BRICS, Steel, Mortar....and Money: Samir Saran and Vivan Sharan* 04 April 2012, ORF Analysis

With the Delhi Declaration, BRICS nations, which met recently in the Indian capital, have shown that they have the steel to stand up to traditional power structures, a cohesive vision to jointly respond to development challenges through institutionalisation of concrete mechanisms, and the determination to channel monetary power to strengthen markets, businesses and trade. The Declaration indeed gives insight into the gradual transformation of BRICS, from essentially a response mechanism crafted to address the various development challenges posed by the global financial crisis, to a forward looking entity seeking to enact and enable real global transformation. 

The Delhi Declaration extends over 50 paragraphs which are all encompassing in some sense and address many relevant themes for BRICS countries and the developing world at large. The Declaration is significantly more impressive and comprehensive than the 16 paragraph Joint Statement of the BRICS Leaders at the first summit held at Yekaterinburg in 2009 and the sketchy and macro statement of purpose at Sanya last year. The Action Plan within the Delhi Declaration consists of 17 steps which will deepen intra-BRICS engagements. There are three prominent narratives that define the Delhi Declaration - reaffirmation of the UN framework for global governance, disappointment with financial regimes shaped in the mid 20th century and a confidence to tap into economic opportunities that exist within BRICS.

The Delhi Declaration has stamped the intent of BRICS nations to coordinate and collectively respond to global security challenges within appropriate frameworks that give precedence to fundamental principles such as international law, transparency and sovereignty. BRICS members have recognised and re-emphasised the centrality of the UN in dealing with regional tensions and they have explicitly outlined this for specific cases including the Arab-Israeli conflict, the Syrian imbroglio and the contentious Iranian nuclear programme. 

The Declaration unambiguously states that "plurilateral initiatives" that go against the fundamental principles outlined earlier, will not be supported by BRICS. The Declaration is clearly against actions such as asymmetric trade protectionism, unilaterally imposed sanctions and taxes imposed on businesses. The EU's Aviation Tax is one such example from contemporary policymaking. In terms of trade, there is strong emphasis on operating within legal instruments such as the WTO and institutions such as the UNCTAD for furthering the inclusive development efforts through consensus and technical cooperation.

The aftershocks from the financial crisis are still a cause of concern to the BRICS nations. The pre-occupation with Europe has distracted attention from the social transformation programmes and poverty alleviation efforts among BRICS members. The Delhi Declaration has spelt out the "immediate priority" of restoring market confidence and getting global growth back on track. The steps to address such concerns will include attempts to rebalance global savings and consumption, furthering of regulatory and supervisory oversight in the financial markets, increasing the voice of developing and emerging nations in global financial governance and the institutionalisation of financial mechanisms to redirect existing capital to tackle development imperatives. 

The BRICS members have therefore announced a working group led by the Finance Ministers of the individual nations, in order to examine the "feasibility and viability" of a BRICS Development Bank. When formed, such an institution will likely be able to shift and contextualise the development discourse within and outside BRICS and therefore is one of the most significant actionable outcomes. It is evident that such a multilateral institution is not meant to compete with existing ones, but rather, to enhance lending and investment to create sustainable development trajectories. Contrary to expectations several high ranking Chinese policymakers, including the Assistant Foreign Minister, Ma Zhaoxu, have supported the idea.

The BRICS members have clearly outlined that the purpose and nature of Bretton Woods Institutions such as the World Bank, must shift from being essentially a mediation instrument to enable North-South cooperation, to one which can actually prioritise "development issues" and overcome the "donor-recipient dichotomy". They have also called upon the World Bank to mobilize greater directed resources and enable development financing at reduced costs through financial innovations and improved lending practices. Indeed for BRICS, the focus on World Bank and IMF reforms has remained constant through the years, yet the Delhi Declaration articulates these concerns more lucidly than ever before.

Given that intra-BRICS trade has been consistently on the rise over the past decade, BRICS Leaders have endorsed the conclusion of the Master Agreement on Extending Credit Facility in Local Currency under the BRICS Interbank Cooperation Mechanism and the Multilateral Letter of Credit Confirmation Facility Agreement between their respective EXIM/Development Banks. Such steps to mitigate market risks and enable local currency transactions will only add to the existing momentum and build resilience in BRICS economies to global business cycle fluctuations and exchange rate volatilities. Notably, BRICS have also endorsed the market led efforts to set up a BRICS Exchange Alliance between the major stock exchanges of BRICS, which will enable investors to efficiently allocate capital across BRICS economies and invest in the BRICS growth story. 

The unity and purpose of BRICS has been the target of speculation and scepticism from various quarters. With the Delhi Declaration, BRICS members have been able to assuage such doubts as they have begun to create a credible hedge against traditional global narratives of security and development. They have simultaneously been able to project that there is resolution within the group to deal with issues that are not only of immediate concern but even those that will need attention in the future. The Delhi Declaration paves the way for the institutionalisation of BRICS cooperation, making BRICS a significant transcontinental and politically united force. In Sanya BRICS spread wide to include South Africa; in Delhi they went deep to include substance. 

(Samir Saran is Vice-President and Vivan Sharan an Associate Fellow at Observer Research Foundation. The Foundation hosted the BRICS Academic Forum in March this year)

Quoted in Times of India, 1 April, 2012.

http://articles.timesofindia.indiatimes.com/2012-04-01/special-report/31270010_1_brics-robert-zoellick-world-bank/2

Power of 5

Far from Delhi's decked-up roundabouts and sanitised hotels, Robert Zoellick was aboard a boat on Wednesday, crossing the river Bhitarkanika on his way to a village in Orissa. After greeting the villagers with folded hands, the World Bank president sat down to talk to a global news agency. A few stock questions later, the Bank chief turned his attention to the proposed BRICS bank. "It's a complicated venture which will have a hard time getting off the ground and match the expertise of the World Bank," Zoellick said.

