BRICS: An Effective Multilateral Forum in a Multi-polar International Order

Brazil will hold the 6th BRICS Summit of Heads of State and the Governments of BRICS from 15 July 2014 to 16 July 2014 at Fortaleza and Brasilia. The BRICS as a group has evolved gradually into an important coalition in the multi-polar international order. In recent times many have questioned its significance and relevance amid growing domestic socio-economic problems in some member countries (Brazil, India, Russia and South Africa) However, BRICS continues to be a relevant group in its own right. It remains a coalition of emerging economies that will challenge western dominated discourses in some forums and hence provide an alternative idea of global governance. The idea of development bank and Contingency Reserve Arrangement will strengthen BRICS as a grouping. Even though there are problems associated with getting all five countries to agree on modalities of a development bank, yet the fact that emerging countries are talking about taking on the inherent imbalance of global economic order is relevant. Moreover, BRICS has incrementally evolved into a more comprehensive forum that holds dialogue on range of issues and therefore has become a comprehensive multilateral forum.

Evolution of BRICS

The acronym BRIC (Brazil, Russia, India and China) was creation of Goldman Sachs head of global economic research Jim O’ Neil in 2001. The group consisted of developing countries having large and fast-growing economies. Jim O’ Neil predicted that “over next 10 years, the weight of BRICs and especially China in world GDP will grow, raising important issues about the global economic impact of fiscal and monetary policy of BRICS”.1 In 2003 Goldman Sachs came up with another paper titled “Dreaming with the BRICS: The Path to 2050”.2 This paper made more definitive and long-term conclusions about the BRICs economies. The paper forecasted that the BRIC economies will surpass the G-6 economies (the United States, Germany, Japan, the United Kingdom, France and Italy) by 2050 in US dollar terms.3 Therefore, originally the BRICs were meant to be a purely economic category bounded by the strength of their fast-paced economic growth. It was never thought to be a political category.

The first meeting between the foreign ministers of Brazil, Russia, India and China took place on September 26, 2008 on the side-lines of 63rd UN General Assembly. Then in May 2009 the foreign ministers met in the first stand-alone summit in Yekaterinburg in Russia. The first stand-alone Heads of State summit was held on June 16, 2009 in Yekaterinburg in Russia.4 South Africa was incorporated as member in 2011 in the Sanya summit in China. Since 2009, BRICS organises leaders’ summit annually. Apart from leaders’ summit, BRICS foreign ministers, finance ministers, trade minsters, agriculture ministers, education ministers, health ministers, Science, Innovation and Technology Ministers also hold interactions at various times (refer Table 1). The interaction has also occurred between Officials of BRICS countries (refer table 1).

Significance and Relevance of BRICS

The main reason for co-operation to start among the BRICs nation was the financial crises of 2008.5 The crises raised scepticism on the dollar-dominated monetary system.6 Already United States involvement in protracted wars in Afghanistan and Iraq was being questioned. The 2008 financial crises further challenged the legitimacy of US/western dominated Bretton Woods institutions.7 The United States was squarely blamed for the crises. The loose monetary policy followed by then Federal Reserve Chairman Alan Greenspan and the irresponsible lending practices coupled with lack of regulation was seen as root cause of the crises .8 While the United States and European economies suffered in wake of the financial crises, the BRICS economies showed resilience to a certain extent.9 The BRICS finance ministers and central bankers met on November 7, 2008 in Sao Paulo, Brazil after the sub-prime crisis hit United States after the collapse of Lehman Brothers in September 2008. They saw this as an opportune moment to correct imbalances in the global economic governance as result of which the Bretton Woods institutions remained dominated by the US and Western Europe. The BRICs called for the “the reform of multilateral institutions in order that they reflect the structural changes in the world economy and the increasingly central role that emerging markets now play” (http://www.brics.utoronto.ca/docs/081107-finance.html).10 Consequently, the concerns of BRIC economies were factored in the G20 summit in London as many recommendations made by the BRICs finance minister in Horsham meeting before the summit were incorporated in the communique. More importantly, the BRICs managed to push for institutional reform which led to International Monetary Fund (IMF) quota reform in 2010. Thus the financial crises had momentarily reduced western legitimacy and briefly let the BRICs countries become “agenda setters” in multilateral institutions.11 Critics that accuse BRICs countries of being opportunistic at the time of financial crises fail to comprehend that institutional transformation including the Bretton Woods institutions were created at the time of crisis. Also, multilateralism is not only about collective identity and rule-based engagement; instead one of the most important functions of multilateralism is legitimisation. BRICs were able to legitimise their alternative idea of global governance at an opportune moment that had put a question mark on western legitimacy in global institutions. Hence BRICS has provided space for an alternative discourse on global governance that in some instance may not be in normative agreement with western discourse. Countries of the global South can use BRICS as a forum to challenge the global North. Argentina which is attending the 6th BRICS summit may become the next member of BRICS.12 Countries like Indonesia and Turkey have also shown interest in joining BRICS.13

