Rio+20,

must be understood in the larger framework of sustainable development and poverty

eradication and is a means to achieve these fundamental and overriding priorities, not

an end in itself. National authorities must be given the flexibility and policy space to

make their own choices out of a broad menu of options and define their paths towards

sustainable development based on the country’s stage of development, national

strategies, circumstances and priorities. We resist the introduction of trade and

investment barriers in any form on the grounds of developing green economy.

35. The Millennium Development Goals remain a fundamental milestone in the

development agenda. To enable developing countries to obtain maximal results in

attaining their Millennium Development Goals by the agreed time-line of 2015, we

must ensure that growth in these countries is not affected. Any slowdown would have

serious consequences for the world economy. Attainment of the MDGs is

fundamental to ensuring inclusive, equitable and sustainable global growth and would

require continued focus on these goals even beyond 2015, entailing enhanced

financing support.

36. We attach the highest importance to economic growth that supports development

and stability in Africa, as many of these countries have not yet realised their full

economic potential. We will take our cooperation forward to support their efforts to

accelerate the diversification and modernisation of their economies. This will be

through infrastructure development, knowledge exchange and support for increased

access to technology, enhanced capacity building, and investment in human capital,

including within the framework of the New Partnership for Africa’s Development

(NEPAD).

37. We express our commitment to the alleviation of the humanitarian crisis that still

affects millions of people in the Horn of Africa and support international efforts to

this end.

38. Excessive volatility in commodity prices, particularly those for food and energy,

poses additional risks for the recovery of the world economy. Improved regulation of

the derivatives market for commodities is essential to avoid destabilizing impacts on

food and energy supplies. We believe that increased energy production capacities and

strengthened producer-consumer dialogue are important initiatives that would help in

arresting such price volatility.

39. Energy based on fossil fuels will continue to dominate the energy mix for the

foreseeable future. We will expand sourcing of clean and renewable energy, and use

of energy efficient and alternative technologies, to meet the increasing demand of our

economies and our people, and respond to climate concerns as well. In this context,

we emphasise that international cooperation in the development of safe nuclear

energy for peaceful purposes should proceed under conditions of strict observance of

relevant safety standards and requirements concerning design, construction and

operation of nuclear power plants. We stress IAEA’s essential role in the joint efforts

of the international community towards enhancing nuclear safety standards with a

view to increasing public confidence in nuclear energy as a clean, affordable, safe and

secure source of energy, vital to meeting global energy demands.

40. We have taken note of the substantive efforts made in taking intra-BRICS

cooperation forward in a number of sectors so far. We are convinced that there is a

storehouse of knowledge, know-how, capacities and best practices available in our

countries that we can share and on which we can build meaningful cooperation for the

benefit of our peoples. We have endorsed an Action Plan for the coming year with

this objective.

41. We appreciate the outcomes of the Second Meeting of BRICS Ministers of

Agriculture and Agrarian Development at Chengdu, China in October 2011. We

direct our Ministers to take this process forward with particular focus on the potential

of cooperation amongst the BRICS to contribute effectively to global food security

and nutrition through improved agriculture production and productivity, transparency

in markets and reducing excessive volatility in commodity prices, thereby making a

difference in the quality of lives of the people particularly in the developing world.

42. Most of BRICS countries face a number of similar public health challenges,

including universal access to health services, access to health technologies, including

medicines, increasing costs and the growing burden of both communicable and noncommunicable

diseases. We direct that the BRICS Health Ministers meetings, of

which the first was held in Beijing in July 2011, should henceforth be institutionalized

in order to address these common challenges in the most cost-effective, equitable and

sustainable manner.

43. We have taken note of the meeting of S&T Senior Officials in Dalian, China in

September 2011, and, in particular, the growing capacities for research and

development and innovation in our countries. We encourage this process both in

priority areas of food, pharma, health and energy as well as basic research in the

emerging inter-disciplinary fields of nanotechnology, biotechnology, advanced

materials science, etc. We encourage flow of knowledge amongst our research

institutions through joint projects, workshops and exchanges of young scientists.

