BRICS Summit

The 5^th BRICS summit was held last week at Durban and culminated into the eThekwini declaration. The declaration was able to raise a few eyebrows by declaring negotiations for a Development Bank (Para 9 eThekwini Declaration) within the BRICS and the formations of a Contingent Reserve Arrangement (CRA) (Para 10 eThekwini Declaration). Both these moves signify not only a flexing of muscles of an ever growing BRICS faction but also a show of reduced dependency on international financial institutions (IFIs) such as the IMF, World Bank, etc. This also means that BRICS is evolving from a set of inward looking individualistic nations to ones that are experimenting with looking after one another as a group. This helps in entrenching themselves against adversaries in world trade.

The BRICS nations have also been trying to reduce dependency on the US dollar and the Euro for a while now; a fact illustrated by the side agreements signed between China and Brazil for trade worth billions of dollars in their local currency. Indeed, China has for some time now insisted on a single international currency.

The BRICS certainly have ample justification to be taken notice of. According to the UNCTAD website, FDI into BRICS nations reached $263 billion last year. This accounted for 20% of all global FDI flows last year – a significant increase from a mere 6% in 2000. The numbers also contain an increase in outward FDI flow of these countries from $7 billion in 2000 to $126 billion in 2012 signifying that these countries have evolved into economies that are not merely satisfied with inward FDI anymore, but rather are mature enough to invest significantly outside national borders. The BRICS nations collectively account for 25% of the global GDP as well as a little over 40% of the global population. 

This has indeed resulted in a political clout in the international arena, which the individual nations could not have had on their own (with the exception of China perhaps). The recent diplomatic row between India and Italy, concerning the trial of two Italian marines, is an example of such political muscle power. A goodwill gesture by India to allow the marines to go back to Italy for Christmas on the promise of their return to continue their trial, turned sour when the Italian government reneged on their promise to return the marines. The following few weeks witnessed a massive diplomatic row, the Italian governments reversing their earlier stand, the resignation of the Italian Foreign Minister Giulio Terzi and a national headache for the Italian Prime Minister Mario Monti. Monti later revealed to the Italian Senate that it was not just the threat of an economic and political backlash from India but the BRICS nations as a unit that compelled Italy to fall in line with their obligations.

Nations previously comfortable in their political position of power within international politics are rudely waking up to a new and powerful faction in a post-crisis world that is not only unafraid to stand up for their rights but to go so far as to bully nations into seeing things their way. The Italian Marines incident was a sign of the growing unanimity between the BRICS nations as is the Development Bank and the CRA.

However, as the BRICS themselves admit (see Para 13 of the eThekwini declaration), institutions such as the World Bank, the International Monetary Fund and the UN Security Council are not changing fast enough to reflect their new-found muscle. Even today the president of the World Bank and the managing Director of the IMF is from the U.S. and Europe respectively.

One, however, cannot help seeing the similarities between the organizational evolution of BRICS and the

post war Bretton Woods dynamics (The World Bank and the IMF emerged from the Bretton Woods

discussions). Both sets of international discussions rode an economic turmoil (post-war depression for Bretton Woods and the economic crisis for the BRICS) and disillusionment of the previous regime. Although the Bretton Woods discussions were held between 44 sovereign nations, the booming voices were primarily those of the US and to a lesser extent the UK and other allied countries (all hiked up on post war hysteria of the winning side). Similarly, BRICS can arguably be considered the survivors of the economic crisis (that is to say, they were less scathed) and political and economic frontrunners in their own right.

If the BRICS have aspirations of world leadership however, then they must learn from the grievances arising from the Bretton Woods institutions. Inequitable power distribution is a myopic way of thinking. The veto powers found in the Bretton Woods institutions of IMF and the World Bank and even in the UN are misrepresentative of a modern politico-economic dynamic. This is still a dangerous possibility given China’s economic superiority within BRICS.

Secondly, one must be ever cautious of tying exchange rates to a single currency. The entire Bretton Woods system of tying exchange rates to the dollar, which in turn was tied to gold reserves, was flawed. This became transparently clear when President Nixon severed the link between the dollar and gold in 1971 and the Bretton Woods system collapsed. This was the start to a fresh batch of inflation, stock price volatility and rising oil prices and one which (if one was to disallow arguments of proximity) may still be affecting international economics.

The BRICS must also remember that they are transitional economies and not post war winners filled with the confidence and the authority of a nation that has just won. The problems of the developing world are different. Moreover, the BRICS must also cautiously consider that the world is slowly waking up to a hangover from western dominance, and not be too hasty in policy and decision making, just to prove a point.

Also the dynamics themselves are different today and (if one is to learn anything from the past) ever changing. Russia, a previous world leader (in the form of the USSR) is now a transitional economy. China, on the other hand is fast being recognized as one of the heads of a bipolar world. That in itself is paradoxical (or at the very least confusing) because it means that a head of an emerging international scenario is a developing/transitional economy with problems of its own and the complexities of a nation that is still in a materialistic stage of its societal evolution.

One must also remember that the BRICS are not as unified in every way as the world might perceive them to be. Tibet continues to be a major bone of contention between India and China, as do the regions of Aksai Chin and Arunachal Pradesh. Brazil and China often flare up on monetary policy, and only recently China opposed a Brazilian proposal that WTO rules could deal with currency misalignments.  Diplomatic rather than military intervention in Iran finds a political common ground in Russian, Chinese and Indian policy but the Syrian regime produce differing views. It is noteworthy however, that differing views did not prevent the BRICS from issuing a joint statement on Syria (Para 26), Palestine (Para 27), Iran (Para 28) and Afghanistan (Para 29) in the eThekwini Declaration.

