Opinion

OPINION: BRICS Summit 2012: Developments and Challenges Ahead

On 29 March 2012 Wednesday, the leaders of Brazil, Russia, India, China and South Africa attended the fourth BRICS in New Delhi, India. The Summit was held with the theme “Partnership for Global Stability, Security and Prosperity”.

Fayaz Ahmad Bhat

The summit is altogether contrary to the perception that BRICS leaders meet once in a year and click some snaps together. They moved from plain rhetoric to definite areas, and have send message to many countries which tend to act unilaterally outside the UN framework. It has send shock waves to many centers of the world particularly in the circle of those countries that justify present unequal economic order of world and act unilaterally outside the UN frame work. The agenda for creation of a new development bank is the move which is the most notable outcome of the summit. The establishment of the bank will supplement the existing efforts of multilateral and regional financial institutions for global growth and development. The benefit of a BRICS bank will go beyond BRICS to other countries also.

“The initiative reflects a goal of BRICS economies to reduce dependence on the dollar and the euro, but significant progress is about 10 years away,” said Onitolo, adding that “it is clear that emerging markets are gradually overtaking developed ones as engines of global growth.”

On the future of the bank, Brazil’s Trade Minister Fernando Pimentel said, “It would be a very powerful financial tool to improve trade opportunities.” The bank is expected to carry all its transactions in local currencies. In recent past, there have been two efforts to get out of the dollar. They both finished in tears. Saddam Husain wanted to carry out the Iraqi oil trade in Euros and was removed from power. And Gaddafi’s Libya forced countries to buy its oil in Libyan Dinars, he was reduced to cowering in a sewer before being killed, and his regime brought down. Obviously US and its allies will play every card in the deck to halt the move and they have already started the move. The question is what kind of challenges Brics members will meet and how successful would be its members to cope diplomatic and other tactics of US and its allies.

The establishment of the South -South Bank on the part of Brics members not only promises structural change in the economic order of member states but at a global level also. It may be hard for US and its allies to end the proposal in tears as they are all together different from Sadam’s Iraq and Gadaffi’s Libiya. However there are many weakest links in the Brics chain which needs to be strengthened.

The move to establish south-south development bank is pleasing for BRICS countries however may be irritating for developed countries particularly for US as the initiative will reduce dependence on the dollar and the euro. Those who in the recent past attempted so were thrown out of power. It is obvious the developed countries particularly US will attempt to halt the process. But the question is will BRICS countries survive the pressure and challenges ahead? Are they weak like Saddam’s Iraq and Gadaffi’s Libiya that their sovereignty will be challenged by US and its allies?

South – South Development Bank and Power of BRICS

Indian Prime Minister, Dr. Manmohan Singh, in his address to the BRICS summit, said, “We have agreed to examine in greater detail a proposal to set up a BRICS-led South-South Development Bank …” creation of the bank, on the lines of the World Bank and the Asian Development Bank aims include funding development and infrastructure projects      in           developing and    least developed countries; lending, in the long term, during global financial crises, which could be bought by the central banks of all the member countries and hence act as a vessel for risk-sharing…”

It is clear that the Bank wants a new global economic order free from control and influence of Washington. Member countries proposed to trade among themselves in their local currencies, extending credit facility in local currencies. Extending Credit facility and carrying transactions in local currencies will  replace the United States dollar as the main unit of trade between them. The dollar was the lubricant that fuelled US power since Bretton Woods, 1944. With the dollar as the world’s currency, the US is the only country in the world that can expand its buying power simply by printing its currency. This is a source of enormous political power, as much as its economic and military power. At present US is in effect relying on “borrowing” $1billion each day to cover its deficit in trade. Setting up of south- south Bank by Brics is not a healthy sign for US as BRICS countries account 18 per cent of global trade, 25 per cent of global GDP, 53 per cent of global financial capital. Trade among Brics rose from $27 billion in 2002 to $212 billion in 2010. This year it is expected to reach $ 250 billion. This group of five countries will be responsible for 56 per cent of world growth in 2012[1].

This kind of development and move will never be acceptable to the US, those who in recent past attempted to replace dollar with local or any other alternate currency were overthrown from power, Sadam Hussain of Iraq and Gadaffi of Libya are the examples. The US has already started a move however this move is altogether different because who by heart in heart acknowledge the power of the Five. Before summit was kicked off on 29 March 2012 in Delhi an American Diplomat had said “What do they talk at these summits? It’s just talk shop and a photo op.” The same day, an op-ed write up in the New York Times argued that the focus of the south – south bank was misplaced, “It is the fundamental incompatibility of the Brics nations, not their lack of organizations , which prevents this collection of emerging economies from acting as a meaningful force on the world stage,” the op-ed said.