44. The challenges of rapid urbanization, faced by all developing societies including

our own, are multi-dimensional in nature covering a diversity of inter-linked issues.

We direct our respective authorities to coordinate efforts and learn from best practices

and technologies available that can make a meaningful difference to our societies. We

note with appreciation the first meeting of BRICS Friendship Cities held in Sanya in

December 2011 and will take this process forward with an Urbanization and Urban

Infrastructure Forum along with the Second BRICS Friendship Cities and Local

Governments Cooperation Forum.

45. Given our growing needs for renewable energy resources as well as on energy

efficient and environmentally friendly technologies, and our complementary strengths

in these areas, we agree to exchange knowledge, know-how, technology and best

practices in these areas.

46. It gives us pleasure to release the first ever BRICS Report, coordinated by India,

with its special focus on the synergies and complementarities in our economies. We

welcome the outcomes of the cooperation among the National Statistical Institutions

of BRICS and take note that the updated edition of the BRICS Statistical Publication,

released today, serves as a useful reference on BRICS countries.

47. We express our satisfaction at the convening of the III BRICS Business Forum

and the II Financial Forum and acknowledge their role in stimulating trade relations

among our countries. In this context, we welcome the setting up of BRICS Exchange

Alliance, a joint initiative by related BRICS securities exchanges.

48. We encourage expanding the channels of communication, exchanges and peopleto-

people contact amongst the BRICS, including in the areas of youth, education,

culture, tourism and sports.

49. Brazil, Russia, China and South Africa extend their warm appreciation and sincere

gratitude to the Government and the people of India for hosting the Fourth BRICS

Summit in New Delhi.

50. Brazil, Russia, India and China thank South Africa for its offer to host the Fifth

BRICS Summit in 2013 and pledge their full support.

Delhi Action Plan

1. Meeting of BRICS Foreign Ministers on sidelines of UNGA.

2. Meetings of Finance Ministers and Central Bank Governors on sidelines of G20

meetings/other multilateral (WB/IMF) meetings.

3. Meeting of financial and fiscal authorities on the sidelines of WB/IMF meetings as

well as stand-alone meetings, as required.

4. Meetings of BRICS Trade Ministers on the margins of multilateral events, or standalone

meetings, as required.

5. The Third Meeting of BRICS Ministers of Agriculture, preceded by a preparatory

meeting of experts on agro-products and food security issues and the second Meeting

of Agriculture Expert Working Group.

6. Meeting of BRICS High Representatives responsible for national security.

7. The Second BRICS Senior Officials’ Meeting on S&T.

8. The First meeting of the BRICS Urbanisation Forum and the second BRICS

Friendship Cities and Local Governments Cooperation Forum in 2012 in India.

9. The Second Meeting of BRICS Health Ministers.

10. Mid-term meeting of Sous-Sherpas and Sherpas.

11. Mid-term meeting of CGETI (Contact Group on Economic and Trade Issues).

12. The Third Meeting of BRICS Competition Authorities in 2013.

13. Meeting of experts on a new Development Bank.

14. Meeting of financial authorities to follow up on the findings of the BRICS Report.

15. Consultations amongst BRICS Permanent Missions in New York, Vienna and

Geneva, as required.

16. Consultative meeting of BRICS Senior Officials on the margins of relevant

environment and climate related international fora, as necessary.

17. New Areas of Cooperation to explore:

(i) Multilateral energy cooperation within BRICS framework.

(ii) A general academic evaluation and future long-term strategy for BRICS.

(iii) BRICS Youth Policy Dialogue.

(iv) Cooperation in Population related issues.

New Delhi

March 29, 2012

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BRICS, Columns/Op-Eds

Column in The Hindu: “Banking on BRICS to deliver”

New Delhi, 27th of March 2012
Please find here the link to the original article

If conceptualised carefully, the Bank can help rebalance the global economy leading to equitable and resilient growth.

