“The Bretton Woods times institutions are not the right tools to meet the 21 century challenges.”
“An agreement to replace the US dollar by own currencies in mutual credit lines is a great achievement of the summit.”
“The BRICS countries are saying that the US economy is currently ineffective and prone to risks.”
On 28-29 March 2012 a BRICS summit was held in Indian capital New Delhi. The theme was “BRICS Partnership for Stability, Security and Growth”. This was the fourth BRICS summit that brought together the leaders of the emerging economic powers to discuss a host of global issues. The event took place against the backdrop of the deepening global financial crisis with no prospects for recovery any time soon.
Goldman Sachs economist Jim O’Neill coined the term BRIC (Brazil, Russia, India, China) in 2001 to denote the four fastest-growing emerging economies of the world. The cooperation started at the level of deputy ministers and heads of government agencies. The foreign ministers of the four BRIC countries met in New York in 2006, beginning a series of high-level meetings.
Since then, the BRIC evolved into a multilateral grouping with the first summit held in 2009, when the global financial recession was at the peak. South Africa joined the grouping in 2011 to make it the BRICS.
The Big Five countries are developing rapidly, their combined economies that could eclipse the combined economies of the current richest countries of the world by 2050. These countries together account for more than a quarter of the world’s land area, more than 40% of the world population and 35% of global foreign exchange reserves.
Over the past 10 years the BRICS have contributed over a third of world GDP increase and grown from one-sixth of the world economy to almost a quarter (in PPP terms).
According to the IMF estimates released last month the 2012 economic growth is expected to be at 3% in Brazil; 3.3% in Russia; 7% in India; 8.2% in China; and 2.5% in South Africa.
For comparison the U.S. growth this year will be 1.8 percent while the 17-nation euro area is to shrink by 0.5 percent.
Foreign assistance by BRICS nations has sharply increased over the last five years in line with the countries’ growing wealth.
RESULTS AND TRENDS
The organization has gone through the initial shaping phase and has clearly taken on a political dimension over the last few years. Looking back there were verbal attacks predicting a failure.
Some experts said the gaps in economic development were too dividing, the political systems and approaches to human rights were hardly unifying factors. Others insisted, for instance, that Russia’s future lied in dealing with the USA instead of getting closer to China, India and Brazil.
No doubt the member countries are different and may have different stances on global issues, getting united on Libya and separated on Syria.
But the unifying factors are stronger, otherwise the very creation of such an influential coalition would be unthinkable. The inability of international bodies to effectively manage the global economy and politics made the reshaping of the international institutions a burning issue.
After six years since its foundation and three years since regular summits started to take place an agreement on changing the global international and financial bodies was reached making the BRICS rather an alliance of reformers.
At the start the trend was strong to concentrate solely on the reform issue. The Big Five have made an important contribution into facilitating the IMF and World Bank reform by G20.
In New Delhi the Big Five consented to work out a unanimous position on the issue for the G20 summit in June.
But other global problems from climate change to renewable energy sources were too important to keep out of the list of the issues on the table.
For instance, the way the BRICS nations deal with public health issues like AIDS and tuberculosis can set a positive template for the rest of the world.
The contacts were rapidly elevated to the summits level though the organization has not established an institutionalized structure as yet.
The agenda was gradually diversified, that led to the involvement of executive power agencies, academic circles and entrepreneurs. The member countries’ ministries of finance, agriculture, economy, national security agencies – all started to get involved in the BRICS activities and interact.
The summits started to go in parallel with think tanks and business forums.
Nowadays the BRICS member sideline consultations have become routine in the UN and other international organizations. The interaction process is vigorous beyond expectations. It boosts bilateral trade that has been growing at the rate of 28% over the last few years, but at 230 billion dollars, remains much below the potential of the five economic powerhouses.
In case of Russia no doubt its accession to the WTO is a great incentive for further progress.
It is understandable that some of the global powers have become critical of the rise of the grouping as it not only strikes at the roots of global divisions along the North-South or East-West lines.
At the beginning of the 21 century the balance of power in international politics has changed with the rise of India, Russia, China, Brazil and South Africa.
The emergence of these countries has naturally challenged the dominance of certain powers in global decision making process.
The summit on March 29 considered new ideas on how to further strengthen the BRICS efficiency and raise its international clout, a framework to respond to regional and global crises; climate change and sustainable resource use, urbanization and its associated challenges; improving access to healthcare at all levels; implementing new education and skilling initiatives; working out a concept of introducing new financial mechanisms to support and boost economic growth; technologies and innovations exchange.
It is agreed to enhance cooperation through exchange of experiences, as well free flow of scholars and students, joint policy research projects. The importance of holding joint forums for sharing information useful for economic cooperation as well as taking steps to discuss and agree on common stands on various global issues was emphasized.
The grouping takes the changing parameters of international politics into account.
The Middle East in general, Syria and Iran topped the summit’s international agenda. The Kofi Annan’s mission is Syria received unanimous support at the summit.
The Big Five agreed to work together to neutralize the threats posed to each of them by sharing resources and information where appropriate, and through collaboration between relevant institutions in the member countries.
The agreement to explore in greater detail the establishment of a BRICS Development Bank (South-South Bank) and an Infrastructure Investment Fund is an issue of special importance.
Appropriate measures to bring their stock exchanges closer together were also considered.
The initiative allows the countries to pool resources for infrastructure improvements, and can also be used in the longer term as a vehicle for lending during global financial crises such as the one in Europe.
The agreed plans to create new, credible institutions to initially supplement and, perhaps, eventually substitute for the existing ones such as the World Bank and IMF, that failed to predict and efficiently fight the recent world economic crisis, would be a momentous achievement.
It would reflect an understanding the Bretton Woods times institutions are not the right tools to meet the 21 century challenges.
