The New Delhi Declaration adopted at the end of the fourth BRICS summit last week has brought out quite eloquently how the global economic order has remained virtually unreformed since the organisation’s first meeting in 2009, and how the economic challenges before its member countries – Brazil, Russia, India, China and South Africa – have become even more daunting. The first summit at Yekaterinburg, held before South Africa formally joined, focused on means to improve the global economic situation, reform the multilateral financial institutions and evolve a mechanism for improving co-operation among them on all global issues. The BRICS countries make up 43 per cent of the world’s population and account for a fifth of the world’s gross domestic product. Their aspiration to play a more meaningful role in the global economic order was natural. Yet, barring an increase in the allocation of resources by some of these BRICS countries, including India, to enhance the capital base of the two Bretton Woods institutions, there has hardly been any reform in their governance. It is ironic that even while the BRICS summit at New Delhi reiterated that the process of selecting candidates for the top posts in the World Bank and the International Monetary Fund (IMF) should be “open” and “merit-based”, the appointment of yet another American nominee as the next World Bank president already seems a foregone conclusion. Less than a year ago, the candidature of Agustin Carstens of Mexico to head the IMF came to nought as the US and Europe, along with at least three of the BRICS members, supported Christine Lagarde of France — and the Washington-headquartered organisation continued to be run by a European.
With the European economy still reeling under the impact of fiscal imprudence and the US recovery remaining slow, the growth engines in the developing economies, including the BRICS countries, have also lost considerable steam. The New Delhi Declaration recognises that sombre reality and has initiated a welcome move to facilitate trade among the BRICS countries in their local currencies. This will no doubt reduce the demand for fully convertible currencies for trade transactions among the five member countries. Brazil and Russia are major exporters of commodities that need to be imported by China and India. A multilateral letter of credit confirmation facility agreement among banks of the BRICS countries will go a long way in facilitating trade and reducing transaction costs.
However, the move to set up a BRICS-led South-South Development Bank, endorsed by the New Delhi Declaration, needs closer scrutiny. The proposed bank will be funded and managed by the BRICS countries and its resources are likely to be used for financing projects in areas that do not get funding from existing institutions. With huge underutilised funds lying with existing multilateral financial institutions, the problem faced by projects in developing or BRICS countries is not availability of funds. So it makes more sense for the BRICS countries to exert greater pressure on the World Bank and the IMF so that they transform themselves to truly reflect the vision of all their members. Opting for an alternative bank at this stage may also weaken the BRICS push for reforms in the existing multilateral financial institutions’ governance structure.
