The New Development Bank adds substance to the BRICS
Its initial landing, projected at US$ 3.6 billion a year starting in 2016, will limit the bank's impact.
The sixth summit of the BRICS took place at a time of low economic growth for the group. The BRICS gained prominence after the global financial crisis of 2008, which put the leading capitalist economies on the brink of the abyss and made room for big emerging countries at the decision making table.
The average growth for the five countries in 2014 is expected to be to around 5%, or half of what was recorded eight years ago, with one important difference: unlike 2008, the large economies are now recovering from higher levels of development when compared with the BRICS.
The group made important institutional progress in its sixth summit, held in the Brazilian city of Fortaleza. The event marked the official launching of the New Development Bank. However, it did not elevate the BRICS to an organization capable of substantially influencing global geopolitics and effectively countering the established economic powers or challenging the apparatus they built after World War II to ensure hegemony in the macroeconomic policy decision making.
Although the creation of the New Development Bank (NDB) is an important landmark in international relations, one should not ignore its limitations.
The banks 50 billion dollars initial capital (10 billion in resources, 40 billion in guarantees) will take seven years to become available. Its operations will not start before the adoption of legislation by the five member national congresses, not expected to be completed before 2016. The institution’s initial lending capacity is estimated to be 3.6 billion dollars a year over its first decade of operation, or close to 5% of what the World Bank is expected to lend in 2014.
The slowdown of economic activity of the BRICS, in particular of China, the group’s principal engine, will make restrictive loan requirements it set for member countries even more difficult when it opens for business with non-members.
Although the creation of the bank as well as of the emergency reserve fund of 100 billion dollars, (for which the withdrawal rules are very strict, also limiting its ability to compete with the IMF) gives substance to what had been until now mostly a policy coordination mechanism and a diplomatic elevator to participating nations, the amounts of resources mobilized are too small and insufficient to give the BRICS a decisive role in global economic decision making.
The many internal differences among the group, displayed in their inability to close around a single candidate to command both the IMF in 2011 and the World Bank in 2012, resurfaced in Fortaleza. Agreement on the location of NDB’s headquarters, its rotating presidency, to be held first by India, and basic governance of the NDB, was reached at the eleventh hour and only after Brazil made concessions to accommodate New Delhi’s demands.
Well known divergence of interest and even antagonism in certain areas of global policy make it improbable that the BRICS will be effective in their greatest role as the five countries representing together approximately one third of the world’s population and a quarter of the global land mass: its capacity for coordinated action in global forums, such as the WTO, in which their coordinated action is extremely relevant.
Although the official statement issued at the Fortaleza Summit’s conclusion expressed formal support for the goals and objectives agreed upon at the WTO December 2013 ministerial meeting in Bali, which are modest, the BRICS countries disagree on fundamental issues. One example is India’s apprehensions with the Bali agenda’s lack of focus on family farming, essential to the Indian economy.
The internal political and economic problems of the BRICS are likely to conspire for a while against the adoption of decisions leading to initiatives to match the rhetorical enthusiastic characteristic of their shared statements. National realities will inevitably affect the building up of the BRICS.
Regardless of the outcome of Brazil’s upcoming elections, painful economic adjustment expected in 2015 will limit and condition the country’s participation. India’s recently installed government faces enormous expectations of the voters. There is not much the BRICS can offer as a group to lessen the growing international isolation of Russia fueled by its response to the crisis in Ukraine. The ambitious reforms proposed by the administration of President Xi in China will likely make the usually careful authorities in Beijing limit the investment of resources and political capital in a group in which not one member, with the possible exception of Russia, has much to gain from in the short term.
China, the vital partner of the BRICS, has never shown great enthusiasm for the block and will proceed cautiously at a time when it urgently needs to focus on internal issues.
For China, the BRICS are an interesting exercise to test its abilities on a global scale and to engage in a less stressful environment with neighbors viewed as dangerous and strategic, such as Russia and India, which have never been and will not be, in the short term (for the Chinese this can mean many decades), among its foreign policy priorities.
China is concerned, above all, with its own surroundings, in particular with threats and opportunities presented by Japan, Vietnam, North and South Korea, India, Russia, and of course, the United States, which in a way also counts as part of its surroundings.
Having a limited appetite for the global game of chess or the power politics in multilateral organizations, at least in the way it is currently played, China has not shown so far the slightest willingness to make sacrifices or concessions to benefit multinational groupings, such as the BRICS, from which it has nothing tangible to gain in the short run. Without the steadfast commitment of China, the BRICS will always represent less in practical terms than it projects. And such commitment from China is unlikely to be made anytime soon, if ever.
China’s unwillingness to make meaningful concessions is illustrated by its bilateral trade with Brazil. Despite its association with the BRICS and the discourse of strategic partnerships shared with China, Brazil has had no success in its attempts to convince Beijing to lower or remove customs barriers for high value added products. For Brazil, the BRICS are and will likely remain an instrument of international projection which may or may not result overtime in meaningful commercial advantage. It will continue to allow Brasilia to articulate a more prominent global presence than it would have been able to without it. One should not make unrealistic assumptions about the BRICS’ real dimension and impact.
Carlos Eduardo Lins da Silva is the Executive editor of Política Externa and Wilson Center Global Fellow.
The original version of this article was published in Portuguese in Época magazine on July 21, 2014.
See Brazil Institute staff intern Erica Kliment's take on the topic here.