Even as New Delhi prepares for the arrival of BRICS Heads of States towards the later part of the week, media and experts across the world continue to debate the relevance, capacity and cohesiveness of the grouping. The common refrain in the western press is that it is a ‘motley crew’ with little in common and therefore with little capability to create institutions and multilateral platforms of substance. Well, they may be in for a surprise. In fact, BRICS may also surprise itself.

Besides the usual declarations on cooperation on political matters, social challenges, climate and energy, food and water, health and education, industry and trade, BRICS is likely to make two significant announcements this time, which will, in many ways, mark its coming of age. First — the formal launch of the “BRICS Exchange Alliance” in which the major stock exchanges of BRICS countries will offer investors index-based derivatives trading options of exchanges in domestic currency. This will allow investors within BRICS to invest in each other’s progress, expand the offerings of the individual exchanges, facilitate greater liquidity, while simultaneously strengthening efforts to deepen financial integration through market-determined mechanisms. From talking to people in the know, this alliance is good to go, and the operational modalities around currency, settlement cycles and inter-exchange regulatory coordination are all issues that have been thought through and resolved.

‘South-South bank’

The second announcement that has people most interested is on the much discussed “BRICS Bank” or the “South-South Bank” that many consider to be an Indian proposal for creating an institution that can serve the development needs and aspirations of the emerging and developing world. This proposal saw much debate (some heated) at the recent BRICS Academic Forum and surely was a key issue for deliberations at the recently concluded BRICS Finance Ministers Meeting. There are many complex and some contested issues that need to be discussed and thought through, but due to the growing support for such an institution among BRICS it is almost certain that the leaders will, at the very least, announce a working group to study the feasibility and operational modalities of such a multilateral bank. Whether they are bold enough to suggest a time line for its establishment remains to be seen but in the opinion of many, it is an idea whose time has come.

Foremost amongst the reasons for the creation of the institution is the need for BRICS to assume pole position in global financial governance. BRICS nations represent nearly half the world’s population. Two of them are already among the top five economies in purchasing power parity terms, and four are in the top 10. If conceptualised carefully, such an institution will have the potential to reshape and realign the global development agenda positively. It can also help to efficiently redistribute and redirect savings available with the emerging economies to infrastructure and social development in the same regions and, therefore, contribute to the rebalancing of the global economy.

Several multilateral banks already exist, that serve as templates for creating a new institution. The World Bank, which is deeply embedded in the global development narratives, serves as a particularly relevant example. If a multilateral BRICS bank is instituted, its functions would not supplant the role of existing multilateral banks that support development, but rather, supplement them. And this supplementary instrument is needed as multilateral banks such as the World Bank, ADB, etc., have not been growing significantly in terms of the total amount of loans disbursed. While there was a jump in disbursals following the financial crisis, the normalisation process is already under way. On the other hand, demand for funds for infrastructure and social transformation grows unabated in BRICS and the developing world.

But how would the BRICS Bank work? There are doubts expressed in some quarters on the process of capitalisation itself. The Bank would have to raise capital from open market operations; floating debt to finance lending operations. While the reliance on markets for raising capital would make the fiscal asymmetries within BRICS nations irrelevant, the sovereign ratings of some of the members, who will collectively be the shareholders of a BRICS Bank, are barely investment grade. This would limit the amount of capital that could be raised from the financial markets and also affect the cost of capital and therefore the cost of lending. One suggested solution is the sequestration of a proportion of foreign reserves of BRICS members into a trust fund that would back-stop the borrowed capital. In the case of the World Bank, the total paid-up capital is around 10 per cent while the rest is AAA rated ‘callable capital’, which has never been requisitioned. To enhance the creditworthiness further, existing multilateral banks, and other western countries could also be given minority stakes.