Another important facet of BRICS co-operation was that it did not stop after the financial crises; rather it “spilled over” to other areas.14 This spill over happened, firstly, due to the confidence building that was gained while co-ordinating action in the sphere of global economic governance has led to expansion of areas of co-operation and multiple forums of interaction among BRICS countries (refer Table 1).15 Secondly, as the co-ordination of action in sphere global economic governance only led to limited success as United States Congress did not ratify the IMF quota reforms of 2010, hence BRICS sought “to resolve their dissatisfaction by resorting to collaboration in another, related sector (expanding the scope of mutual commitment) or by intensifying their commitment to the original sector (increasing the level of mutual commitment), or both”.16 Hence we saw a move towards co-operating in other sectors as well as a move towards creating a development bank. As new areas of co-operation are identified the frequency and the breadth of interaction among BRICS countries will increase thereby enlarging the sphere of common interests. BRICS has seized to be narrow issue-based coalition rather it has expanded itself thematically into a multilateral forum on various issues. Such expansion augurs well for the longevity of BRICS as a multilateral forum.

Dynamics of competition and cooperation among BRICS

The need for global economic governance reforms:

The BRICS development bank is the result of growing frustration among the BRICS nations on failure of IMF to implement 2010 IMF quota reforms. The United States Congress has not ratified the reforms and hence they cannot be implemented. Development Bank and Contingency Reserve Arrangement (CRA) agreed in 5th BRICS Summit in Durban are the stepping stone to undercut the Bretton Woods institution.17 The issue development bank is an example of the undercurrent of competition that lies in the BRICS grouping. First, there is the question of the contribution to of the bank. India wants each member to contribute $5 billion each with the total corpus of $50 billion, South Africa stresses that each member state should contribute according to the size of their economy.18 India fears that such an arrangement would mean that China will dominate the institution. Russians also want equal contribution from each member probably out of similar fear of Chinese domination. Secondly, there is issue of whether the bank will have a ‘virtual secretariat’ or a physical secretariat. Where will it be located? India and South Africa are pushing for the bank’s headquarters to be located in their countries. Thirdly, there is the issue of whether the bank will lend only to BRICS countries or will it also lend to other members. India favours the former as it needs investment for infrastructure development.19 However, despite these issues it likely that BRICS will be able to set up a development bank hopefully in the 6th summit. They have already agreed on the modalities of CRA with China being the largest donor with contribution of $41 billion.20 India, Russia and Brazil will contribute $18 billion each and South Africa will make a contribution of $5 billion. Similarly, they might be able to iron out an agreement on development bank. After receiving a snub by the United States over the IMF quota reforms, all BRICS members have an incentive to push for the development bank as it is the only means of showing that they can work together on their primary issue of global economic governance. Further, a development bank would institutionalise BRICS co-operation which till now remains non-institutionalised. But most importantly, the development bank and CRA will be defining instruments that will challenge the current geo-economic order. For instance if country like Argentina is going through balance of payment crises, it would much likely borrow from BRICS rather than go to IMF. For many developing countries the imperative is social and political stability and not just having achieving low inflation and low deficit economic situation which the IMF stress in its conditionalities.21 Hence, many developing nations may turn to BRICS and in turn some may join the grouping. This will pose significant contestation between the emerging powers and established institutions of global governance.

