Has the emergence of BRICS had an impact on IBSA, was the question posed by Mr M Ganapathi, former Secretary (West) in the Ministry of External Affairs (MEA), Government of India.
"Has the emergence of BRICS had an impact on IBSA," was the question posed by Mr M Ganapathi, former Secretary (West) in the Ministry of External Affairs (MEA), Government of India. He opined that following the emergence of BRICS, IBSA might not be making news. At the same time, he emphasised that IBSA has not lost its relevance.
Mr Ganapathi was initiating a discussion on "Where from here BRICS, Whither IBSA?" at the Chennai Chapter of Observer Research Foundation on August 9, 2014.
Similar, yet not identical
Mr Ganapathi recalled that the acronym "BRICs" with the small letter ’s’ had been formulated by Jim O’Neil of Goldman and Sachs in 2001 to make the world aware of the potential and growth prospects of a group of countries viz. Brazil, Russia, India and China. The small ’s’ was transformed to its capital state by the inclusion of South Africa in the grouping leading to the current grouping known by its acronym "BRICS". There have been five earlier BRICS Summits at Yekaterinburg (2009); Brasilia (2010); Sanya (2011); New Delhi (2012); and Durban (2013) to complete a first round of Summits. The second cycle of Summits commenced with the recently held Summit at Fortaleza, Brazil on July 15-16, 2014.
Beginning from a purely economic concept following the Goldman Sachs report, BRICS today can be seen as an important driver in the politico-economic sphere among the comity of nations. It has made impressive strides since its first Summit in 2009. It has witnessed enhanced cooperation among its members and has coordinated its approaches on many a global issue. The significance of BRICS was also substantially enhanced due to the presence of Russia and China, both permanent members of the UNSC. The BRICS nations collectively represented 26% of the landmass of the world and 46% of its population. They collectively contributed to 18% of the global GDP. Intra-BRICS trade had gone up from US$ 27 to 276 billion in the decade since 2001, while their share in international trade had gone up from $ 4.7 trillion in 2009 to $ 6.1 trillion in 2013.
Turning to IBSA, Mr. Ganapathi said that IBSA was a unique Forum, set up in 2003, bringing together India, Brazil and South Africa, three large democracies and major economies from three different continents, facing similar challenges. All three countries were developing, pluralistic, multi-cultural, multi-ethnic, multi-lingual and multi-religious nations. He noted that five IBSA Summits have been held so far in Brasilia (2006); Pretoria (2007); New Delhi (2008); Brasilia (2010) and Pretoria (2011). The 6th Summit will be held in New Delhi in 2015 – it will commemorate the 10th Anniversary of IBSA and will also see the completion of the second cycle of IBSA Summits. While the meeting of BRICS Leaders is termed Summits, the IBSA Meeting of Leaders is called the Dialogue Forum.
Mr. Ganapathi spoke at length on the different mechanisms in the working of IBSA and BRICS. He also elaborated on the IBSA Tshwane Declaration of 2011 and the BRICS Fortaleza Declaration of 2014.
After referring to the salient political issues reflected in the BRICS 2014 Fortaleza Declaration, Mr. Ganapathi mentioned the call for reforms in the global political and the financial institutions. He touched upon the need for UNSC reform and the creation of a post-Bretton Woods system to reflect the current realities in international financial institutions.
Thereafter, he referred to the two significant announcements of Fortaleza – The Agreement on the setting up of the New Development Bank (NDB) and the Agreement on the creation of the Contingent Reserve Arrangement (CRA). He also mentioned the Memorandum of Understanding on Cooperation among BRICS Export Credit and Guarantees Agencies to improve the support environment for increasing trade opportunities among members and the Cooperation Agreement on Innovation within the BRICS Interbank Cooperation Mechanism.