China’s role

The second element that is always embedded in the discussions around the bank is the role of China. An impression is sought to be created that with its massive monetary reserves and political clout, China may exert undue influence in this bank. This is unlikely. Such a bank will not require too much paid-up capital (relative to the average size of respective sovereign reserves) if intelligent financial engineering can help sequester foreign reserves. This would mean that the smallest BRICS economy, South Africa, could easily commit an amount similar to that of China in the capital structure. Such doubts could be further allayed with the institution of a rotating Presidency of, say, a two-year term that could initially be restricted to the BRICS countries alone. In any case, the charter of any modern day banking institution with sovereign stakeholders would need to include the mandates of transparency and independence, which would make the institution as viable as any.

The third aspect that remains central to the viability of such a bank is the currency of business. There would be expectations that such a bank would transact in local currencies where possible and in international currency when needed. The bank would need to work with the right currency mix to mitigate credit risk while simultaneously balancing intricate political dynamics within BRICS. For instance, being a current account deficit country, India would not be averse to the U.S. dollar being the currency of disbursal while Brazil with its appreciating “Real’ may prefer local currency. The Chinese may see this bank as a platform for promoting the Renminbi as the currency of choice, especially among the emerging and developing countries. Ultimately, the right mix would need to take into account monetary policy and exchange rate imperatives of each of the primary sovereign stakeholders and in a manner that makes this venture uncomplicated and attractive to other stakeholders as well.

The fourth aspect is the business mandate of such a bank. An effective development bank would have to integrate the multiple economic priorities. Key areas such as infrastructure and the medium and small scale enterprises sector could be natural starting points. The Brazilian Development Bank (BNDES) could be considered an exemplar. The BNDES disbursed close to $140 billion in 2011, with around 30 per cent going to the medium to small enterprises sector (MSME) and about 40 per cent going to large infrastructure projects. The BNDES also played a crucial role in stabilising the Brazilian economy after the financial crisis by stepping up development assistance. Similarly, a BRICS Bank could also assume the role of a financial support mechanism which appropriately responds to the variabilities in the global economy.

Corporations are the primary growth drivers of BRICS economies. They create economic momentum, new business opportunities and, most importantly, in the context of BRICS, employment. The creation of SPVs to cater to the investment and insurance needs of corporations would therefore complement the development agenda. The World Bank’s International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) provide readymade frameworks. The IFC provides investment solutions for the private sector through services such as equity finance and structured finance, while the MIGA provides non commercial risk insurance guarantees. Guarantees against political risk — which is a significant investment constraint in emerging markets — could facilitate a spurt of new business activity within BRICS, and lest we imagine this instrument to be risk-laden, MIGA has paid only six insurance claims since it was set up in 1988 and needs no counter guarantees.

Need for consensus

BRICS is in transition and cannot afford to lose growth momentum. Multilateral institutions such as a BRICS Bank can aid in sustaining directed, equitable and resilient growth. A consensus on the creation of such an institution would be a very real expression of intent by BRICS to craft alternative development trajectories to those passed down by the OECD countries. And it is also time to Bank with BRICS.

Samir Saran is Vice-President and Vivan Sharan an Associate Fellow at the Observer Research Foundation. The foundation hosted the BRICS Academic Forum in March this year.

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Politics / Globalisation

Samir attended Cambridge Central Asia Forum roundtable on Kazakhstan, OSCE and New Opportunities, 2010

February 12, 2010, UK
Link to roundtable summary
For more information on the Cambridge Central Asia Forum, please visit this website.

Standard
In the News, Politics / Globalisation

Samir in The Times of India: Home Alone in the Neighbourhood, 2010

by Arati R Jerath, TOI Crest
August 7, 2010
in: The Times of India

India was once the undisputed big power in the south Asian region, wielding substantial influence over its smaller neighbours. But, over the years, New Delhi’s strategic and diplomatic clout in its own backyard has weakened.

