BRICS Leaders Eye Increased Coordination at Russia Summit
Leaders from the BRICS countries – Brazil, Russia, India, China, and South Africa – confirmed plans to begin financing infrastructure projects through their new development bank by early 2016, while also releasing an “economic partnership strategy” document to be reviewed every five years.
Meeting in the Russian city of Ufa from 8-9 July, leaders also confirmed that they will be directing their ministers or Sherpas to look into the potential feasibility of putting together a “trade, economic, and investment cooperation roadmap” through 2020.
In the years since the group began holding its annual summit, its members have been dogged by questions over whether they can form a true alliance, given the wide disparity in political circumstances and varying economic situations and interests.
These questions have grown particularly given Russia’s strained ties with many of its Western trading partners in the wake of the Ukrainian crisis, including the various economic sanctions it has faced as a result, as well as Moscow’s demotion from the G-8 coalition, now the G-7.
Leaders from the group have countered that the BRICS can provide a new approach, one that builds on the emerging economy perspective. The five countries together make up 40 percent of the global population and one-fifth of its economic output.
“BRICS can be a beacon of hope in a world of economic and political turmoil and upheaval because our initiatives are not only geared toward the member countries, but also toward the whole world, especially emerging countries,” said Indian Prime Minister Narendra Modi, according to a translated version of his remarks.
This year’s summit came immediately ahead of a meeting of the Shanghai Cooperation Organisation (SCO), a group that includes two BRICS countries – China and Russia – as well as Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. India and Pakistan are working to accede to the organisation.
An informal joint leaders’ meeting of these two groups was also held in Ufa, together with leaders of the new Eurasian Economic Union. The latter entered into force at the beginning of this year, and includes Russia, Belarus, Kazakhstan, and Armenia. (See Bridges Weekly, 5 June 2014)
Bank, currency pool
A year ago in the Brazilian city of Fortaleza, leaders had confirmed the launch of a new international development bank that would support infrastructure and sustainability projects in the BRICS and other emerging and developing economies. (See Bridges Weekly, 17 July 2014)
Last week, leaders said that this New Development Bank will begin financing its first investment projects in early 2016. A proposal has also been made for the bank to cooperate with both current and new financial institutions, they added, including the new Asian Infrastructure Investment Bank (AIIB). (See Bridges Weekly, 2 April 2015)
The BRICS bank will be headquartered in Shanghai, with the bank’s rotating presidency first going to K.V. Kamath of India. The vice presidents of the bank will come from the other four BRICS countries. A meeting of the bank’s Board of Governors was held just ahead of the summit.
The bank is set to hold US$50 billion in initial capital, which is set later to double to US$100 billion. China, with a planned contribution of US$41 billion, will have the largest voting rights in this bank, at nearly 40 percent.
The Contingent Reserves Arrangement (CRA), a US$100 billion currency pool, was another outcome of the Fortaleza meeting that is now entering into force. The CRA, Russian President Vladimir Putin said last week, will “make it possible to timely and adequately respond to financial market fluctuations.”
The emergence of these new structures, as well as the AIIB, have sparked questions over how these initiatives will interact with other regional or multilateral development banks. They have also drawn renewed attention to the issue of governance and quota reform at the International Monetary Fund (IMF).
While a series of IMF reforms were agreed in 2010, the failure of the US Congress to ratify these changes has meant that these have not been put into action.
At the Spring Meetings of the IMF and the World Bank, the Fund’s policy-setting body called upon the IMF Executive Board to seek “an interim solution that will meaningfully converge quota shares as soon as and to the extent possible to the levels agreed under the 14th Review.” (See Bridges Weekly, 23 April 2015)
“We remain deeply disappointed with the prolonged failure by the United States to ratify the IMF 2010 reform package, which continues to undermine the credibility, legitimacy, and effectiveness of the IMF,” BRICS leaders said last week, warning that this has in turn prevented an increase in the Fund’s quota resources and the reallocation of quotas and voting power.
Economic partnership strategy
The strategy adopted at the Ufa meeting outlines a series of different “purposes.” These include, for example, promoting mutual trade and investment, while enhancing and diversifying trade and investment cooperation.
The group also included in these aims the improvement of macroeconomic policy coordination; working toward more inclusive growth; ensuring a better quality of growth; and achieving more interaction and cooperation with countries and organisations outside of the BRICS.
Building on these purposes and a list of basic principles, the strategy document then outlines various “priority areas” for cooperation, including trade and investment; manufacturing and minerals processing; energy; agricultural cooperation; science, technology, and innovation; financial cooperation; institutional, physical, and people-to-people connectivity; and cooperation in information and communication technology (ICT).
Regarding trade, leaders highlighted the need to boost intra-BRICS trade and investment, adding that this cooperation “should be commensurate with the potential and make ample use of the capabilities of its members and contribute to growth and sustainable development of their economies,” while outlining various goals to be pursued in this respect.
Promoting “value-added” trade within the group is of “particular importance,” leaders added, referring to the outcomes of a planned Joint Trade Study.
The BRICS economies also “reaffirm[ed] the value, centrality, and primacy of the multilateral trading system,” including strengthening the rules-based system under the WTO.
Furthermore, the leaders said, they urged other countries to resist any form of trade protectionism, while highlighting the need for coordination and cooperation in the WTO context to both develop a “post-Bali” work programme and conclude the Doha Round. (For more on the WTO talks, see related story, this edition)
Regarding agricultural cooperation, the BRICS countries have highlighted the need for cooperation to improve global food security, outlining five priority areas in that respect. This includes, for example, developing a general strategy to ensure that the most vulnerable have access to food, including through “an effective public food stockholding policy.”
In the area of energy, the strategy document says that the promotion of sustainable energy production and consumption is essential for the economic development of the group’s members. To that end, the BRICS are encouraged to improve the use of clean energy sources, increase energy efficiency, promote universal energy access, and mutually assist each other in diversifying their energy supplies.
The strategy will be reviewed by the BRICS sherpas every five years, with the option of doing so sooner if necessary. These sherpas will also provide annual reports on the implementation of the strategy to BRICS leaders.
ICTSD reporting; “BRICS summit give Putin a chance to show Russia not isolated,” REUTERS, 6 July 2015; “New BRICS bank to look at local, international borrowing: president,” REUTERS, 9 July 2015; “China parliament ratifies BRICS Bank agreement,” REUTERS, 1 July 2015; “BRICS nations launch new bank, currency pool,” DEUTSCHE WELLE, 9 July 2015; “BRICS vow to coordinate actions to protect their economies,” REUTERS, 9 July 2015.