The economic growth will be driver of BRICS co-operation:
BRICS economies are going through ‘mid-life crises as their growth rates have gone down since 2011 9refer Table 2). For BRICS to remain legitimate bearers of emerging economies they need to maintain economic growth and development. Hence, BRICS countries will be keen to engage with each other in economic issues. In this regard one of the areas that are going to be increasingly important is the efforts to increase Intra-BRICS trade which is around $230 billion in 2011; however it is overwhelmingly concentrated towards China.22 The proposal is to increase intra-BRICS trade to $500 billion by 2015.23

Source: World Bank

China’s positive outlook towards BRICS:

China is one of the most important member of BRICS due to its sheer economic size it adds economic muscle to the bargaining power of the BRICS. Some analysts argue that Chinese enthusiasm for BRICS is only rhetorical and the asymmetry between China and other BRICS members will eventually lead to China leaving the group. However, China remains seriously committed to BRICS forum. In a report presented in 18th Party Congress, BRICS was highlighted as “one of the four pillars of Chinese multilateral diplomacy” the other three being the United Nations, G20 and the Shanghai Co-operation Organisation (SCO).24 For China, BRICS countries are a strong economic force that can be useful partners.25 China also feels that in the area of economic governance, BRICS countries have many common interests and hence can come up with common positions.26 For China BRICS is a proxy grouping to push institutional reforms in global politics. BRICS is the first global network of which China has been a member.27 China also does not have to contend with presence of western countries and the United States in BRICS unlike in other groups like G20.28 Therefore, Chinese have a positive outlook towards BRICS and Chinese support will make sure that the group remains relevant.

Conclusion

The BRICS as a grouping seems to have internal contradictions. Firstly, all these countries aspire to be regional powers and hence at some point will compete with each other. Secondly, they have different political systems with Brazil, India and South Africa being democracies while Russia and China having authoritarian characteristics. Thirdly, Brazil and Russia are commodity exporting countries and thus benefit from high commodity prices while India and China are commodity importers that benefit from low commodity prices. Fourthly, China and India have outstanding territorial issues to resolve and India looks askance to any institution that has Chinese domination. Similarly, Russia looks suspiciously at China’s interest in its sparsely populated far eastern of Siberia. Lastly, China within the BRICS remains an overwhelming yet unique actor. China economically dominates the BRICS and majority BRICS trade is concentrated with China. Therefore China gives economic muscle and bargaining power to BRICS. However, China has is deeply connected with United States economically as Chinese prosperity is tied to US (and European economic growth), hence that limits its capability to challenge the status quo. Therefore, competition will exist among the member states of this grouping.

However, there are many factors that will bolster co-operation among BRICS members. Firstly, the common need among developing countries to construct economic order that reflects current situation will drive the BRICS on for conjuring up their efforts towards global economic governance. In this matter, the idea of development bank and CRA are defining and will have a huge geo-economic and geopolitical impact. Secondly, the BRICS alternative idea in the landscape of global governance will attract support from other countries. Thirdly, the expansion of BRICS interaction to other sector will make it more strong partnership. Fourthly, the common interest for economic growth will drive co-operation among BRICS countries. Lastly, Chinese support to BRICS will make sure that group remains a force to reckon with in the future. Therefore BRICS is likely to remain an effective multilateral forum in a multi-polar international order.

