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Business News/ Opinion / BRICS bank, a misplaced idea?

The fifth summit of the BRICS (Brazil, Russia, India, China and South Africa) grouping that begins in Johannesburg on Tuesday has been almost overshadowed by the news that its leaders are expected to make two major announcements for enhancing financial cooperation. The summit is expected to take a decision on establishing the BRICS development bank. The initial idea of this bank was put forth in the New Delhi summit a year ago and the leaders had asked their finance ministers to examine the feasibility and viability of such an initiative. Alongside, there is a strong possibility that BRICS will set up a joint foreign exchange reserve pool that will enable members of the grouping to overcome balance of payments problems.

The likely areas of focus of the BRICS development bank are still under wraps, but there are indications that the proposed bank could consider funding infrastructure projects in member countries. This focus has considerable merit, given that the BRICS members are increasingly looking for funds to support their growing infrastructure needs. At the same time, however, members of the grouping will be mindful of the fact that BRICS development bank cannot be a substitute for multilateral and regional financial institutions; this initiative of theirs should be selectively used to finance projects that can contribute to the strengthening of intra-BRICS cooperation.

Although there are as yet no indications that the BRICS development bank will support other developing countries, members of the grouping could consider this proposal given their increasing role as development partners. Thus far, BRICS members have only extended bilateral support to their partner countries, but given the range of development experience that they possess, they can form consortiums for supporting development projects.

While the details of the BRICS foreign exchange reserves pool are yet unknown, the idea is conceptually similar to the Chiang Mai Initiative Multilateralism (CMIM), an arrangement involving Asean and its three North Asian partners, China, Japan and Korea, which was conceived of in the aftermath of the Asian financial crisis. The core objectives of CMIM, as agreed to by the participating countries, were twofold: to address balance of payments and short-term liquidity difficulties in the region and to supplement the existing international financial arrangements. In 2010, CMIM was operationalized through the establishment of Asean + 3 Macroeconomic Research Office (Amro). Among other things, Amro was given the responsibility to monitor, assess and report on the macroeconomic situation, and financial soundness and vulnerabilities of Asean + 3 countries. In many ways, Amro was asked to perform the functions that the International Monetary Fund is tasked with.

The experience with CMIM raises the question as to whether the BRICS foreign exchange reserves pool is an idea that has come too soon. Apart from its timing, there is also the question of the fund-commitment that BRICS members will be willing to make in order to make the arrangement viable. It may be pointed out that this dimension has proved problematic even in the case of a seemingly well-worked arrangement such as CMIM. At present, the total commitment made by CMIM members (primarily China, Japan and Korea) amounts to $240 billion, which is only about 1.5% of the total gross domestic product of Asean + 3 economies.

While it has increasingly interacted on issues of global significance, the BRICS grouping has not done much to shape the global processes, which includes the process of drawing up the post-2015 development agenda, after the millennium development goals (MDGs) have run their course. As it is panning out this process will not be a mere extension of the current MDGs: it would consider factors that are causing or have the potential to cause development deficits. Further, the narrative on the post-2015 global development agenda has also brought in focus the roles that institutions have played or can play in influencing the development outcomes.

It is imperative that this influential grouping of emerging economies uses its collective weight to bring about an improvement in the economic and social conditions of those surviving at the margins. Thus far, the BRICS grouping has strangely remained disengaged from the post-2015 confabulations. This posture appears rather disconcerting for two reasons: one, the members of the grouping have significant stakes in the shaping of this agenda given that each one of them suffers from sizeable development deficits, and two, the role that they could play in promoting South-South cooperation could be a critical factor in the implementation of the post-2015 development agenda.

The discussions on the post-2015 global development agenda are particularly important as they are critically examining the role played by various multilateral institutions, including those in the areas of finance, trade and environment, in furthering development goals. It is not difficult to see that the BRICS nations can join these discussions with a definite advantage, given that the members of the grouping have been collectively engaged with each of these multilateral institutions in trying to mainstream the development agenda. In the climate change negotiations, the developing country members of the grouping have flagged the importance of development imperatives while adopting measures to reduce greenhouse gas emissions. They have made compelling arguments for reforming the financial sector and making it more responsive to their development needs. With the accession of Russia in the World Trade Organization (WTO), a stronger BRICS grouping can push for a more development-friendly trade regime with greater vigour.

Biswajit Dhar is director general at Research and Information System for Developing Countries, New Delhi.

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Updated: 25 Mar 2013, 05:35 PM IST
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