It is easy to forget but essential to remember that the BRICS is a grouping of culturally and economically diverse countries that is only 5 years old. In such time they have risen to be a significant political and economic group that rubs shoulders with previous and present powers. Teething problems aside, it is still a remarkable and thoroughly exciting grouping. 

Triangle of Coherence

For some time now Pascal Lamy has been propagating his idea of ‘the Triangle of Coherence’ in Global Governance.  At a time when Lamy’s term at helm of the WTO is about to end this might well be the sound bite legacy he leaves the WTO with. A fairly broad governance model, it describes a global institutional triumvirate of the UN, the G20 and International Organizations (such as the WTO). Lamy has used this model often to enhance the notion of a need for a stronger global structure of cooperation and coordination in the various global scenarios.

Whether it be as a solution for bringing some form of coherence to a confusing global structure, especially in a ‘post economic downturn’ world (Warwick 2009), or as a counter to economic recession and global environmental problems through a strong global governance network (New Delhi 2009), Lamy’s ‘Triangle of Coherence’ seems to be ever present. It must be noted however, that although Lamy mentions the triangle when in need of a model of a coherent global institutional nexus, he does not always mention the need FOR the model. Rather he stresses on the eventuality of it. In other words, whether we like it or not, according to Lamy we are heading for such a structure.

Frankly, it is not a bad model of global governance. What it states is that the inherent characteristics of good governance are leadership, legitimacy and efficiency. In the ‘Triangle of Coherence’ these are provided by the G20 (Leadership), the UN (Legitimacy) and international institutions such as the WTO (Efficiency through expert knowledge). At the UN General Assembly in 2011, Lamy argued that there really isn’t any alternative to ‘Globalizations’ other than ‘Better Globalization’ and refers to his triangle as a policy model in that general direction. However there are certain flaws – perhaps not with his model itself, but with the institutions designated to perform the three requirements of governance.

Let us first look at the idea of the G20 performing the role of the leader. Lamy recognizes the G20 to be more ‘inclusive’ and ‘representative’ than the G8 and therefore ‘much more legitimate’. However, by discussing the comparative legitimacy of the leadership of the G20 over the G8, Lamy has inadvertently acknowledged legitimacy to be an issue indeed. One must recognize that this is only a comparative improvement of the ‘legitimacy of a leader’ in global governance. The question will always be asked – what right does a group of 20 nations have to dictate the policy direction of a globalized planet of over 200 sovereign states? Should economic supremacy be the sole criteria for global leadership?

The reality is that even though economic supremacy may not be the most efficient or the most authentic choice of leadership, it is certainly a more coherent one. It is perhaps in the same spectrum of humanity’s psyche as the determination of individual success through a measure of wealth or power. In such circumstances, for want of a better system of determination this may remain a current solution.

Moreover by Lamy’s own admission “leadership at the international level is collective. Replacing the G8 with the G20, which is more inclusive and representative, was an important step, even though the G20 does not decide. It is not a world government, but it gives signals, impulses that matter for us all” (UN 2011). In other words the work of a global leader is not a coerced determination of world policy but rather guidance through suggestive cooperation (although the practicality of this statement is subject to debate).

In terms of Legitimacy, one is to look towards the UN, with its 193 sovereign members, to legitimize the leadership of the G20.  Although there is the potential for academic argument on whether the UN should legitimize the leadership of the G20, the commercial reality is they probably already are, whether bullied by the more influential nations or not. Ironically, this also dilutes the legitimacy of the UN, whether as a legitimizing tool for the leadership of the G20 or as a leader itself. The ability (and the image) of the UN being able to take decisions of World policy is heavily influenced by the interests of the more powerful nations. One merely has to look towards the Iraq war or even more recently the UN resolution in Sri Lanka’s Human Rights violations, to understand this dynamic. Moreover, the veto itself is an outdated post war hangover, indifferent to modern day economic reality. Nonetheless, it would be difficult to deny the UN its place as an international body, unique even just by its membership numbers.

Lastly, Lamy looks at international organizations for providing efficiency through expert knowledge. One is able to see the logic behind this allocation of responsibility, as the experts of a subject area would in all likelihood be at an organization pertaining to that subject – trade experts in trade organizations, environmentalists at an environmental organization, and so on and so forth. However, what of the times when there is an overlap of subjects? The WTO itself has often been accused of compromising dire environmental needs and turning a blind eye to human rights violations for the sake of trade. The recent CITES conference illustrated the fact that even in environmental organizations the original mandate of protection can be severely diluted by trade interests (Look out for my April article on the CITES conference in Kindle Magazine India).

Moreover, if international organizations are to perform the role of experts in their fields they must listen to experts outside the organization, such as NGOs and private interest groups (something the WTO must do at a more regular basis), and involve them more in policy and decision making processes. As Lamy rightly identifies, “the challenge of global governance today is also about “networking” institutions in a better way in order to align the global governance structure that emerged from WWII with today’s growing interdependence” (UN 2011).

A common theme throughout recent speeches has been a fear of ‘de-globalization’ (see the introductory post to this blog). It is perhaps this fear that has led to recent effort to reinvigorate the drive for multilateralism. Yet as Lamy correctly identifies, the true salvation of multilateralism lies in ‘localizing global issues’ (Oxford Matin, UK 2012) and avoiding ‘remote global governance’ (Bilkent University, Turkey 2013). However, such a sense of belonging, of community, of solidarity, based on common values does not yet exist on a global scale. (UN 2011)