In response to the statement of New York Times op-ed, Jackson Schendier said, “BRICS is not an idea. It’s already a reality.”  He further added “If BRICS has no force, why is the NYT wasting so much ink and time on us?” One should not ignore the developments and events which took place before or after the proposal of the Bank by Brics countries. Robert Zoellick, the World Bank Director, while taking his attention to the proposed Brics bank said, “It’s a complicated venture which will have a hard time getting off the ground and match the expertise of the World Bank.” It was just one day before the Brics summit when he raised the doubts about the new development bank. On Friday, March 30, Zoellick met with ministers and businessmen in Delhi and told them how the World Bank can help India meet the challenges ahead. This statement of Rober Zoellick seems had hidden motive to convince India not to go for a South-South bank. Exactly after four days of  meeting ministers and Indian businessmen in Delhi, on Friday Zoellick, while answering questions at the Boao Forum for Asia in China’s Hainan province on 3 April said, he will support Brics bank. This statement of Zoellick seems totally contradictory to his earlier statements. First he is raising doubts about the new development bank, and then he tries to convince India that World Bank “can help India meet the challenges ahead” and now he says he will support the new Development Bank. The question is when World Bank is able to help BRICS member states to meet the challenges ahead, why shall they go for a new one. Is he trying extra hard to sell an idea whose time may be up?

Robert Zoellick’s argument that World Bank “can help India meet the challenges ahead” may have some buyers, but they should not forget the fact that UN General Assembly at its Sixth Special Session way back in April- May, 1974 called for establishment of New International Economic Order (NIEO) and approved a Programme of Action to achieve it.  Just few days are short of 38 years when the UN General Assembly approved programme of action to achieve NIEO but we have yet to achieve it. It is not hidden to any one that they are not serious to achieve it.

How can one ignore the diplomatic tactics of US to please some of BRIC members? US congress accused Pakistan for carrying attacks in India following this they announced $ 10 million bounty on Hafiz Seed accused in 26/11 attacks. The announcement of bounty of Hafiz Saeed were overwhelmingly welcomed in India and caught front pages of the most national dailies in India, despite knowing the fact that hafiz Saeed is not hiding in any caves but he often conduct anti NATO rallies in Pakistan. US will play its all the tools to abstain member states in establishing the south-south bank, but the question is how far US will be successful. One thing is crystal clear that US will abstain from using or threatening of military powers to Brics members because unlike Saddam and Gaddafi BRICS countries are much stronger. The only thing which US can do is to create rift among member states.

BRICS as a ray of hope

There seems no end to unjust international economic order. NIEO has remained limited to papers and conferences, the only thing which seems to give some resistance present unjust world economic order is BRICS. BRICS is not only important because three out of five members of it are nuclear powers and two are permanent members of United Nations Security Council. Virtue of being nuclear powers and permanent members of UN Security council no way decimals the importance of Brazil and South Africa both are very important members of the BRICS and it is only their membership that makes BRICS, BRICS. Brazil is a political and economic leader in Latin America. ‘Brazil is the largest national economy in Latin America, the world’s seventh largest economy at market exchange rates and the eighth largest in purchasing power parity (PPP), according to the International Monetary Fund and the World Bank. Brazil has a mixed economy with abundant natural resources. The Brazilian economy has been predicted to become one of the five largest in the world in the decades to come, the GDP per capita following and growing.  Its current GDP (PPP) per capita is $10,200, putting Brazil in the 64th position according to World Bank data. It has large and developed agricultural, mining, manufacturing and service sectors, as well as a large labor pool’[2].

SA is a “gateway to Africa” for investors. Its role is, therefore, as a means to ends pursued by other agents – notably China and India. SA is the biggest “foreign investor” on the rest of the continent. South African Transnational Corporations (TNCs) and parastatals dominate investment in SADC countries by 80 per cent and at 40 per cent for the continent, as a whole, it simply dwarfs the US and the EU, not to mention China, India and Brazil.[3] After South Africa joined the group in April 2011, the economic size of BRICS grew to $11.7 trillion.

It is not all Brics accounts 43 per cent of world’s population and fifth of its GDP. Brics account 53 per cent of global finance and trade among them rose from just $27 billion in year 2002 to more than $210 billion in year 2010 and they are targeting $500 billion by 2015. They are expected to be responsible for 56 per cent of world growth in 2012.

