In June 2022, two major global events occurred when two groups of countries met for their annual summits in Germany and China. While the G7 group of nations (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States together with the European Union) met in Germany, the BRICS nations (Brazil, Russia, India, China, and South Africa) met in China for their 14th Summit.
The characteristics of the groups are very distinct – one (G7) is a group of mainly white, powerful Western nations, representing contemporary global leadership, and the other (BRICS) is a group of globally powerful emerging nations wanting a larger say in the developing and developed world. The BRICS nations differ from the G7 in two main aspects — in the populations they serve — three billion as opposed to the G7’s 987 million (including the EU) and the economy they control. At present, G7 is a much larger economy as compared to BRICS.
Genesis of BRICS
In 2001, Jim O’Neill — the chief economist of Goldman Sachs — in his piece, ‘The World Needs Better Economic BRIC’, argued that Eurozone countries should probably make room to allow BRIC countries to be part of an improved G7/G8 at the centre of an improved International Monetary Fund and World Bank. Subsequently, along with various Goldman Sachs colleagues, he went on to show how important, economically, these countries may become for the world economy. He suggested that instead of setting up the world’s then-emerging economies as a separate group, they may be brought into an expanded G-7. In those days, Russia had just been taken into the G-7 to make it the G-8, but it was still an outlier. The paper made the case that by 2039, the four economies — Russia, India, China, and Brazil — would upend the global economic order and overtake G-7, reported The Hindu.
The leaders of BRIC countries met for the first time in St. Petersburg, Russia, on the margins of the G8 Outreach Summit in July 2006. Shortly afterwards, in September 2006, the group was formalized as BRIC during the first BRIC Foreign Ministers’ Meeting, which met on the side-lines of the General Debate of the UN Assembly in New York City. After a series of high-level meetings, the first BRIC summit was held in Yekaterinburg, Russia, on June 16, 2009. The summit’s focus was on improving the global economic situation and reforming financial institutions. It discussed how the four countries could better co-operate in the future. There was further discussion on the ways developing countries, such as BRIC members, could become more involved in global affairs. In the aftermath of the Yekaterinburg summit, the BRIC nations announced the need for a new global reserve currency, which would have to be “diverse, stable and predictable”. South Africa joined BRIC in 2010.
According to O’Neill, the second decade of this century has been quite a contrast to the first decade (2000-09) of BRIC, which, for all four countries, turned out even better than in the scenarios he outlined in 2001. While India has notably disappointed in recent years, it is broadly developing along the path he envisioned. For both Brazil and Russia, however, 2010–20 economic performance was very disappointing. In contrast, the ongoing strength of the Chinese economy suggests that it is fully achieving its potential. China’s GDP is more than twice that of the other BRICS nations in aggregate. The sheer scale of China means that the BRIC economies combined are now larger than that of the European Union, and are approaching the size of the United States.
Since 2009, with Russia playing a more active role, BRICS has evolved into a formal global independent organization, with annual summits and publications. Within five years of its formation, the BRICS served notice that they were an economic alliance that posed a challenge to the global status quo. During their sixth Summit in Brazil in mid-July 2014, they inaugurated two path-breaking institutions intended to rival the US and European-dominated International Monetary Fund and World Bank. These are: a ‘Contingency Reserve Arrangement’ (CRA), with an initial capitalization of USD 100 billion, which could be accessed by BRICS members in need of funds; and a ‘New Development Bank’ (NDB), with a total authorized capital of USD 100 billion, which was open to all members of the United Nations.
Both these institutions aim to compete with the global North’s chokehold on finance and development. The New Development Bank (NDB) is considered a rival to the West-dominated World Bank. The establishment of the Contingent Reserve Arrangement (CRA) is an additional framework for providing protection against global liquidity pressures, including currency contingencies, when members are adversely affected. Thus, BRICS has created a payment system that could be used as an alternative to the Society for Worldwide Interbank Financial Telecommunication System (SWIFT). The CRA has become a direct competitor to the International Monetary Fund, and along with the NDB, reflects the increasing cooperation among North-South nations.
Shahrokhi et al (2017) argued that BRICS’ bold efforts to create an alternative financial system have not gone unnoticed. Some critics view that these efforts are symbolic enough to cause visible and pronounced confrontations with the West. Though hard to verify, the world’s status-quo system does not seem to embrace the BRICS financial architectures and may have even engaged in undermining those. Recent obstructions on Russian transactions are a case in point.
