The term BRIC was coined by leading economist Jim O’ Neill of the Goldman Sachs investment management firm in 2001 to denote the four emerging economies of Brazil, Russia, India and China. It emerged as a political grouping with the first summit in 2009. At the Sanya summit in 2011 South Africa joined the group as the fifth member. The importance of the BRICS rests on the fact that they represent a quarter of the world’s area and more than 40 percent of the world’s population, they have a combined GDP of 24 trillion and represent the 20 percent of the global GDP. In the last five years the BRICS has gradually evolved into a multilateral grouping that has incrementally intensified the dialogue on range of issues, initially economic, reshaping the financial institutions of global governance, to political issues such as debating and expressing opinion on various international crises. There has also been a move towards greater institutionalisation of the BRICs in the form of regular meetings of ministers representing – foreign policy, finance, trade, science and technology and also national security advisors and other high level officials. At the Fortaleza summit, that marked a new cycle of the BRICS summits the five leaders discussed crucial issues related to economic stability, sustainable development, peace and security, and also met with leaders of South American nations in a bid to enhance cooperation between BRICS and the South American region.
One of the most important announcements made at the Fortaleza summit was that of the creation of a New Development Bank, (NDB). The proposal to launch a BRICS bank was made for the first time during the New Delhi Summit in 2012 and at the recent Fortaleza Summit the BRICS leaders signed an agreement for establishing this institution. The main objective of the bank is to mobilize resources for infrastructure and sustainable development projects initially among the BRICS countries and later on in the other developing countries. This bank will have an initial authorized capital of $US 100 billion and a subscribed capital of $50 billion. By establishing their own multilateral financial institution, the BRICS countries are taking the first step towards creating a more equitable economic governance global order that has been dominated by the West.
For the past 70 years the International Monetary Fund and the World Bank have been the pillars of the world economic system. However, these institutions do not reflect the growing stature of the major emerging economies in terms of representation in voting power. Since the emergence of Bretten Woods institutions in 1946 the victors the World War II held the majority of voting shares with the United States managing to get the largest.
So how different is the New Development Bank going to be? During the last few years there have been questions raised by critics, specifically, in terms of Chinese dominance of the bank. These concerns have been raised due to the fact that China has the largest foreign currency reserves among the five partners and if voting rights in the new bank were linked to the financial contribution then China would inevitably dominate the decision making. In that sense the Fortaleza BRICS summit declaration pushes for a more equitable norm with the initial subscribed capital of $50 billion dollars to be shared equally among the founding members of the bank.
Moreover the responsibilities related to functioning of the bank are spread amongst the member states. So while China will host the headquarters of the NDB in Shanghai, the regional headquarters will be located in South Africa. Similarly the first President of the Bank will be from India, the First Board of Governors from Russia and the first chair of Board of Directors from Brazil.
However some questions still remain. A major criticism of the World Bank/IMF funding was the conditionalities, structural adjustment programmes, related to the funding provided to the developing countries. Hopefully the NDB will not attach any conditions towards dispersal of loans. Though it is true that in the past, when it comes to project funding/execution, Export Import (EXIM) bank of China and India have linked the bidding process of lines of credit to Indian/Chinese entities only. So will it be the same of the NDB too? If so what will be the mechanism so that entities from each member states get equal opportunity in bidding for projects/supplies etc.? Another matter of concern is, now that the BRICS have floated a development bank of their own, whether they will lose interest in reforming the existing global financial governance structures? One certainly hopes this will not be the case. The Fortaleza summit declaration does suggests that the NDB will supplement the efforts of the other international financial institutions for global development.
The Summit highlights the continuous efforts to forge cooperation and coordination amongst the BRICs members. While BRICS member states efforts towards establishing the New Development Bank indicates the first step towards giving voice to the voiceless, they are still a long way to in becoming an alternative organisation that can shape the international discourse. The reality is that despite efforts to forge unity the BRICS countries continue to have differing opinions on a number of global issues. Thus the BRICS member states need to consolidate their position and work towards a common vision on various critical international political issues.
By By Ruchita Beri
Institute for Defence Studies and Analyses
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India. First published in the IDSA Comment.