In April this year, a high-pitched anti-India campaign by the Maoists in Nepal forced President Ram Baran Yadav’s government to cancel a passport deal that had important security implications for us. The deal was a contract with India’s government press to print four million machinereadable passports for Nepal to stop misuse and forgery by suspected terror agents. New Delhi was perturbed enough by the cancellation of the deal to lodge a formal protest with the Nepalese government through its ambassador in Kathmandu. The contract has now gone to a French firm, Oberthur Technologies.

Maldives turned not to India but to the United States and Sri Lanka for help when a political crisis this month plunged the Indian Ocean island nation into turmoil with angry street protests and a constitutional impasse that saw the entire cabinet resign. Where once upon a time India used to rush special envoys at the first sign of trouble, this time it was Sri Lanka’s president, Mahinda Rajapakse, who played mediator along with the US ambassador to Colombo, Patricia Butenis, and US assistant secretary of state Robert Blake. Sri Lanka and Bangladesh have no qualms about using China as an outside balancer to India’s dominance in South Asia. Both buy arms from Beijing and are recipients of whopping sums of money from China for the development of infrastructure like ports, roads and airports in their countries. Bangladesh prime minister,Sheikh Hasina, candidly admitted during her New Delhi visit in January this year that there is an anti-India mindset in her country and she cannot change it.

Last year, Myanmar decided to divert to China gas that India had been eyeing. Although ONGC and GAIL helped to develop the gas fields, located in the resource-rich Arakan province of that country, and own equity in some blocks, India couldn’t get its act together on transportation issues. Tired of New Delhi’s shuffling, Myanmar offered the gas to China, which accepted it with alacrity and has already started constructing a pipeline from Arakan to feed its booming, energy-hungry western provinces of Yunan and Guizhou.

Despite receiving a reconstruction and rehabilitation package worth over $800 million from India, Afghan president Hamid Karzai has decided to ignore New Delhi’s objections and do business with Pakistan and the Taliban. He has received Pakistan’s avowedly anti-India army chief, General Ashfaq Parvez Kayani, twice inKabul this year and also visited Islamabad to seek assistance in building bridges with the Taliban.

All of these developments point to the fact that over the years, India’s ability to win friends and influence people in its neighbourhood has taken a massive hit. Call it benign neglect. Or put it down to thrills from the first flush of romance with the United States and the tantalising prospect of joining the international high table. Despite a rapidly growing economy, a flourishing democracy, the unrivalled soft power of its popular culture and an army that boasts of being the third largest in the world, India’s geopolitical influence acrosssouth Asia falls sadly short of expectations. As a rising China, with an economy poised to become the world’s largest by 2025, casts its giant shadow over Asia and as Beijing eagerly fills the gaps New Delhi has unthinkingly left in its backyard, the question being asked in strategic and diplomatic circles is this: is India dealing itself out in south Asia?

“Yes,” is the emphatic response from Observer Research Foundation analyst Sameer Saran. “Clearly, we are. We should be creating more robust integration with our neighbourhood. But are we devoting enough time to this? I don’t believe we are.” Says a retired senior diplomat who wished to remain unidentified, “The concepts are all there and they are bandied around regularly. It’s important for our security and economic growth that we manage our periphery. But to do this, we need to be continuously engaged with our neighbours. The trouble is we keep taking our eyes off the ball.”

Today, with the exception of Bhutan, India cannot count a single all-weather friend in the region. From tiny Maldives in the west to Bangladesh and Myanmar in the east to Sri Lanka in the south, national interest need not converge with Indian interests and a little bit of China on the side adds heft to smaller nations when dealing with big brother India. As for Pakistan and China, former national security advisor Brajesh Mishra believes that both are jointly following a containment policy designed to keep India embroiled in tensions with all its neighbours.

“China’s presence has grown all around us. It shows the paucity of India’s influence in her neighbourhood,” Mishra says.

