How bankable is the BRICS grouping?
Chief Copy Editor, The Financial World
THE SPRING meetings of the International Monetary Fund (IMF) and World Bank are over. The purpose is more or less achieved as the IMF has received commitments from several nations for more than $430 billion in additional funding to its Eurozone bailout fund. However, the whole episode needs to be looked at closely to understand what actually happened during the fundraising. This will also show the increasing importance of India and other emerging nations on the global economic platform.
Most of the participant countries openly supported the drive and vowed to contribute to boost the financial strength of the global lender, except the US, Canada and BRICS (Brazil, Russia, India, China, and South Africa) nations. While the debt-ridden US, the largest IMF shareholder, said the international financial institution already had adequate resources, Canada said that Europe should be able to assist itself in a greater capacity. As for the BRICS, it did support the cause but declined to divulge the amount the bloc will contribute. The BRICS which account for 43 percent of the world's population and 18 percent of global trade — has repeatedly criticised the IMF for its slow pace when it comes to reforms. A joint statement released after the BRICS leaders met in India in March called for an urgent need to ‘enhance the voice and representation of emerging market and developing countries’ at the IMF. This kind of appeal is not new for the global lender. But apparently this time, the fund’s chief Christine Lagarde has no other option but to lend an ear. After all, the BRICS which attracts 53 percent of global financial capital is now a major source of cash. Moreover, it has threatened to set up a new international bank which ‘better reflects today's global pattern of economic power.’
To add fuel to the fire, Pranab Mukherjee proposed setting up of a working group on the feasibility of the BRICS developmental bank on the sidelines of the spring summit. Other nations of the bloc have supported the move. But how practical this proposal would be is yet to be assessed fully. How can a bloc, where most of the member countries are themselves buried under debt, offer credible financial solutions? India, for example, owes about $42 billion in various loans that include $300 million from the World Bank and need to be repaid from November 2017 until 2042. Secondly, none of the BRICS countries have themselves built up proper national economic development capacity per se and still rely on non-governmental organisations and multilateral institutions for financial advice.
It has a way to go before it becomes a real factor in global affairs
Leadership would be yet another hurdle in the formation of a regional bank. The coming together of China and India in a grouping such as BRICS does not signal any shift in their more vexed political equations. While China may ask for the leadership role because of the amount it would be contributing to the institution, India and Russia would most likely oppose the request. Moreover, China would have to adjust its monetary policies as well as revise some of its trade strategies. Again, to be able to borrow from the international market at a rate as competitive as the one availed by the World Bank, the BRICS bank would need a triple-A rating, which won’t be easy for a new institution in the current global economic scenario.
To sum up, the group has some way to go before it becomes a real factor in international affairs. But this initiative would certainly put pressure on global lenders such as the IMF, World Bank and Asian Development Bank to operate more efficiently and transparently.
The opinions expressed here are the author’s own.