Mr. Ganapathi said that the idea of the Bank had been initiated at the G-20 Seoul Summit by India and conceptualised at the BRICS New Delhi Summit. It had been accorded approval by the BRICS Leaders at the Durban Summit for delivery at Fortaleza. The Bank reflected India’s vision for an international development bank and the name New Development Bank had been suggested by India. The Bank would establish a new paradigm in line with the experience and challenges of developing countries. After the conclusion of the debates, it was decided that the Bank’s Headquarters will be Shanghai, the first Presidency for a period of five years will vest with India, the first Board of Governors will be chaired by Russia and the first Regional Office for Africa will be based in Johannesburg. The outcome can at best be described as pragmatic optimism.
The speaker said that the concept of the Bank had been conceived with an intention to provide a viable, alternative and additional source of long term finance for infrastructure and sustainable development projects for not only BRICS members but also for other emerging economies and developing countries which had been finding funds from international financial institutions for their development needs hard to come by or with too stringent and unacceptable conditions.
Mr. Ganapathi noted that India’s suggestion of equal shareholding by all BRICS members had been accepted. The initial subscribed capital of the Bank will be US$ 50 billion and the initial authorised capital US$ 100 billion. He thereafter elaborated on the Articles of the Agreement of the Bank including the mechanism for payment of the initial subscription by the founding members.
Third World forum
The conceptualisation of the Bank had been necessitated by the slow, if not negligible pace in reforms of the IMF quotas and voting rights. Despite arriving at an agreement on redistribution at the Seoul G-20 Summit, the issue was stuck in the US Congress since 2010, Mr Ganapathi recalled. BRICS member-nations together have less than 11% of the votes at the IMF and China, even though as the second largest economy in the world, had fewer votes than the Benelux countries.
Supplementing, and not duplicating
Despite reports of the Bank competing against the established institutions, Mr. Ganapathi emphasised that it would complement the existing efforts of multilateral and regional financial institutions. He also recalled the words of World Bank Head Jim Yong Kim, who during his visit to New Delhi had welcomed the NDB and seen it as an additional source of funding not as a competitor but as a supplementary institution in the fight against poverty. This was important, as the capital outlay of the NDB was $100 billion capital – small in comparision to the Asian Development Bank (ADB) or the World Bank with their capital base of $165 billion and $232 billion, respectively. Mr. Ganapathi also referred to the recent Chinese idea of an Asian Infrastructure Investment Bank.
However, the NDB could be useful for the development needs of smaller countries in Asia, Africa and Latin America – as the terms of the NDB for funds may be easier and flexible than those offered by the World Bank or other regional banks. At the same time prudence would dictate that the Bank applied norms which would allow for good banking practices.
Mr. Ganapathi also gave an overview of the Contingent Reserve Arrangement (CRA) which would have an initial size of US$ 100 billion. Contributions will be spread as China ($ 41 million); India, Russia and Brazil ($ 18 million each); and South Africa ($ 5 million). The CRA was a framework for the provision of liquidity through currency swaps in response to actual or potential short-term balance of payments pressures. It will have a positive precautionary effect and help countries forestall short-term liquidity pressures. It will complement existing international arrangements. In the context of the CRA, the speaker also referred to the Chiang Mai Initiative.
When asked about the dominant share of China in the Contingent Reserve Arrangement and its implications on India, Mr Ganapathi replied in a lighter vein that India need not fear the dragon — and the fire from the Chinese dragon could be withstood by the Indian tiger.
Before concluding, Mr. Ganapathi spoke on Prime Minister Modi’s bilateral meetings with each of the BRICS Leaders and his interaction with the Leaders of the South American States who had been invited for the Conference of Leaders of BRICS and South America. He said that the Prime Minister’s first formal multilateral meeting was a tremendous success. So were his bilateral engagements with the four other BRICS Leaders.
The discussion was chaired by Mr. M.R. Sivaraman, former Revenue Secretary, Government of India.
(This report is prepared by Gururag Kalanidhi, B.Tech Chemical Engineering)