When the mood the world over is grim and there is a smell of recession in the air, the BRICS leaders are going to gather in Goa for their eighth annual summit to reaffirm their cohesion and strength as a group and decide on an agenda for action. The summit will take place on October 15 to 16 2016.
Apart from the people to people contact that Prime Minister Narendra Modi has emphasised in the last BRICS summit, through more trade fairs and cultural festivals, the real purpose of BRICS has to be brought out clearly — which is to remain a challenger of the existing long standing power of the developed countries (G8) in the world economic order.
The G8 has dominated the world for the past decades and has set up the existing financial structure which is today lacking in many ways and requires urgent reform. The BRICS may be in trouble today, but they have tremendous clout in terms of population, GDP and natural resources. The western countries recognised this and have been watching the BRICS’ progress ever since its inception in 2008. When they saw the perceptible decline in recent years brought about by crashing oil and commodity prices, they were quick to tell the world that the BRICS as a grouping is dead. It followed that there was no alternative to their rule over world financial and trading systems.
People noticed the decline of the BRICS when its investment was closed by Goldman Sachs after the assets declined in value by 88 percent from 2010 peak. More than $500 billion was withdrawn from the stock markets of the member countries between 2013 and 2015. The contribution of BRICS to global growth decreased from 50 percent in 2013 to 36 percent in 2015. Obviously BRICS have slowed down and all except India are facing severe economic problems. The contraction of GDP is highest in Brazil and it is facing a deep recession. China too is slowing down as well as Russia especially with oil revenues shrinking and the western sanctions still in place after its annexation of Crimea in 2014. It is up to India to try and bring the group together by giving it hope and encouragement through a concrete agenda for action.
Despite problems, BRICS have managed to activate the New Development Bank in Shanghai and our own Canara Bank has got its first loan of $250 million from it for renewable energy projects. Other member countries have also received similar loans. It is only the beginning because next year more loans can be given. The NDB will over time become a source of finance for many developing countries badly in need for infrastructure development. The loans will be sans ‘conditionalities’ and thus will be easier for the developing countries to cope with and pay off later. In short, it will be providing the much needed global public goods that the world needs.
The NDB board has recently approved the issuance of five-year bonds in Yuan. As Russian Finance Minister Anton Siluanov said: “ The bank will raise funds on the Chinese market and once it receives a rating from international rating agencies, it will tap international markets.” It is a big step forward in tapping the Chinese financial markets which have surplus funds.
Also, in the wake of uncertainty over Brexit referendum vote, which has upset the financial markets all over the world, there is again a surge in FIIs to the emerging markets even though they may be just waiting for the markets to settle down before they move out again. But investors and analysts are more and more viewing the EMs positively as lucrative destinations for their cash flows. The BRICS’ stock markets stand to gain as this tendency of global funds to move away from Europe to their markets becomes a reality and not just a temporary phenomenon. Since June 23< style="font-size: 13.3333px; line-height: 20px;">, around $20 billion capital inflow has been witnessed in the emerging markets.
The inflows would be stable if Russia shows stronger recovery and a smaller decline in its GDP and so also Brazil whose GDP contracted by 3.5 percent last year, but is expected to do slightly better this year.
Regarding the functioning of the IMF and its bias towards the EU and its member states, the BRICS wanted a better representation in the IMF through quota reforms but the reforms have yet to take place because US — the biggest member with a veto power — has not agreed to them. The IMF has at least agreed to include the Yuan in the SDR basket of currencies because of its importance in world trade. But Dollar remains the only reserve currency. There is no challenge to the supremacy of the Dollar.
In Internet and IT, the US still dominates, especially as far as global surveillance is concerned. This is of concern to the BRICS and they should find collective feet in this important area and have camaraderie in facilitating trade as well. Intra BRICS trade should be encouraged by reducing barriers, especially non-tariff barriers to trade. People should be able to move around among BRICS member countries with ease and without visa hassles. Only then can BRICS become important as an entity.
All the countries within BRICS are facing problems of unemployment and hence employment creation, building smart cities and urbanisation will be on the agenda for action. Poverty reduction among some of the member countries should also be emphasised, especially in India, Brazil and South Africa. Only Russia is a developed country among BRICS and has a high educational level among its population, but the rest of the members need to collaborate with each other in higher education and health, infrastructure, democratic institution building and drug control.
China and Russia are showing great solidarity in the disputed area of South China Sea. China has ruled out accepting the Hague Permanent Court of Arbitration’s decision and is going ahead with joint drill exercise with Russia in September. This area can also come up for discussion in the next BRICS summit. There is no doubt that India, Russia and China will dominate the Goa meeting. Hopefully a meaningful action plan can be realised.
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David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany
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