Folashadé Soulé considers the evolution of the BRICS group since the first summit in 2008 and writes that, although the grouping is still not formally institutionalised, it has become a multi-sectoral club with structured activities and financial instruments. However, she questions the extent to which their newly-launched financial instruments will offer an alternative to the Bretton Woods’ institutions.
The 2015 BRICS summit in UFA marks an important phase in the institutionalisation of the emerging economies’ grouping. From the informal foreign affairs ministers’ meetings at the margins of the 63rd session of the United Nations General Assembly in 2008, it has moved from a politicised – initially financial – acronym to a multi-sectoral club with structured activities. Another major move is the launch of the BRICS financial institutions, including the New Development Bank. Although they have been presented as financial counterweights to the World Bank and the International Monetary Fund, the extent to which they offer an alternative to the financial system remains questionable.
Soft-institutionalisation and outreach strategy
The BRICS grouping remains an institution without a permanent secretary, and therefore not formally institutionalised. However, it is now structured around three main pillars : (1) high-level political and diplomatic meetings at ministerial and presidential levels, (2) technical and multi-sectoral working groups of state and non-state actors in agriculture, health, education, the environment, and science and technology among others; and (3) the establishment of financial instruments.
The evolution in the institutionalisation of the grouping can also be traced at the level of issues discussed by leaders at the annual summits. The final declarations are getting longer, evolving from a concise 16-point declaration at the first BRIC summit in Yekaterinburg, 2008, largely focused on economic and fnancial governance issues, to an extended 77-point multi-sectoral declaration at the summit in Ufa in July 2015. The increasing number of themes discussed by the BRICS also highlights the diversification of the grouping beyond its initial raison d’être : reforming global financial governance. BRICS leaders and high-level officials now meet at almost all-ministerial levels and fields and consult on diverse matters relating to everything from to security of outer space activities, illicit traffic in narcotic drugs, parliamentary affairs to culture, energy, migration and cyber-security.
Another particularism – and a response to initial criticism of exclusivity – is the now-systematic ‘outreach’ of the BRICS to regional neighbours and organisations – a precedent created at the Durban summit in 2013 where side-meetings were organised with leaders from the African Union and African subregional organisations. The 6th BRICS summit in Fortaleza saw meetings with leaders from Mercosul, and this year the BRICS leaders met with representatives from the Shanghai Cooperation Organisation and hosted the first BRICS and SCO Youth forum. The association of regional neighbours and organisations allows for bilateral meetings on the side, enhances prospects of trade agreements and is a reponse from the BRICS to initial criticism of exclusivity (i.e. the ‘club’ format of the institution). However, these associations should be seen as inclusion rather than integration since it remains unclear to what extent these actors are involved in the core BRICS process.
The BRICS financial instruments : a response to shortcomings of the global financial architecture
In the 1970s, the global financial governance trend was towards regional development banks. In the 21st century we are seeing the increasing role of national and cross-regional emerging markets development banks (EMDBs) like the recent BRICS led-bank and the Asian Infrastructure Investment Bank (AIIB), which aim to finance development beyond their national and/or regional borders. In all these multilateral structures, less-developed countries are seeking to increase their flow of financial resources.
The major outcome of the 7th BRICS summit is the launch of its highly politicised financial instruments – the New Development Bank (NDB) and the Currency Reserve Agreement (CRA). The decision to establish these financial instruments was taken at the 4th BRICS summit in New Delhi, 2012 and formally announced at the Durban summit in 2013. As the first formal BRICS institutions, they marked a watershed in the evolution of the group. With an initial subscribed capital of US$ 50 billion and an authorised capital of US$ 100 billion, the NDB will be headquarted in Shanghai. India will serve as the first president and there will be vice-presidents from Russia, China and Brazil. The CRA also has a US$100 billion capital and is designed as a tool to respond to financial market fluctuations. The particularity of these financial instruments, and especially the NDB, is not their core activity of financing development infrastructure projects. Rather, it is the fact that they are presented as financial alternatives to the Bretton Woods institutions, namely the IMF and the World Bank.
The NDB and the CRA are a response of the BRICS to the shortcomings of the current intenational finance architecture. For many years, the BRICS have both individually and collectively demanded a reform of the vote share system of the Bretton Woods institutions, where the United States and European states are overrepresented at the expense of emerging powers : China, the world second-largest economy only has 3.81% of total vote share, whereas the United Kingdom and France each have 4.29% despite their smaller economies. The reform expected to adress these imbalances fell short as it was obstructed by the US Congress – reinforcing the perceptions that the United States is the main barrier to the reform of the international finance architecture. Beyond the NDB initiative, China is also expanding its influence through other financial initiatives like the New Silk Road Initiative and the Asian Infrastructure Investment Bank (AIIB), where it is the largest shareholder (30.34%), while India has 8.45% and Russia 6.5%.
Questionable alternatives and the risk of China dominating
However, it remains unclear to what extent these instruments will act as financial alternatives and if they will be able to challenge the dominance of the US dollar and the current international currency system (one of the specific aims of the CRA). By expanding the use of national currencies, not all BRICS gain the same advantage. Some members, such as India, view it as a means for China to achieve its objective of progressively internationalising the yuan – which has been a foreign policy priority under President Xi Jinping. During the Ufa summit, suggestions that 50% of intra-BRICS trading could be invoiced in yuan received mixed responses, especially from India. From a strategic point of view, Indian economists see it as a disadvantage as it already suffers from a significant trade deficit with China and it would only make sense for India to have local currency arrangements with countries with which it enjoys a surplus in bilateral trade. Furthermore, intra-BRICS trade remains low : excluding China, bilateral trade between India and Brazil-Russia-South Africa represents less than 5% of India’s exports.
Moreover, although the initial capital of the NDB (US$50 billion) will be equally shared among the BRICS founding members, this should not be the case with the authorised capital of US$100bn where China, the biggest economy is expected to commit the highest contribution of US$41bn. This could be a risk and the effectve functioning of the BRICS-led development bank will depend on whether it will avoid or reproduce existing procedures of some regional development banks. For example, the decision-making and geographical lending patterns in some regional banks like the Asian Development Bank are often determined by political interests of main shareholders.
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