It was hard to miss the symbolism of Zoellick's foray into a dark corner of India and raise doubts about a new development bank just one day before the leaders of Brazil, Russia, India, China and South Africa (BRICS) met in the Capital to thrash out the nitty-gritty of the Delhi Declaration. It was clear that the Bank didn't want a new global rival that couldn't be controlled from Washington.

But by Thursday evening, BRICS leaders had proposed to trade among themselves in their local currencies, made significant progress on the setting up of the new development bank, expressed their concern at the slow pace of quota and governance reforms in IMF, and decided to abide by UN sanctions and not the unilateral ones imposed by the US and European countries on Iran and Syria. "We wish to see these countries living in peace and regain stability and prosperity as respected members of the global community," the declaration said.

This was a giant leap forward, much more than what skeptics like Zoellick had expected. In the days leading to the summit, the air was thick with negativity. "What do they talk at these summits? It's just a talk shop and a photo op," an American diplomat had said, making no effort to hide biting sarcasm. The same day, an op-ed piece in the New York Times argued that the focus of the new bank was misplaced. "It is the fundamental incompatibility of the BRICS nations , not their lack of organisation, which prevents this collection of emerging economies from acting as a meaningful force on the world stage," the op-ed said. In this western worldview, BRICS is an idea whose time hasn't come.

By Thursday evening, however, the mood at the summit was upbeat, with ministers, diplomats, businessmen and journalists smelling a change in the air. "BRICS is not an idea. It's already a reality. The balance of the existing global order is tipping," says Jackson Schneider, vice-president of Embraer, the Brazilian aviation giant. "If BRICS has no force, why is the NYT wasting so much ink and time on us?"

The problem with the view from New York is that it ignores ground reality. Today, the BRICS countries account for 25% of global GDP based on the purchasing power parity of national currencies; 30% of land area and 45% of the world's population. The bloc's contribution to global economic growth has now reached almost 50%, making this group the principal driver of global economic development. "Last year, trade between the BRICS countries stood at around $230 billion and we are targeting $500 billion by 2015. We all are important countries in our respective regions and we want the world architecture to be more inclusive," says MariaReis, the top Brazilian diplomat for BRICS affairs, also known as the 'BRICS Sherpa'. "We are not against anyone but we want changes in terms of transparency in global affairs."

Signs of change are already there. On the morning of the meeting, the Syrian prime minister sent a letter to his Indian counterpart Manmohan Singh about the situation in his country and his government's commitment to the peace process. By evening, the BRICS leaders had taken a collective and clear stand: no foreign interference in Syria. "By making clear that issues likeSyria, Iran and Palestine-Israel dispute be resolved within the UN framework, the BRICS leaders have moved from plain rhetoric to specific areas, and have also given a message to those countries which tend to act unilaterally outside the UN framework. It's a huge development," says Vivan Sharan, an associate fellow at the Observer Research Foundation which hosted the BRICS academic forum this month in preparation for the summit.

Experts like Sharan see the Delhi summit as a success in terms of the changing global order. "They have demanded specific reforms in the IMF-World bank structure. Now Exim banks will be able to give loans to each other in local currency. This is deepening of financial integration. Even on the issue of a development bank, it's a win-win situation for everyone. This summit has cleared a lot of noise and confusion," says the ORF expert. "I don't see any major obstacle in the creation of the BRICS bank."

The bank, according to participants in the summit, is now a question of when and not if. This can fundamentally change the existing world order. "According to the West, in the global village, the Chinese manufacture , the Indians provide services, the Brazilians do farming, the Russians supply oil, and we are a source of cheap labour. But, not anymore," says a South African diplomat. "Because of our history, the entire African continent is looking at the BRICS bank."

If BRICS has become a force to reckon with, it's because of the hard work done by a lot of people. Contrary to the perception that BRICS leaders meet once a year to click some snaps together, the members have already put in place a number of mechanisms to deepen their cooperation. In the past couple of years, there have been a number of meetings between BRICS ministers for trade, other ministers for agriculture, health, and a contact group on economic and trade issues. "The BRICS countries today comprise new growth poles in a multipolar world," says Sudhir Vyas, secretary (economic relations), in the ministry of external affairs and the Indian sherpa for the summit.

Though the BRICS countries have been meeting and talking for the past eight years, they realised their power only in 2008, when the western economies began to wobble. "During the financial crisis, the BRICS countries played a vital role as drivers of growth that helped the global economy. They are not a threat to global growth, but an opportunity for global growth," says Vyas. Despite suspicions in the western capitals, no one in BRICS is seeking confrontation . "We need very much the euro zone to recover. No one wants this crisis to aggravate," says Maria Reis of Brazil.

Of course, there are challenges ahead, even misgivings . But everyone is willing to give BRICS a chance. Li Zhongmin, an expert on the grouping at the Chinese Academy of Social Sciences, says it was essential for their future for the members to "finance each other's infrastructure projects, internationalise their currencies , provide trade credit to each other, ease visa norms and encourage investment in each other's country."

All this was achieved at BRICS 2012. Now the next step should be the creation of an institution -a new global bank -that holds the grouping together. "Foremost amongst the reasons for the creation of the institution is the need for BRICS to assume pole position in global financial governance,'' says Sharan of ORF.

On Thursday evening, the delegates were confident that the bank will be a reality sooner than later. It could be real good news for India, which was the first country to propose this bank.

On Friday, Zoellick landed in Delhi, met ministers and businessmen and told them how the World Bank "can help India meet the challenges ahead."

Zoellick is going to retire soon. Is he trying extra hard to sell an idea whose time may be up?