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Thursday, April 5, 2012
BRICS and bombast
BRICS is back. The five-nation group that comprises Brazil, Russia, India, China and South Africa held its fourth summit last week, convening in New Delhi to present their collective views on global problems. While their opinions are increasingly relevant given their growing weight and influence on international affairs, they would be more compelling if they could agree on more than a critique of the existing international order. Not surprisingly, solutions remain beyond their grasp.
BRIC — without South Africa — was first identified in 2001 by Goldman Sachs analyst Jim O'Neill. The acronym was designed to capture the emerging economies that were thought to be driving world economic growth. At that time, the four countries ranged over a quarter of the earth, had about 40 percent of the world's population and a combined GDP in excess of $18 trillion. Mr. O'Neill reckoned that they would become the four leading economies by 2050. He updated his analysis three years later, concluding that the number of people within BRIC countries who had an annual income exceeding $3,000 would double within three years, reaching 800 million within a decade. The number of people earning more than $15,000 was expected to exceed 200 million. That is a huge and potentially powerful middle class.
BRIC emerged as a political entity when Russia hosted a summit in 2009. At the meeting, the heads of state agreed that their countries — along with other developing and emerging economies — deserved more say in global governance. South Africa applied to join the group the next year, and the upper-case "S" was added to the acronym in 2011 when President Jacob Zuma attended the summit in Sanya, China, in April 2011.
Today the group accounts for 43 percent of the world's population and 20 percent of its wealth.
This year's summit was the fourth, but the message remained the same. The final declaration "expressed concern over the current global economic situation," blaming developed countries for excessive debt and poor fiscal balances, while faulting their solutions for creating excess liquidity that is hurting emerging economies. They highlighted the role of the Group of 20 as the "go-to" institution for global economic governance, and "call for a more representative international financial architecture, with an increase in the voice and representation of developing countries ..."
BRICS wants quota reform in the International Monetary Fund to increase their voice in that institution. They rightfully call for an open, merit-based selection process for the head of the IMF and its sister organization, the World Bank.
Most significantly, the heads called for the study of the viability of a new "Development Bank" to supplement the work of existing global and regional financial institutions for growth and development. As this recommendation was also put forward last year, it is hard to get excited about its potential.
In addition, the five leaders signed an agreement that will allow for credit in local currencies as they trade among themselves. This is intended to reduce demand for other convertible currencies that they typically use for trade, such as dollars. This should stimulate trade — using nonlocal currencies increases costs — and diminish U.S. influence on the global trade system.
Trade among BRICS nations has reached $230 billion and is growing 28 percent a year on average; the group hopes to increase the total to $500 billion by 2015.
BRICS heads were equally outspoken on political issues. While decrying the situation in Syria and the violations of human rights in that country, they called for an end to the crisis via peaceful means. They were blunt when addressing Iran, noting that the situation there "cannot be allowed to escalate into conflict."
Summit host Manmohan Singh, the prime minister of India, added, that "We must avoid political disruptions that create volatilities in global energy markets and affect trade flows. We agreed that a lasting solution to the problems in Syria and Iran can only be found through dialogue."
Those are laudable goals. But apart from lofty sentiment — everyone favors diplomatic solutions — and agreement that the source of the world's woes is usually to be found among the developed economies, it is hard to see what BRICS is for. That should not be a surprise. BRICS is a disparate group, united by an economic description — more a trajectory, really — rather than intrinsic concerns and interests. Their one shared concern is a desire to maximize diplomatic flexibility and fend off assaults on their sovereignty.
Too often, however, to take an example, Brazil's particular economic interests clash with those of China. While Brazilian President Dilma Rousseff condemns quantitative easing in the United States for pushing excess dollars into her economy, she is equally incensed by Chinese efforts to suppress its currency to enhance the competitiveness of its businesses.
While the BRICS leaders seek more say over international institutions, they failed to unite around a single candidate for either the IMF or the World Bank when their top positions came open. It is telling that this year's summit declaration merely notes the "aspirations" of Brazil, India and South Africa to play a greater role in the United Nations. That is only a tepid endorsement of U.N. Security Council reform. While China and Russia supports a change of the UNSC on the surface, China and likely Russia in fact do not want others to join it as permanent members. It will take more than an acronym to build a foundation for concerted action.