Source: BRICS Information Centre, University of Toronto; MEA Website of BRICS New Delhi Summit

• 1. Oliver Stuenkel (2013), “The Financial Crisis, Contested Legitimacy, and the Genesis of Intra-BRICS Cooperation”, Global Governance, 19, p. 613.
• 2. Ibid., pp. 613-614.
• 3. Ibid., p. 614
• 4. Before the summit the leaders had met on the side lines of G8 Toyako-Hokkaido Summit in 2008.
• 5. Initially BRICs consisted of Brazil, Russia, India and China. It was 2011 that South Africa joined to form BRICS.
• 6. Alan Wheatley (2013), “The origins and the use of currency power”, in Alan Wheatley (eds.)
  The power of currencies and currencies of power, The International Institute of Strategic Studies, pp. 34-35.
• 7. Oliver Stuenkel (2013), “The Financial Crisis, Contested Legitimacy, and the Genesis of Intra-BRICS Cooperation”, Global Governance, 19, pp. 611-630.
• 8. Alan Wheatley (2013), “The origins and the use of currency power”, in Alan Wheatley (eds.)
  The power of currencies and currencies of power, The International Institute of Strategic Studies, pp. 34-35.
• 9. Oliver Stuenkel (2013), “The Financial Crisis, Contested Legitimacy, and the Genesis of Intra-BRICS Cooperation”, Global Governance, 19, pp. 611-630.
• 10. Brazil, Russia, India and China Finance Ministers Joint Communiqué, November 7, 2008, BRICS Information Centre URL: http://www.brics.utoronto.ca/docs/081107-finance.html
• 11. Oliver Stuenkel (2013), “The Financial Crisis, Contested Legitimacy, and the Genesis of Intra-BRICS Cooperation”, Global Governance, 19, p. 618.
• 12. Dipanjan Roy Chaudhury, “BRICS nations likely to announce setting up of $100-billion fund at fifth summit in Brazil”, The Economic Times, July 8, 2014, at http://articles.economictimes.indiatimes.com/2014-07-08/news/51191399_1_...
• 13. Ibid.
• 14. Oliver Stuenkel (2013), “The Financial Crisis, Contested Legitimacy, and the Genesis of Intra-BRICS Cooperation”, Global Governance, 19, p. 612.
• 15. Ibid., p. 623
• 16. Ibid., p. 623
• 17. Contingency Reserve Arrangement will be a fund from which countries can borrow in case of a balance of payment crises and thus not depend on IMF or World Bank.
• 18. Oliver Stuenkel (2013), “The Financial Crisis, Contested Legitimacy, and the Genesis of Intra-BRICS Cooperation”, Global Governance, 19, p. 621.
• 19. Ibid., p. 621
• 20. Dipanjan Roy Chaudhury, “BRICS nations likely to announce setting up of $100-billion fund at fifth summit in Brazil”, The Economic Times, July 8, 2014, at http://articles.economictimes.indiatimes.com/2014-07-08/news/51191399_1_...
• 21. “Challenging the International Economic System”, Stratfor, March 26, 2013 at http://www.stratfor.com/geopolitical-diary/challenging-international-eco...
• 22. Sajal Mathur and Meghna Dasgupta (2013), “From BRIC to BRICS: An Overview”, BRICS: Trade Policies, Institutions and Areas of Deepening Co-operation, Centre for WTO Studies, p. 13.
• 23. Ibid., p. 13
• 24. Pang Xun, “The BRICS and China’s Networking Strategy for Social Power”, Carnegie-Tsinghua Centre for Global Policy, May 30, 2014 at http://carnegietsinghua.org/2014/05/30/brics-and-china-s-networking-stra...
• 25. Mingjiang Li (2011), “Rising from Within: China’s Search for Multilateral Word and Its Implications for Sino-US Relations”, Global Governance, 17, p. 335.
• 26. Ibid. p. 335
• 27. Ibid. p. 335.
• 28. Pang Xun, “The BRICS and China’s Networking Strategy for Social Power”, Carnegie-Tsinghua Centre for Global Policy, May 30, 2014 at http://carnegietsinghua.org/2014/05/30/brics-and-china-s-networking-stra...