The latest meeting of the BRICS countries, held in Brazil’s northeastern city of Fortaleza last week, represents the bloc’s most significant step towards its aim of building a new, multilateral development framework.
After two years of negotiations, the geoeconomic grouping of emerging markets known as the BRICS – Brazil, China, India, Russia and South Africa – has broken new ground by launching a development bank intended to challenge Western-dominated multilateral lending institutions such as the IMF and World Bank.
The New Development Bank (NDB) will be headquartered in Shanghai, and will primarily serve to facilitate sustainable development and large-scale infrastructure modernization within BRICS countries, which will each allocate an equal share of $50 billion startup capital with the aim of reaching $100 billion.
NDB loans would not be exclusively for BRICS governments, but would also be extended to other low- and middle-income countries that contribute to the capital base. It is this capital base which will finance the construction of mega-projects involving electricity supply grids, telecommunications networks, roads and bridges, power stations, shipping infrastructure and ports, and water treatment facilities.
In addition to the development bank, the BRICS group will also establish a contingency reserve currency pool worth over $100 billion, enabling the bloc to raise liquidity protections and collectively hedge against economic challenges. Though member countries will contribute an equal amount of startup capital to the NDB, China will have a 41 percent stake in financing the currency pool, with other members taking on smaller percentages.
BRICS countries represent 41.6 percent of world’s total population, 19.6 percent of global GDP, and 16.9 percent of total global trade, making the five-member community the world’s largest market. Despite extensive economic clout, the BRICS countries together wield only about 11 percent of the votes at the IMF, an institution that is widely viewed as disproportionately influenced by the developed West to the detriment of the Global South.
The BRICS project is not simply about emerging economic powerhouses striving for a wider international role that traditional Western institutions have thus far denied. Rather, it is an attempt by the Global South to articulate an alternative multilateral global order intended to be more equitable, inclusive, dynamic, and suitable to 21st Century realities.
As developed economies find themselves today mired in austerity policies, and struggling to tackle unemployment wrought by hollowed-out industrial sectors, trade between economies in the Global South now exceeds trade between emerging and developed economies by some $2.2 trillion, more than one-quarter of global trade. China, Brazil, and India have also begun to displace western nations as large-scale donors throughout Africa and other low-income countries.
The growing role of developing countries in international institutions signifies how the global political landscape is shifting in favor of a multipolar order. The determination of emerging countries to independently pursue institution-building has been brought on by policies of western financial bodies that attach intrusive conditionalities to loans and deny equal voting rights to developing states.
Countries that borrow from institutions such as the IMF are forced to enact structural adjustment policies that scale back on public and social spending, and pressure countries to hurriedly reduce subsidies that would better be phased out gradually. Loan conditionalities have also been known to disproportionately favor the private sector and reduce a country’s ability to hedge against speculative capital.
The bloc’s push toward institution-building to advance an alternative development vision has been hastened in recent times by several contentious flashpoints in global politics, primarily between Russia and China on one side, and the United States and European Union on the other.
Relations between Moscow and Washington have reached their lowest point since the end of the Cold War, while the US has spearheaded punitive sanctions against Russia for its purported role in the Ukrainian conflict. China has also expressed displeasure with US efforts to refocus its naval presence to the Asia Pacific region, which Beijing views as efforts by the US to interfere in the region’s complex territorial disputes.
The increasing pressure from western capitals on Moscow and Beijing, who also take joint positions on issues in the UN Security Council, has prompted both countries to deepen their involvement in the multipolar project. Russia and China now intend to more forcefully utilize the BRICS framework to facilitate the exchange of knowledge and technology, and diversify political and trade relations with countries throughout the Global South.
The BRICS group will not be solely an economic community, but due to increasingly tense relations with the West, the five-member bloc is increasingly more disposed to cooperate politically to adopt common positions and coordinate joint efforts toward tackling regional issues at the UN level. In contrast to western leanings toward interventionism, the core principles of BRICS foreign policy thinking centers on respect for sovereignty and non-interference in the internal affairs of countries.
In a recent interview with news agency ITAR-TASS, Russian President Vladimir Putin articulated his intentions to deepen both economic and political cooperation among the BRICS group, primarily by addressing the bloc’s common position against unilateral military interventions and economic sanctions that violate international law, pledging closer coordination and high level consultations between the group’s foreign ministries to jointly forge political and diplomatic settlements.
Washington’s calls for heavy economic sanctions on Russian industries and sectorial trade have been met with opposition by most EU states, which are largely dependent on Moscow for their energy needs. European states are also weary that sectorial sanctions against Russia will drastically drive up gas prices.
Putin has said that any economic sanctions on Russia will eventually boomerang back to harm US interests, and called on BRICS countries to introduce “a system of measures that would help prevent the harassment of countries that do not agree with some foreign policy decisions made by the United States and their allies, but would promote a civilized dialogue on all points at issue based on mutual respect.”
The primary interest of the BRICS countries is to begin the gradual process of reforming the international monetary and financial system, which remains heavily dependent on US monetary policy. The emerging multipolar alternative being championed by developing states, with varying degrees of antipathy toward Washington, is propelled forward by perceptions that global management on the basis of genuine and equal partnership cannot be realized under current political and economic conditions.
The BRICS countries face an uphill battle, and have yet to firmly establish internal decision-making mechanisms. There are hurdles to address before the bank begins lending in 2016. The NDB can play an important role in channeling capital into industrial assets rather than into bubbles and financial markets, thus improving investment confidence, reducing risk, and advancing a productivity-focused development agenda.
The failure of western-dominated institutions to address their asymmetric influence over global political and economic affairs is the primary factor that has given rise to an alliance of developing countries intending to correct this imbalance. One can only hope they work toward bringing about a more equitable and just world order.
Nile Bowie is a columnist with Russia Today, and a research affiliate with the International Movement for a Just World (JUST), an NGO based in Kuala Lumpur, Malaysia.