HOUSE OF BRICS

The latest developments concerning Ukraine and United States of America’s unilateral announcement of sanctions against Russia have exposed the continuing domineering attitude of the western powers headed by the USA in influencing the course of the global economic developments in their favour at the cost of the newly emerging economies. The Ukraine crisis has once against shown that the non-western countries have to seriously think of an alternative financial system so that the US and its allies are not in a position to make use of its domination of the international financial agencies to browbeat the other economies. The non-west economies are now strong enough to take a position that will guarantee their rights and privileges in the global financial system.

The summit of the BRICS countries in July this year in Brazil gives that opportunity to the member countries- Brazil, Russia, India, China and South Africa- to work for that alternative which is now so essential to facilitate the establishment of a new international economic order. BRICS represents 42 per cent of the world’s population and about a quarter of the world’s economy which means that this group of states can play a vital role in transforming the global economy. The last summit at Durban took steps to set up a development bank of the BRICS countries and on April 11 this year, the finance ministers of the five countries had a meeting to review the implementation of the proposal so that it could be presented in a concrete form at the next summit. The finance ministers took note of the urgency of completing the formation process in the context of the present global developments and the need for increased financial cooperation between these five big economies.

It seems that both Russia and China are interested in speeding up the process of the setting up of the development bank as an alternative to the World Bank. Russian Ambassador at Large Vedin Lukov said recently that a currency pool as an alternative of IMF and the BRICS Development Bank, an alternative to the World Bank, should be in place by as early as 2015 itself. This projection may be too ambitious since lot of preparations are needed for the setting up of such a huge development bank, but this has to be recognized that now all efforts should be made to make this Bank a reality and all the five countries must pool their resources for smooth operations of this Development Bank. Sources indicate that Brazil has already drafted a programme for the Development Bank and Russia is drawing up an inter governmental agreement for setting up of the Bank. There has been some understanding on the funding of the currency reserve pool based on the strength of the member countries’ economies. The initial equity capital of the Development Bank may be put at US$ 50 billion now to be raised to US$ 100 billion within a short period.

What is noteworthy is that even before the Ukraine developments, Russia was coming closer to China in working on a strategic partnership to the benefit of the economies of both the countries and plans were being suggested for long term investments in both countries. The BRICS members were taking steps to enlarge their areas of economic cooperation since it was apparent that the synergy of the BRICS economies are yet to be adequately tapped and all the members will get immense benefits if these are taken up on a priority basis. Among the five member countries, the two largest economies of Russia and China have been coming closer and that has given a big boost to the possibilities of speedy integration of the BRICS economies. Western sanctions might push Russia to deepen further cooperation with BRICS countries, in particular its relationship with China. During 2013, there was big expansion of the economic relations between Russia and China. There were 21 inter government agreements including a new 100 million tonne oil supply deal with China’s Sinopec. In October 2013, the two governments signed an agreement to jointly build an oil refinery in Tanjin, east of Beijing.

Further China agreed to channelise US$ 20 billion of investment in domestic projects in Russia focusing on transport infrastructure, highways, ports and airports and it is expected that the Chinese investment in Russia will go up four fold by 2020.In 2013,the trade volume between Russia and China touched US$ 89 billion and in 2015, it is expected to cross the US$ 100 billion figure. For the year 2014, Russia and China have planned for vigorous collaboration in areas such as energy, aircraft building, mechanical engineering apart from defence and scientific cooperation. For Russia which is currently working on emergency measures to protect its oil and gas interests to beat the impact of the US and EU sanctions, cooperation with China and India has become imperative. As the assessment shows, Russia does not need the US and the EU for supporting oil production and the development of new fields. But Russia needs assistance in gas supply and herein lies the importance of full scale collaboration with China and India. Russia will like to have China and India as anchor customers for east Siberian gas. In fact, all the three countries will gain in the long run in respect of ensuring their energy security in the global oil and gas market.

Recent studies have shown that the BRICS countries can give a boost to their respective areas of strength by close collaboration among the members .Studies have revealed that China has the potential to be the leader in the development and manufacturing of electronics while Brazil has the potential to be ahead in the areas of bio technology and livestock production. Similarly, India can do extremely well in the area of pharmaceuticals. South Africa, China and Russia have their own respective other areas where they can excel and emerge as global players.

The BRICS summit in July 2014 thus opens up new opportunities for reinvigorating BRICS operations to make it effective not only for the five members, but also for the other developing countries. The western countries, especially the US, have failed to reform the IMF as agreed. The US Congress has not ratified reforms to the IMF that would double the Fund’s resources and give more say to the emerging economies such as the BRICS. This is the time when Russia, China and India should be proactive in making BRICS a powerful platform for establishing a new international economic order. Global economy’s direction has changed in the last two decades. Emerging economies are contributing to the global economic growth but they are suffering due to the lapses of the financial system dominated by the West. This has to change and the Brazil summit of BRICS has to trigger that process.