Back in 2001, reading Jim O’Neill’s report “Building better economic BRICs”, who could imagine that Brazil, Russia, India, China, and South Africa (joining in 2010) would not become members of the elite G7 club? Instead, they took the idea to form their own economic and political alliance with annual summit consultations and policy backing financial institutions. Would this equip the BRICS politically and economically to potentially re-shape global governance?
Fifteen years have passed since the leaders of the BRICS first met in St. Petersburg, Russia, and the idea for the alliance emerged. In September of this year, the 13th BRICS summit was held under the chairmanship of India.
“Today we are an influential voice for emerging economies of the world. This platform has also been useful for focussing attention on the priorities of the developing nations as well,” said Prime Minister Modi in his opening remarks.
The ambitions of the BRICS go beyond annual meetings, although these meetings provide important opportunities for members to develop mutual understanding and bilateral ties. In 2014, members agreed to establish a New Development Bank to finance infrastructure as well as the BRICS Contingent Reserve Arrangement. This gives each country’s central bank access to emergency supplies of foreign currency, with total funds of $200 billion. The structure arguably followed the pattern of the World Bank and IMF, but on a smaller scale that was tailored to the needs of the members’ states. It was not intended to rival the Bretton Woods system, but to complement it, focussing on emerging economies.
Since the bank’s launch in 2015, it has signed about 80 infrastructural projects in its members’ states, worth $30 billion. Sustainable infrastructure development is core to the bank’s strategy. Its first capital raising in China was via issuing green bonds.
In contrast with other development banks, the BRICS bank loans are denominated in local currency, not in dollars. Also, compared to banks such as the Asian Infrastructure Investment Bank (AIIB) with China as a hit shareholder, the BRICS bank members all have equal shares, and no one has veto power.
The Covid-19 pandemic has left no country unaffected, and emerging and developing countries have been hit hardest. The BRICS bank has responded with a $10 billion rescue package to support its members’ health systems and economic recoveries. This amount is comparable to the AIIB’s $13 billion towards facilitating Covid-19 crisis recovery. While the scales of the rescue packages are close, AIIB’s package serves 103 member states compared to the five served by the BRICS bank. Free from the burden of bureaucracy, the bank’s governance and organizational structure support speedy and efficient decision-making that are even more important in times of crisis.
“Building back” and developing better and more sustainable economies in the member states will remain the most important tasks for the BRICS bank in the short term, but it also has an ambitious expansion policy. In September of this year, the bank welcomed the United Arab Emirates, Bangladesh, and Uruguay as new members, paving the way to even greater connectivity in emerging markets. The bank is going to expand in a “gradual and balanced manner”, according to its President Marcos Troyjo. This is also important to maintain its high credit rating. In fact, the BRICS bank has AA+ ratings from S&P and Fitch, just a notch lower than AIIB’s rating, and has AAA rating from the Japan Credit Rating Agency (JCR).
The bank’s strategy is to increase its portfolio in the private sector. However, since the fight with Covid-19 is not yet over, the world will need to utilise all available resources to put all economies—emerging, developed, and developing—back on track. This is a huge task which demands co-existence, cooperation, and competition all at once.
Twenty years have passed since the BRICS acronym was coined. Those two decades, especially the second one, were bumpy ones for some of the members. Nonetheless, the BRICS have not given up, and although they have not moved as fast as we may wish or expect, they are steadily reshaping the development finance model and global governance. The recent pandemic has only magnified this movement.
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