Analysts are perplexed and concerned by the apparent disinterest of successive governments in developing and nurturing an intense engagement with the neighbourhood, especially the south Asian nations that comprise SAARC. Consider these facts: Prime Minister Manmohan Singh has not paid a bilateral visit to a single SAARC country during his six years in office. Nor did his predecessor Atal Behari Vajpayee, save for one famous trip to Lahore when the India-Pakistan bus link opened in February 1999.

A secret note prepared by the external affairs ministry four years ago lists countries in order of strategic importance to India. The US tops the list, followed by the United Kingdom, France, Japan and Russia, in that order. Surprisingly, China, a budding superpower and a neighbour with which we share a disputed border, ranks sixth, while Bangladesh, Nepal, Pakistan and Sri Lanka round off the top ten. Despite Bhutan being India’s closest ally in the immediate neighbourhood, the ministry put it way down on the list along with countries like Belgium and Australia. Bewildering?

It’s inexplicable, certainly. Just as India’s Pakistan’s policy is, with its diminishing returns. This is the one neighbour in which every prime minister since Independence has invested personal time and energy. And ironically, it has proved to be our most troublesome, with sections of the Pakistani establishment pursuing a policy that is downright hostile. “Somehow, we always seem to forget that the first task should be to secure our neighbourhood. This is an imperative if we want to play a global role,” says Mishra.

Analysts believe that India’s neighbourhood conundrum is largely self-created, thanks to our fatal fascination for the West, particularly the United States. While they acknowledge that it was necessary to mend fences with Washington to remain relevant in the new world order that emerged with the end of the Cold War, they feel that policy-makers in New Delhi lost sight of priorities in the chase for a seat at the high table. The last five years were a turning point, as the Manmohan Singh government locked up all its capital in pushing the Indo-US nuclear deal through.

“In our excitement at being feted by Western powers and joining the G-20, the East Asia Summit and so on, we’ve ended up ignoring our traditional constituencies. We seem to see our neighbours as pesky countries rather than important strategic partners in our growth trajectory,” said a former diplomat who did not want his name disclosed.

A senior official in the Prime Minister’s Office downplayed warning notes about the hiatus that has crept into relations with neighbouring countries. He also pooh-poohed the China factor in south Asia, pointing out that Beijing is very cautious about its activities in India’s neighbourhood. For instance, although it built the Gwadar port in Pakistan, a Singapore company is running the facility, he said, adding that the US put pressure on Pakistan to take the port out of the Chinese ambit. “So, you see, there are natural balancers in every country,” he insisted.

Explaining the dip in engagement levels, he said that virtually all the neighbouring countries have been in political turmoil for the past several years, making it difficult for India to build longterm assets in the region. While Nepal is still in crisis, Sri Lanka and Bangladesh have stabilised and the Manmohan Singh government is trying to repair ties with both by loosening its purse strings. Economic assistance to the two countries has been stepped up several times. Rajpakse returned to Colombo after a state visit to India in June with an assistance package amounting to $1 billion.

But the elephant moves slowly. Although India-friendly Sheikh Hasina’s victory in the Bangladesh elections last year presents New Delhi with just the opportunity it needs, signs of strain are already there. A recent article in a leading Bangladesh newspaper carried a report that blamed India for non-implementation of trade agreements concluded during Hasina’s January visit to India. In a goodwill gesture to Hasina, India had conceded a long-standing demand from Dhaka on the removal of tariff and non-tariff barriers on Bangladeshi goods. The newspaper report said that bureaucrats on both sides were holding things up.

“It’s unfortunate,” says former diplomat G Parthasarathi. “If India doesn’t deliver to Bangladesh in the next five years, it will weaken Hasina and the price will be paid by us. I don’t know why we can’t be more generous with our neighbours. China sees all its neighbouring countries as an extension of its market and places no restrictions on the movement of goods. We demand reciprocity with every neighbour instead of adopting a larger philosophical approach like China.”