Initially, BRICS mainly had an economic agenda, but gradually, the scope has widened to include security, health, science & technology, culture and civil society. Under the chairmanship of Brazil, more than a hundred meetings relating to BRICS were held in 2019. The 11th BRICS summit (2019) in Brazil called for strengthening multilateralism and reforming global institutions such as the UN Security Council (UNSC), World Trade Organisation (WTO), World Bank (WB), and International Monetary Fund (IMF).
The early literature on BRICS is chiefly preoccupied with the size and the potential economic and financial growth of these countries. In contrast, the current coverage of BRICS is more politically oriented. For instance, in western media today, the negative attributes of BRICS seem to attract more coverage than their positive features. Western reaction to the 14th BRICS Summit in June 2022 is an example. Commenting on it to BBC, Michael Kugelman, deputy director at the Wilson Centre think-tank in Washington, said, “The BRICS may seem irrelevant because it hasn’t really moved the needle forward on its long-standing efforts to usher in viable global economic alternatives to the US-led existing system,” But he also added, “writing the BRICS off will be a mistake because of its collective economic might”.
As per the World Bank data, in 2021, the nominal GDP of BRICS nations (Brazil USD 1.6 trillion, Russia USD 1.77 trillion, China USD 17.73 trillion, India USD 3.17 trillion, South Africa USD 0.42 trillion) amounted to USD 24.7 trillion — which was around 25.7 per cent of the world GDP (USD 96.1 trillion). On a nominal GDP measure, BRIC share of the world GDP was only eight per cent in 2000. Compared to this, the total GDP of G7 countries in 2021 (the USA USD 22.3 trillion, the UK USD 3.19 trillion, Germany USD 4.22 trillion, France USD 2.94 trillion, Canada USD 1.99 trillion, Italy USD 2.1 trillion, and Japan USD 4.94 trillion) amounted to USD 41.68, which was around 36.8 per cent of the global GDP. These two groups of nations — BRICS and G7 — now contribute over 62 per cent of the global GDP.
However, it is reported that most of the G7 countries are in the grip of a severe recession. EXIM Bank report (2020) on BRICS shows that from 2008 to 2018, when the world GDP had grown by 2.5 per cent on average, every year, GDP growth in the BRICS nations has grown faster than the world GDP growth at 3.9 per cent. The study (2020) also says that the five nations (BRICS) together hold less than 15 per cent voting rights in both the World Bank and the International Monetary Fund, yet cumulatively, these economies are predicted to surpass the size of G7 economies by 2032.
The year 2021 marked the 20th anniversary of Jim O Neill’s coining the acronym “BRIC”. In a recent article (summer 2021) O’Neill disclosed that his primary goal in the first paper, ‘The World Needs Better Economic BRIC’, was to make a case for changing the framework for global economic governance, not necessarily the inevitable future growth of these countries.
At present, the G7 is determined to continue with the existing world order, which China and Russia in particular view as ‘unipolar’ — meaning centred on the United States and directed by whatever US foreign, global and domestic policies are at the time. Both countries (and others) are looking for a more inclusive role in global affairs as befits their status. China, for example, is the world’s second-largest economy, and India the fifth. Yet neither have the percentage say in global financial institutions such as the World Bank and IMF – hence, there is the development of alternative policy banks such as the Asian Infrastructure Investment Bank and the BRICS own New Development Bank. There are also accusations that global institutions such as the United Nations (based in New York) have begun to be too influenced by Washington’s policies than global ones. Calls for reform are increasingly being heard.
14th BRICS Summit 2022
China hosted, in virtual mode, the 14th BRICS Summit during June 23-24, 2022. On 23rd the Summit declaration, which runs into 75 points, was released. China’s President Xi Jinping has called the BRICS 2022 Summit Declaration an important document that
should be studied carefully. It, as Xi Jinping suggests, is a document that should be read by everyone to ascertain where future development flows; problems and opportunities can be seen and dealt with; and the way to a more inclusive, and fairer, multi-polar global society can be paved.
The historical declaration, which can be viewed as a strategic document, has broadly covered the following areas: Introduction (1-4), Global Governance & Policy Finance Reforms (5-13), Global Covid Response (14-19), Global Peace & Security (20-36), Global Economic Development (37-51), Global Sustainable Development (52-61), People-To-People & Cultural Development (62-70) and Institutional Development (71-75). Commenting on the BRICS declaration, analyst Chris Devonshire-Ellis has made a few important observations. The overall tone of the BRICS declaration 2022 is far more inclusive than in the past and can be seen as a pathway to a far larger influential entity.
