BRICS building an IMF alternative

Amid the plethora of international groupings that have sprung up in the decades since World War II we are just getting used to another one. BRICS stands for the names of its members – Brazil, Russia, India, China and South Africa – and we are destined to hear a lot more about it in the years to come.

It is relatively new, formed out of a meeting of the Foreign Ministers of Brazil, Russia, India and China in 2006. South Africa joined in 2010.

 It is unusual in that it is not based on geography, shared language, customs or history. It is not a trading block, although that might materialise. Members are bound together by a shared belief that they are the emerging regional powers of the future, linked with mistrust of existing international institutions dominated by developed Western nations and especially the United States.

At its most recent meeting in Fortaleza, Brazil earlier this month, the group decided to set up a BRICS Development Bank with $100 billion in funding and a reserve currency pool of another $100 billion – a direct challenge to the International Monetary Fund and the World Bank, which members believe are creatures of the US and the European Union and in urgent need of reform.

The meeting also marked the first foray of India’s new Prime Minister, Narendra Modi, into multilateral politics. He made it clear that India did not want to see the Development Bank dominated by one country in the same way as the US plays a major role in the existing institutions.

He lobbied hard for the bank to have its headquarters in New Delhi, but in the end had to accept a compromise. The bank will be set up in Shanghai, but an Indian will head it for the first six years of its existence followed by Brazil, Russia and South Africa taking terms of five years each.  

However, that arrangement has not allayed the fears of economists and other commentators in India that the organisation will quickly be dominated by Beijing.

Rajiv Kumar, of the Centre for Policy Research, says the Bank’s staff will be largely Chinese and that Beijing will effectively be pulling the levers of power, making sure loans go only to countries it favours. Sanjaya Baru, of the International Institute of Strategic Studies, said the fact that the first president will be Indian was nothing more than a “lollipop” offered by Beijing to mute critics of its dominance.

It will also probably be a case of “he who pays the piper”. Of the Bank’s $100 billion in funding, China is providing $41 billion, Russia, Brazil and India $18 billion each and South Africa just $5 billion.

Critics are also concerned that the Bank’s reserves are not great enough to do much good.  The Indian Government is launching an ambitious infrastructure program which by some estimates will require funding of $1 trillion over five years - meaning it will still have to go to the Western institutions for most of its funding.

But that may well be part of Modi’s thinking – building stronger bridges with China as a basis for resolving the two counties’ border issues, at  the same time seeking assistance from Washington in return for the closer relationship President Barak Obama desires in order to provide a democratic ‘balance’ to China in the region.

It’s a difficult and possibly dangerous game – but one the new Indian PM is not shirking from playing.