Loop holes and challenges ahead  

There are number of differences on certain issue between Brics countries. Kanti Bjpal highlighted three important weakest links. First, China is evidently ahead of the pack in terms of its comprehensive national power and economic power, but both India and Russia are eager not to surrender leadership too evidently to China.    India and Russia are wary of China in light of a number of bilateral problems.

Third and the most important each of the five members of Brics has more going on with the US than with each other.

There are doubts about the coherence of the Brics grouping. South Africa, for example, does not meet the essential criteria – rapidly growing, large economy with a large population – laid out by Jim O’Neill. South Africa’s GDP of less than a quarter the size of Russia’s and the country is struggling to keep annual growth above 3 percent. The Brics members also have significant political, economic and cultural differences, and do not always adopt a unanimous line in international issues. On the selection of a successor to Robert Zoellick as president of the World Bank for example, they were unable to reach a consensus about who should challenge the US’s candidate, Jim Yong Kim.

Despite speaking to the BRICS consensus of trading in ‘non-third party’ currencies or even setting up a BRICS bank, SA has responded in opposite ways to its allies.

With the flow of cheap dollars, which saw investors speculate in Brazil and SA, driving up currencies like the Real, the Rand and the Rouble in 2011, Brazil re-imposed capital controls to tax these flows, whereas SA cut controls even more. Whereas Brazil, Russia and China hate a strong Real, Rouble or Renminbi, SA simply loves a strong Rand.

It is even notable that SA differs on concrete instances of foreign policy. Whereas China, Russia, India and Brazil abstained from Resolution 1973 on Libya – used as a justification for NATO’s overthrow of Gaddafi SA supported the resolution. And whereas SA supported calls for sanctions against Assad’s Syria, Russia and China have vetoed this, seeing it as a prelude to another Western military adventure. And as the US bullies countries into cutting Iranian oil imports, SA has backed down whilst both Russia and China have simply told the US where to get off.

Setting up of south- south bank is the notable outcome of the Delhi summit of BRICS, however it was generally accepted that setting up of such an institution would not be easy. Appopkin was cautious of the move, saying that such a bank would be effective only if “they are given independence in project financing decisions from the governments, or at least room to operate in long-term development framework.”

Conclusion

The fourth BRICS summit, which concluded in New Delhi, sent positive signals to the outside world that international stability, security and prosperity can be achieved if everyone pulls together.

In the joint declaration issued by leaders of Brazil, Russia, India, China and South Africa, the five countries vowed to enhance cooperation among themselves and contribute to world development and prosperity.

Notwithstanding their differences, Brics share a number of concerns. They were all worried about US leadership and western policies on geopolitical issues, in particular in the Arab world and in Iran. They are all opposed to interventionism even though none of them has much of an alternative to offer except such anodyne suggestions as “diplomacy is the answer”. The West’s stand on climate change and, particularly for Russia, India and China, the future of Af-Pak, are very troubling. Most importantly, they are all concerned that the West’s economic troubles are chronic and will be consequential for them. They look increasingly, therefore, to sustain their growth prospects on the backs of each other’s economies.

They also voiced their united support for a Syrian peace process promoted by international envoy Kofi Annan and warned of the “disastrous consequences” of allowing the Iran nuclear issue to escalate into conflict.

However the most notable thing of the summit was   that the leaders have considered the possibility of setting up a new development bank.

The bank will supplement the existing efforts of multilateral and regional financial institutions for global growth and development, the declaration said.

“The benefit of a BRICS bank will go beyond BRICS to other developing countries,” Chi said.

“The initiative reflects a goal of BRICS economies to reduce dependence on the dollar and the euro, but significant progress is about 10 years away,” said Onitolo, adding that “it is clear that emerging markets are gradually overtaking developed ones as engines of global growth”.

Given that the BRICS countries have become an increasingly important force on the world stage and the drivers of the global economy, their pledge to make due contributions to the world development and prosperity should be interpreted as good news for all.

It is good to see the group showing solidarity on issues of global significance. By speaking with one voice, they can better defend their own interests and those of the developing world at large and promote fairer global governance.

There are many hopes and expectations from Delhi Summit. However challenges ahead in the achievement of goals are really going to weigh the potential and credibility of Brics countries.

 


Footnotes: 

[1]  Dilma Rousseff , We’re All In It Together: BRICS members Brazil and India are strategic partners for a new world vision.  Times of India, March,29,2012.

About Fayaz Bhat

Fayaz Bhat is a contributing writer and a PhD scholar in the Department of Sociology. He can be reached via email at: fayaznk@gmail.com

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