At the same time the BRICS members are using their new influence to put pressure on the IMF to reshape its voting structure to better reflect the shift in economic power.
It’s position on currency reforms, the calls to revive global trade talks would help substantially to move these issues out of the deadlock at G-20 level.
An agreement to replace the US dollar by own currencies in mutual credit lines is a great achievement of the summit too.
The member countries demonstrated a desire to reduce the risks associated with the current economic woes in the United States.
Actually it means that BRICS countries are saying that the US economy is currently ineffective and prone to risks.
The leaders also agreed to allow their individual development banks to extend credit to other members in local currency. A benchmark equity index derivative shared by the stock exchanges of the five BRICS nations is to be launched on March 30, 2012, the exchanges involved. They would be cross-listed, so can be bought in local currencies.
The question of convertibility of the BRICS countries’ currencies could be resolved in the near future.
The fact that BRICS countries are moving away from the use of the dollar is only natural.
The move will contribute to a more stable world economy.
The BRICS countries’ national economies will also benefit as a result.
The state of the euro zone and the continued ripples created by the global financial crisis necessitate greater emphasis on creating frameworks for enabling viable responses to financial shocks within and outside BRICS. A systematic approach was discussed to work out responses to economic downturns in the global economy.
BRICS should evolve as a platform for creating concept based multilateral policies and develop credible mechanisms to meet the challenges and respond to local, regional and international political and social turbulence such as the “Arab spring”. The Delhi Declaration adopted at the end of the summit reflects the BRICS’ collective position on major global agenda issues.
As a member Russia has certain advantages. The strong macroeconomic data makes it stand out. Russia is the 7th biggest economy of the world with its 143 million population and with approximately 2 trillion 223 billion dollars of gross domestic product according to purchasing power parity.
Unlike struggling Western European economies, Russia has been relatively resilient in the face of global volatility. The country’s economy grew 4% in 2010, 4.3% in 2011 and is expected to grow 3.3% in 2012 according to IMF. Joining the W.T.O. capped a long period of transformation for Russia.
One of the most important indicators is Russia’s $19,840 per capita income as opposed to $11,127 in Brazil, $10,700 in South Africa, $7,536 in China, and $3,586 in India (2010 World Bank estimates).
This means that consumers are the richest of all the BRIC nations. According to the Russian leading private investment bank Troika Dialog data, 68% of the people can be counted as middle class in Russia (100 million people) against 31% in Brazil (75 million), 13% in China (160 million) and less than 3% in India (30 million).
The gap between Russia and China is considerable but in terms of market size, Russia easily beats Brazil and India.
In other words China and India are better markets for producers of low-quality goods whilst Russia and Brazil are attractive for car and high technology producers.
In addition, education is telling of the possibilities in Russia. An average Russian has 8.85 years of schooling, compared to 7,54 years in China, 7,17 years in India and only 4,39 years in Brazil.
Around 70% of the Russians get higher education, compared with just 20-25% of the Brazilians.
Since 2000 Russia’s real gross domestic product grew by 5.6% annually in average. Russia’s energy resources and nuclear technology experience are a real boon to the BRICS economic clout.
Russian President elect Vladimir Putin wrote in his pre-election article called Russia and the Changing World (published in Moskovskie Novosti February 27 issue) that that the BRICS will have to work together more closely in the United Nations. Putin added that Russia will continue to prioritize its relations with the bloc, which he called “the most telling symbol of transferring from a unipolar to a more just world order.”
Commenting on the summit’s results on March 29 Russian incumbent President Medvedev stressed the BRICS should build a new model of relations out of the established pattern of stereotypes like “a bridge” or “an intermediary. He said: “the future agenda foresees transformation of the forum into a strong and influential organization.”
BRICS may become a member of the club of international bodies shaping the pattern of global management in the 21 century.
It’s already on the way interacting with the G8. The formal and working pattern of cooperation with the core world institutions, especially the UN structures, comes to the fore that makes it an imperative to focus on legal aspects of the status and creating appropriate institutions.
The joint economic investment projects will require corresponding management and financial support. An ad hoc approach would be a good start. Establishing a management committee to oversee programs with funds coming from a BRICS development bank would boost economic integration. The creation of permanent secretariat (instead of temporary structures being a responsibility a host country) would be a step forward. No red tape but a compact efficient body with no extra weight contrary to what they have in Brussels.
The BRICS cannot avoid facing the global challenges. Fighting drugs proliferation is an important direction of activities.
What is important is that BRICS becoming a powerful world actor outside the US and Western influence.
The member countries do not represent themselves only, all of them are regional leaders. Like Brazil represents Latin America, Russia – the post Soviet space and the CIS. The BRICS has emerged a global player with a strong voice.
The forthcoming Delhi summit not only confirmed the fact, but also led to establishment of new mechanisms to strengthen multipolar world structure.
The organization can provide an alternate pattern for global development.
The New Delhi summit made evident that a very strong and vibrant organization has emerged cutting across geography and ideology.
What makes the BRICS unique in the world is that is not a geographical grouping like the Association of South East Asian Nations, or commodity-based like the Organization of Petroleum Exporting Countries or security-based like the North Atlantic Treaty Organization.
Perhaps it is the only global body which has emerged not in terms of geographic divisions, or on a particular issue of concern, but rather as a global body with global objectives.
It should move on from being a grouping of individual nations, discussing agendas to becoming an institution for setting regional and global agendas.
Some experts say now that the overall success of the BRICS may be a decisive turning point in making the world a fair place under multipolar power structures.
Evidently there is a prospect of unifying the bloc as a political alliance pursuing internal integration.
No doubt the summit results warrant the BRICS greater say in global decisions.
Andrei AKULOV/ Strategic Culture Foundation