Saran puts this niggardly attitude down to an inability to shake off old mindsets. “We worked in poverty mode for so long that we haven’t come out of it yet, although our economy is growing at 8-9 per cent every year. We need to realise that not only has the world changed, so have we,” he says. Mishra warns, however, that economics alone cannot give India the clout it should have as an emerging power. It is equally important to develop military muscle. “We must be able to defend our borders by building up our military strength. There is an impression that India can be taken for granted because it’s a soft state. We’ve neglected our military for too long,” he says. He acknowledged that the Vajpayee government was as much to blame as the Manmohan Singh government for going slow on the much-touted fighter aircraft deal under which the Indian Air Force is slated to acquire 126 war planes as part of its modernisation plans.

While agreeing with Mishra, Parthasarathi laments that emotions get in the way of India’s dealings with its neighbours. “We make a mistake when we ask them to love us. No big country can have a comfortable relationship with smaller neighbours. We will have to learn to be realistic and ignore anti-India sentiments around us. Our neighbours should respect us. We need to create long-term assets everywhere to give them a stake in maintaining good ties with us, everywhere, that is, except Pakistan. That needs to be put in a different basket,” he declares.

PLAYING CATCH-UP
Since last year, India has tried to correct the imbalance in its neighbourhood diplomacy by welcoming almost all the heads of south Asian governments. And in an uncharacteristic show of generosity, it has also loosened its purse strings by offering unprecedented assistance packages

SRI LANKA
Sri Lankan president Mahinda Rajapakse returned home from his June visit to India with promises of approximately $1 billion in credit lines for various projects. This almost equals China’s $1.2 billion worth of loans to Sri Lanka for development projects across the island nation. Most of the Indian-aided projects are in Tamilpopulated northern Sri Lanka. They include: Construction of 50,000 houses in the northern and eastern provinces for Tamil refugees displaced during the war against the LTTE Reconstruction of at least four railway lines Construction of a new signalling and telecommunication network Rehabilitation of Palaly airport and Kankesanthurai harbour Renovation of the Duraiappah stadium Construction of a cultural centre in Jaffna Construction of a coal-fired power plant in Trincomalee.

BANGLADESH
A range of assistance measures were announced during Bangladesh president Sheikh Hasina’s Delhi visit in January this year. They include: A $1 billion credit line for infrastructure development such as construction and upgradation of railway lines and supply of BG locomotives, passenger coaches and buses Removal of tariff and non-tariff barriers and port restrictions on Bangladeshi goods and reduction of items on India’s negative list Supply of 250 MW of electricity from India.

MYANMAR
While India’s assistance to Myanmar does not in any way match China’s , the country’s military leader, General Than Shwe, found New Delhi more responsive when he visited in July this year. The agreements include: Assistance totalling around $200 million for construction of roads, electricity transmission lines and a microwave link as well as procurement of railway and agriculture equipment from India New impetus to stalled power projects on the Chindwin river basin in Myanmar Numerous HRD projects such as setting up centres for English language training, entrepreneurship development and industrial training Restoration of the historic Ananda temple in Bagan by the Archeological Survey of India.

NEPAL
With the political crisis in Nepal continuing amid Maoist allegations of Indian interference, New Delhi has been reluctant to be generous with Kathmandu despite hosting Nepalese president Ram Baran Yadav in February this year. It did, however, promise $250 million in credit for the following: Setting up a railway link Building a polytechnic institute Construction of a new convention hall near the India-Nepal border Supply of 80,000 tonnes of food grains.

AFGHANISTAN
Although there were no announcements of assistance during Afghan president Hamid Karzai’s April visit to New Delhi, India has pledged over $800 million in reconstruction and rehabilitation projects. The projects are almost in every part of Afghanistan and include the following: Construction of a new parliament building in Kabul Construction of transmission lines to bring power from neighbouring countries to Kabul Construction of roads Supply of high protein biscuits for school feeding programmes Reconstruction of a dam project in Herat province Building a national TV network Skill development and training programmes in a variety of sectors including civil services and medical missions in at least five cities.

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