The three main themes of the document are:
1) The pathway to an inclusive bloc that has the potential to develop into both a formal and informal grouping that could influence up to three-quarters of total global trade.
2) The call for reform within numerous multinational institutions, which while diplomatically phrased, remains an assessment that the United States’ position as a ‘Unipolar’ power is now waning and that bodies such as the UN, WTO, World Bank and related institutions require a shakeup and a divestment of global power and influence away from Washington and spread more equally among the emerging countries of the world. This would be the biggest single shake-up of the World Order since the end of the previous British Empire.
3) The overriding concerns regarding getting Africa well and truly on its feet, and delivering its potential.
The most important development during the BRICS summit was the statement of Russian President Vladimir Putin who informed that the BRICS countries — Brazil, Russia, India, China and South Africa — are working on a new global reserve currency. “The issue of creating an international reserve currency based on a basket of currencies of our countries is being worked out,” he said at the BRICS business forum. According to the Russian president, the member states are also developing reliable alternative mechanisms for international payments. The group said it was working on setting up a joint payment network to cut reliance on the Western financial system. The BRICS countries have also been boosting the use of local currencies in mutual trade.
The other major development is the possibility of Iran and Argentina joining BRICS. It is believed that Iran and Argentina are jumping on the bandwagon because they sense an opportunity to build an alternative alliance to Western-led globalization. Meanwhile, the other BRICS members are inviting them on board because they smell blood, and because they see large economic weaknesses being exposed by the quick collapse of the Western sanctions against Russia. Taken together, the expanded BRICS countries currently produce around 26 per cent of global oil output and 50 per cent of iron ore production used to make steel. They produce around 40 per cent of global corn production and 46 per cent of global wheat production. If these were all traded in the new reserve currency, it would instantly become a cornerstone of the world economy.
Options before India
Sensing India’s inclination towards the west and its dilemma in embracing China-led BRICS, the G7 — an exclusive club of the world’s richest countries that represents their interests and their world view — has been trying to accommodate India in their group though it does not meet the basic economic criterion of a developed country. In 2003, when late prime minister Atal Bihari Vajpayee was invited for the G7 summit as a guest, there was much satisfaction and excitement in India. An invite to G7 was seen as an endorsement by the rich and powerful that India mattered. Since
then, India has become a regular invitee. During his two terms in office, former Prime Minister Manmohan Singh attended five such summits, while Prime Minister Modi has so far been to three, including the latest in Germany during June 26-28.
Analysts believe that the invite to G7 is primarily to rope in India to the western camp. However, it is said that with Angela Merkel no longer there to assert Germany’s strategic autonomy, which would have been supported by France’s Emmanuel Macron, the G7 has become more of a rubber stamp for the Biden administration.
India has already aligned itself with USA-led QUAD, Indo-Pacific Economic Framework (IPEF), and U2I2 (USA-UK-India-Israel) groups. The problem is most of the Western nations, including the UK and USA, are already in a deep economic crisis.
Sensing India’s dilemma, Russia has tacitly nudged India to break ranks with Germany and Japan while seeking expansion of the United Nations Security Council and a permanent seat for itself on the Horseshoe Table. It is reported that Andrey Denisov, Moscow’s envoy to Beijing, said that Russia was open to the prospects of India and Brazil joining the Security Council as permanent members, but would oppose giving the same status to Japan and Germany.
Ideally, India should take a neutral path and revive the non-aligned movement of the last century. The Non-Aligned Movement (NAM) was created and founded during the collapse of the colonial system and the independence struggles of the peoples of Africa, Asia, Latin America, and other regions of the world at the height of the Cold War. India played a leadership role in the NAM. The soft power that India once enjoyed, as a land of Buddha, Gandhi, and Tagore, which expounded love and non-violence, has been lost.
It appears India has run out of options. Meanwhile, the Reserve Bank of India has recommended that the government approach the BRICS Bank, now known as the New Development Bank (NDB), to sell rupee-denominated
bonds in overseas markets. Willy-nilly expanded BRICS may align with its long-term strategic and economic interests. It is always advised to leave a sinking ship. Earlier the better!
Views expressed are personal
Source: millenniumpost.in
