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.