On 15 July, political leaders of the five emerging countries known as BRICS (Brazil, Russia, India, China and South Africa) signed up in Brazil the document for the establishment of a BRICS Development Bank, a multilateral development finance institution.
The bank’s capital is set at $100 billion, of which a total of $50 billion will initially be contributed equally by the five participating nations. Headquartered in Shanghai, the bank will fund infrastructure and development projects in the BRICS countries. Each member country will have an equal say in the affairs of the bank. Each member country will depute its representative (either its finance minister or its central bank governor) to the bank and Russia will chair the representatives, i.e., the board of directors. India will be president of the bank in the first year under a system of annual rotating president ship.
The five leaders also agreed to set up a reserve currency pool of $ 100 billion, also known as a Contingency Reserve Arrangement. This arrangement is seen as a mechanism to protect the BRICS’ national economies from a financial crisis. China is expected to contribute $41 billion to the pool, India, Russia and Brazil $18 billion each and South Africa $5 billion.
Taken together, the BRICS account for 42% of the world’s population, 20% of its GDP and 17% of its total trade. This represents a substantial global force even though there are distinctive styles of governance in each one of these countries. These countries have been in discussions about drawing up a common agenda since 2006, many years after 2001 when the acronym BRIC was coined by an economist for the first four of them as representing a strong enough global force to reckon with. When the international economic crisis came up in 2008 seriously affecting the economies of the dominant club of the world’s richest countries usually referred to as the G7, the BRICS (with the addition of South Africa) were seen for some time as the redeemers of global growth. That did not happen. Yet, it is only now that they are taking a concrete step to work together. One may ask why now?
The answer is simple. As China’s power has increased during the past decade and a half, it has been increasingly seen as the main challenger to American global power. It is not only that China has recorded exceptionally high rates of growth during the past; it has made inroads into sophisticated domains such as space technology. By targeting the destruction of one of its own satellites in space, it has sent a clear signal to who it may concern that it is capable of military feats, something that was the preserve of only a few of the most sophisticated global arms producers until then. Recently, China redrew its maritime exclusive economic zone in the South China Sea, raising fears among traditional global powers that it might act as a hegemon in view of its growing economic and military might.
Russia also refused to toe the line of the West on quite a few occasions, including Syria, by not giving its consent in the UN Security Council for Western forces to make an assault into the war-torn country. It recently defied Europe’s and America’s stance on Ukraine and has gone as far as to annex a part of the Ukrainian territory, notably Crimea. Given this, the G8 decided to carry on without Russia whom they had admitted in their ranks earlier, preferring to go back to G7, bringing sanctions against it instead.
Even though India, Brazil and South Africa have not asserted themselves so defiantly internationally, China and Russia may well have realized that they may not by themselves go too far against a world threatening to go unipolar around American dominance of global affairs. BRICS appears to be a good forum for them to bond up against their perceived intended international isolation, which the Western agenda might be contemplating for the two countries. This is to be seen in ongoing Western initiatives such as the Trans Pacific Partnership, a vast preferential trade agreement which clubs together America, Canada, Australia and the ASEAN countries to the exclusion of China. America is seeking to reposition itself among its traditional allies in the western Pacific as the perception of a China threat to international security and trade flows grows.
It is normal that mere words don’t suffice in shaping up international configurations. A country needs to back up its promises and theories with actual involvement, something that is going increasingly deficient currently for America’s dealings with its customary “allies” in its “democracy” project. China and Russia needed to show that they can side with the rest of the world in the fight against economic and other forms of oppression. This is where the development bank and the reserve pool being set up at the level of BRICs come into play, to indicate that an alternative way of doing things internationally is possible.
Rightly or wrongly, there has always been a varying perception among developing countries that international financial institutions such as the World Bank (the international development financing arm) and the IMF (stabilizer of the global financial system) set up by the rich countries in the aftermath of the Second World War at Bretton Woods, advance the interests of their principal backers, notably Europe and America, their major shareholders, not those of their other less fortunate member countries. Attempts have therefore been made to set up own alternative institutions by regions (notably by Middle Eastern countries, even Africa) which felt frustrated from time to time with the policies meted out to them by these Western dominated financial institutions. You need significant resources to set them up but protestors don’t always have such means. It was important to demonstrate that the supporting means exist, hence the development bank and the Reserve Pool.
Many already see the just-launched BRICS development bank and the Reserve Pool as going in the direction of instituting fairer international financial institutions, truly committed to the development of upcoming nations. The BRICS financial institutions being set up will not be foreclosed to the initiators of the project. This project need not be seen in isolation; it may be the beginning of yet another defiance to the established international economic and political order. Will it succeed? It might.
History has shown that such international financial institutions come to stay when they are backed by huge financial and human resources, sufficient to cope with vast development costs and economic stabilisation needs. If its backers continue to grow their economic sinews and might, they may well succeed and avert the need for the world to shift towards unipolarity. Events show that the world of the future will not be evangelised around a single theme (such as democracy or ultraliberal economics) and therefore developments as the ones we are seeing in this case may well actually herald the emergence of a more balanced global economic and social order.
* Published in print edition on 18 July 2014