The authors would like to thank Asoke Kumar Mukherji, Permanent Representative of India to the United Nations from 2013 to 2015, for his valuable inputs.
Introduction
The story of the BRICS countries or technically BRIC countries, since South Africa joined later in 2010, began when the then Goldman Sachs Chief Economist authored a paper titled “Building Better Global Economic BRICs”[II] in 2001. He believed that these countries were likely to dominate the 21st Century Global Economy. The four BRIC States – Brazil, Russia, India and China – met in New York City in 2006 during the United Nations General Assembly Session. However, a full-fledged diplomatic meeting was held only in 2009 in Yekaterinburg, Russia. South Africa expressed interest to join BRIC the very next year in 2010 and was formally inducted on 24th December 2010, therefore making the group get its present name – BRICS. In 2013, the Fifth BRICS Summit was held and the member countries agreed to establish a global financial institution – New Development Bank, intended to rival the World Bank and the International Monetary Fund, both of which are dominated by Western Countries. After the global financial crisis inflicted heavy damage on BRICS member nations, it would not be wrong to divide them into two groups – those who took advantage of globalization to integrate themselves into the global supply chain (India and China) and those who took advantage of globalization to sell their abundant natural resources (Brazil, Russia and South Africa).
Economic Inequality among BRICS
The scenario is grim for the member nations belonging primarily to the latter group. Brazil sells commodities like agricultural products, iron ore and crude oil on the global market. South Africa sells rare gems and metals like diamonds, gold and platinum on the global market. Russia sells natural energy resources like crude oil and natural gas on the global market.
With India showing a steady yet high level of GDP growth, currently 7.7%[III], the other members seem to be struggling to keep up. While there is no doubt that China has emerged as an economic superpower, it has seen a recent dip in its growth rate with growing inequality, but only just, as it still controls the international market. Brazil has been plagued by corruption scandals and a president who has been impeached and this has seen South America’s largest economy take a downturn with GDP growth spiralling down to a negative 3.6%[IV] in 2016 and then recovering to about 3.7%[V] in 2017 but with little assurance of stability in the future. The Brazilian Central Bank has kept on reducing its rate of interest and that has propelled stagflation[VI]. Russia’s GDP bottomed out at the end of 2015 after the longest recession since the 1990s. With oil prices rising a bit during 2016-17, Russia did reap benefits of the same, but could not capitalize fully as it could not increase sales without violating market rules. Its footing has improved with healthy trade surplus and substantial foreign exchange reserves but it still faces high inflation and low rate of economic growth[VII]. South Africa was never considered a part of the big league and has also faced severe economic challenges such as problems with unemployment being painfully high and economic growth being a meagre 1.5%[VIII] on the average with income being skewed towards the affluent. Given this scenario, the economic significance of the BRICS economies has been largely questioned and what the future might hold for them has been questioned as well.
Development of a BRICS Financial Institution
Ever since the idea of establishing the New Development Bank was floated in 2013, internal divisions among the BRICS’ members have stalled the institution’s progress. While the New Development Bank was finally established in 2014 with an initial $50 Million Fund, it has failed to achieve the high goals that it was meant to achieve. The aim behind establishing the New Development Bank was to reform the global financial system that is largely dominated by the United States and other Western Countries and to use it as a diplomatic counterweight to the West.
The New Development Bank which has been a multilateral bank for the BRICS countries based in Shanghai and being run by an Indian, shows a lot of promise as it has been a place where the BRICS economies can take loans for sustainable development. The Bank has committed $1.5 billion in loans to member countries so far, with a strong emphasis on renewable energy[IX]. With the New Development Bank acting as a bargaining chip or alternate fiscal union to the International Monetary Fund and the World Bank which are largely biased towards the west and have an asymmetry of voting rights against developing countries, recently a number of other developing countries and non-signatories to the Bretton Woods agreement have shown interest in the New Development Bank. However, there are a large number of challenges that the New Development Bank faces. Firstly, the New Development Bank still has fewer countries than the Bretton Woods institution and cannot potentially thwart a global financial crisis or its ripple effects. Secondly, the BRICS countries lack transparency and this is reflected in the New Development Bank too as its internal functioning is still blurry and this has seen a backlash in terms of credit market ratings with international recognition still not being given to the bonds of the New Development Bank. Thirdly, the capital outflows of the New Development Bank has been largely inconsistent and the provision for sovereign loans[X] and non-sovereign loans[XI] has seen a large asymmetry with private institutions in these countries often requiring loans but not getting it due to lack of trust. However, the New Development Bank still promises to be one of the institutions that can make the BRICS countries stick together and give them greater bargaining power on platforms such as the International Monetary Fund.
End of Road
There was a military standoff between India and China on the strategically important Doklam plateau which lasted for over 2 months. It brought the naïve notion that a comfortable political relationship between BRICS’ members was possible. Moreover, there have been recent attempts by China at creating a “BRICS Plus” model, which is essentially an attempt to integrate nations integral to its One Belt One Road Initiative into the BRICS. These incidents highlight how the foundational principles of BRICS – respect for sovereign equality and pluralism in global governance – are liable to be tested as the five member states pursue their national agendas.
There is a clear lack of traditional logic behind the coming together of the BRICS’ member states. They are dispersed geographically, their economies are in different stages of development and there is a fair degree of ideological friction between them. Moreover, unlike several other economic associations, BRICS does not seek to set up any common political or security architecture.
Keeping all of this in mind, the major concern right now is the fact that the members of this bloc face a lot of challenges, some of which stem from the fact that China alone has lived up to the expectations of growth professed by Jim O’Neill in his Goldman Sachs paper[XII] and as a result, it tries to dominate the BRICS arrangements.
[I] Syamantak Sen, 2nd Year B.A.LL.B(Hons.) Student at National Law Institute University & Satadru Bhattacharya, 3rd Year B.A. Economics(Hons.) Student at Jadavpur University.
[II] O’Neill, J., “Building Better Global Economic BRICs”, Goldman Sachs Global Economics, Paper No. 66, 2001.
[III] Ministry of Finance, Government of India, “Economic Survey 2017-18”, January 2018.
[IV] Organisation for Economic Co-operation and Development, “OECD Economic Surveys: Brazil”, November 2016.
[V] Organisation for Economic Co-operation and Development, “OECD Economic Surveys: Brazil”, November 2017.
[VI] The term “Stagflation” is used to refer to the stagnation of the economy accompanied by very high inflation.
[VII] World Bank Group, “Russia Economic Report”, 39th Edn., May 2018.
[VIII] Arora, V., “Economic Growth in Post-Apartheid South Africa: A Growth-Accounting Analysis”, 2005.
[IX] Press Trust of India, “NDB invests $1.5 billion in 7 projects in 2 years of Operation: Kamath”, April 1 2017, https://www.thehindubusinessline.com/money-and-banking/ndb-invests-15-billion-in-7-projects-in-2-years-of-operation-kamath/article9611707.ece
[X] “Sovereign Loans” are used to refer to the loans taken by a nation’s government.
[XI] “Non-Sovereign Loans” are used to refer to the loans taken by the private institutions in a nation.
[XII] Supra note II.
This post has been co-authored by Syamantak Sen, a second-year student at NLIU Bhopal and Satadru Bhattacharya, a third-year student at Jadavpur University.
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