In the ambivalent aftermath of hosting a Football World Cup which was a spectacular success but which they embarrassingly failed to win, Brazil is bathed this week in a different sort of limelight. In the north-eastern city of Fortaleza, the Brazilian President hosts her counterparts from Russia, India, China and South Africa, which form the BRICS group, which has emerged to bid for the economic leadership of the developing world. Though it has established an annual summit meeting, BRICS is not a formally constituted organization, more a loose mutually supportive structure of countries which have a joint interest in ensuring that the developed world does not unilaterally set the terms of trade and economic exchange.
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From left: Russia’s President Vladimir Putin, India’s PM Narendra Modi, Brazil’s President Dilma Rousseff, China’s President Xi Jinping and South Africa’s President Jacob Zuma at the 6th BRICS Summit in Fortaleza, Brazil. The leaders announced the creation of a new development bank, to be based in Shanghai, and a reserve fund seen as counterweights to Westernled financial institutions. [Xinhua photo] |
The problem for BRICS is not the lack of a formal structure but the fact that the five countries involved have very different starting positions and interests. While China has gone for global economic engagement as the foundation of future prosperity, other countries still lean towards a degree of protectionism. Brazil, for example, is one of the world's most closed economies, with exports accounting for only 13 percent of GDP. The other BRICS countries are keen to benefit from the size of China's domestic market, but they are less keen on opening their own markets to Chinese competition. How much real cooperation can be reached in Fortaleza on trade issues remains to be seen, but there is a long way to go.
However, what all BRICS countries have in common is a desire to build counterweights to the Western-dominated institutions governing global finance, including in the developing world. It is not only the BRICS countries who feel that the record of the World Bank and the IMF has been patchy, imposing business models which are not always sufficiently sensitive to countries at different stages of development, and there are suspicions that a Western political agenda may lie behind their mode of operation. The fact that important reforms aimed at giving more weight within the IMF to developing countries are still being stalled by the U.S. Congress is one cause for concern. Whether these suspicions are valid or not, it would be a worthwhile effort to explore the possibility of a BRICS-led initiative in this field, allowing the developing world to take responsibility for its own model of development finance.
Hence the proposal, announced by the Brazilian President on July 15, of a new BRICS-based New Development Bank, based in Shanghai with a "regional center" in South Africa. The new bank has been allocated initial authorized capital of US$100 billion aimed at fighting financial crises and an initial subscribed capital of US$50 billion. The declaration states that "the NDB will strengthen co-operation among our countries and will supplement the efforts of multilateral and regional financial institutions for global development. It will be the first formal BRICS institution.
China' economic surge leaves it well placed to take the lead in this enterprise. In a pre-summit press conference, President Xi Jinping said "We will work to perfect the international system of governance and proactively lobby for expanding the representation of developing countries in international affairs," adding "we will come up with more Chinese proposals and contribute China's wisdom." The first of these sentences should win general support in Fortaleza; the problem will be disarming any suspicions raised by the second. The most suspicious of the partners is probably India, China's rival for leadership on the Asian continent. There appears to have been a dispute at the summit about the location of the NDB, settled by China's agreement to concede the presidency of the new bank to India, with the location fixed in Shanghai.
As far as finance goes, the facilitation of payments between developing countries in their own currencies will be a great help; but no doubt some partners will worry that this could also concentrate too much influence over finance in the hands of China, in the context of plans for the internationalization of the renminbi.
Even supposing the doubts of the five participating countries can be alleviated, the new bank will face considerable problems in developing a new model. Many of them, of course, will be the same as those faced by existing institutions. Some development issues may have less to do with levels of financial resources than with their distribution, which often involves political factors which are not always aligned with developmental needs. Both China and the West have encountered this kind of problem within their banking systems.
But probably the biggest problem of all will be finding a unique selling point: it will achieve nothing to duplicate the work of other institutions. The aim should be to create genuinely user-friendly access to development finance for countries which have not found the existing system properly geared to their needs.
The author is a columnist with China.org.cn. For more information please visit: http://www.china.org.cn/opinion/timcollard.htm
Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.
