BRICS: The new emerging economic power pros and cons

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The Fourth BRICS Summit, hosted by New Delhi for the first time this year, looks like another milestone in a short, yet, impressive record of the fast-growing informal block of major emerging economies which includes Brazil, Russia, India, China and South Africa. The theme of the summit, formulated as “BRICS Partnership for Global Stability, Security and Prosperity”, spells out the ABC of the globalized and increasingly interdependent world as seen by the leading non-Western powers. In fact, the summit motto in itself describes what BRICS – be it a block or an alliance – is all about after six years into its existence.

No longer an enigma or geopolitical UFO, BRICS is making headlines as it rapidly evolves into a new global powerhouse with more say in restructuring the world economy, as well as in ending the political monopoly of the elite club (a club notorious for its division of the world into the West and the rest).

At first sight, BRICS, as a lose amalgamation of the five fast-growing economies, can really be described as an awakening giant. Young and ambitious, it’s come into a world of obsolete institutions with the guts and verve needed to shift global power structures and change the rules of the game.

Does BRICS have the potential to do this? If you look at BRICS in terms of statistics, the question seems irrelevant. In his recent article, contributed to the Moscow News daily, Prime-Minister Putin shares his vision on the matter: “BRICS brings together five countries with a population of almost three billion people, the largest emerging economies, colossal labor and natural resources and huge domestic markets. With the addition of South Africa, BRICS acquired a truly global format, and it now accounts for more than 25% of world GDP.”

“When BRICS is really up and running, its impact on the world economy and politics will be considerable,” Putin predicts.

According to Brahma Chellaney, Professor of Strategic Studies at the New Delhi-based Center for Policy Research, BRICS “might also be dubbed the R-5, after its members’ currencies – the Brazilian real, the Russian ruble, the Indian rupee, the Chinese renminbi and the South African rand.” And let me add that if one day, say, the Chinese renminbi is endorsed as the new global currency, it will undermine the US dollar’s supremacy in the world financial structure, especially when it comes to trade and investment in emerging markets. No surprise, seeing that impatience to put an end to the Us dollars world monopoly prompted the South African government to say it was ready to discuss the issue at this week’s BRICS summit. It goes without saying that switching from the US dollar to the Chinese renminbi will help African businesses, seeing that a lot of their trade is with BRICS countries.

While some will call the idea to make the renminbi the preferred global currency premature, another proposal – to create a common development bank for the BRICS countries – has already topped the Delhi summit agenda. Initially a brainchild of India, the initiative to set up a five-nation bank is due to get a much-wanted stamp of approval on the part of BRICS nations at the Delhi summit itself.

And it won’t just be a mere formality. Once set up, the BRICS development bank will give the green light for indirect investment of central bank foreign reserves inside the BRICS countries. It is reported that the BRICS bank could issue convertible debt, which can be bought by central banks of all the BRICS countries. So, in practical terms, for it will serve as a vessel for investment risk-sharing for BRICS countries

As seen by financial analysts, the proposed BRICS bank is a way for emerging nations to try and pull out of the western dominated World Bank and IMF. “Basically India, China and perhaps Russia are now trying to show off their economic clout; to prove to the West they can get on just fine on their own. Above all, they need freedom from Western financial influence,” John Mashaka, an expert with Wells Fargo Capital Markets, said.

In the meantime, Moscow sees its way to set up a new trend to allow developing economies to increase their role in international financial institutions. As Russia’s presidential aide Arkady Dvorkovich put it on his way to New Delhi, “BRICS should play a more important role in the management of international financial institutions”. While BRICS had already injected a large amount of capital into the IMF, some European countries still think the amount should be enlarged.  “Increasing the bloc’s participation in the IMF should be related to a rethinking of its share in the structure,” Dvorkovich said. All in all, if European countries need more capital from BRICS countries, the voice of BRICS’ in the IMF should be enhanced.

However, let us not allow ourselves to be overwhelmed with the euphoria over BRICS performance and regard it as an unbreakable alliance with five partners standing shoulder to shoulder to fight a Western monopoly in the global economy and world politics. The BRICS countries, which represent very different political cultures whose economic interests often clash, have certain limits to joint action, both in setting up the agenda of restructuring world financial bodies and in adopting common stand on the key geopolitical issues, like Iran or Syria.

Even the road to a common development bank seems to be more bumpy than was initially expected. While China claims it should have a permanent presidency in the BRICS bank, this approach will hardly be welcomed by Russia and India, which also demand the president’s chair.

Moreover, there is a serious, while not much-spoken economic rivalry and military standoff between the two key BRICS Asian members – China and India. Symbolically enough, just weeks before the Delhi BRICS summit, a group of Indian pundits, including well-known scholars, diplomats, military and public figures unveiled a report called ‘Nonalignment 2.0’. The report labels China as one of the major threats to Indian security and her economic interests.

According to the survey, while China and India were equal in economic size a few decades ago, the Chinese economy today ($7.3 trillion in 2011) is nearly four times as large as that of India ($1.8 trillion).

Describing the tense situation at the Sino-Indian border after the 1962 war, the authors insist that in its dealings with China, India should be ready for responding to any Chinese occupation of Indian Territory in a future border war “with a land grab of it own across the current border with China in Tibet”. While ‘Nonalignment 2.0’ is not an official New Delhi doctrine, such rhetoric hardly corresponds with the goals of enhancing global stability, security and prosperity, as proclaimed by BRICS’ leadership.

So, the future of the five-member body is probably not as cloudless as described by its global army of its fans all over the world, inspired by the idea of challenging a world order built on the bedrock of American imperialism. The question of whether a common will might prevail over national egoisms is still up in the air.

No doubt, that BRICS is a new giant, and this is good news. However, the bad news is that it is a giant with a quite limited capacity to run, as a heavy weight remains chained to its feet.

Sergey Strokan, for RT