There is both jubilation and restraint in the air that after the financial crises in the global, particularly Western, financial system, a practical manifestation of alternative, arguably supple-mentary, agencies has emerged in the form of the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA) set up by the BRICS countries at their sixth annual summit in Fortaleza, Brazil. The exhilaration could be integral to the materialisation of an idea that has been on the anvil for some time now. It has still to be ratified by the legislatures of the five member countries (namely Brazil, Russia, India, China and South Africa). Yet the judicious remain prudent, alive to the pitfalls ahead.
The NDB's $ 50 billion start-up will finance infrastructure and sustainable development, and the CRA's $ 100 billion will encounter emergencies faced by member-states. The NDB's current capital is perhaps inadequate for the demands in the South Asian region which alone requires investments to the tune of about $ 2-3 trillion (annually). But the ball has got rolling for a precept that is closer to home than the Bretton Woods institutions. The BRICS affiliates could be more resourceful today than the leading Western lenders were when they framed the global financial institutions in 1944.
A secondary issue like staying together functionally has unfortunately taken precedence in reportage. Yet after teething troubles, the five settled to have the Bank's headquarters in Shanghai, its President from India, the Chairman of the Board of Directors from Brazil, and the Chairman of the Board of Governors from Russia.
Doubters have pointed out the discrepancy between political and financial systems among member-states and their divisive potential. Yet securing the integrative function could be both more challenging and convincing. There is a forward-looking edge to exploring the possibilities. The silver-lining today is an unmistakable realism in raising resources without traditional qualms. A prominent member of India's ruling party, for instance, has spoken enthusiastically about a “Look-East” policy that embraces diverse aspects. India would not have any issues with Chinese capital developing Nepalese hydel resources, if the outcome in terms of wider distribution of power and water benefited northern India. Russia and China are reportedly eager to rope India into their ambitious energy venture.
Likewise, unless the rabid hot or cold warriors take over, the entire West is not nega-tively disposed. As it happens, the enlightened have been heartened to discern a serviceable instrumentality that the rasping critiques of the financial system ignored in the past. The new arrangement significantly envisages funding as a multiple of a member's contribution, but beyond a stipulated amount, is even dependent on participation in an IMF programme.
Reform of the leading global institutions could be an important corollary, when far-sighted insiders secure a bargaining chip to make themselves more democratic, whether on the game-changing conditionalities that come with their transactions or the asymmetric voting patterns seemingly cast in stone. The glass ceiling on appointments to top positions persists, denuding these leading financial institutions of the necessary expertise and proficiency from the developing world. The economic plank of developing governments and their central bank governors, the G-20, has thus far failed to effectively address the issues of governance reform, among other reasons, because of stone-walling by the US Congress.
India is anxious for infrastructure development. Its ability to subsidise existing funding from the World Bank, IBRD, and IDA with a source like BRICS will constitute an interesting test case in the management of financial multipolarity. It is not that the NDB or CRA, slated to expand their horizons, will make a difference overnight. But they symbolise an initiative that was inevitable.
Economic progress needs empathy and understanding from principals and lenders, rather than the clinical returns-oriented book-keeping which imposes penalties in the form of “austerity” or reduced public expenditure on defaulters. Participants have been separated by disparate value systems where a satisfactory bottomline for one has translated into disaster for the other. These are not past remedy as the World Bank's former Chief Economist, Joseph Stiglitz, has chronicled. Yet the conundrum looks different when critics harp on suspect credit-worthiness, inefficiency, corruption and political dabbling in the developing world, already in circulation as BRICS' likely stumbling blocks.
There is a particularly worrying line on BRICS being used as a safety net against US sanctions (applicable currently to Russia), with a further caveat directed at the three “liberal democracies” to watch out on developments in the South China Sea. Barbs are being traded on the acronym. But the recognition that the endeavour is more to “shape” than “destroy” the existing order has also been pronounced. BRICS' founder-members would be aware of related happenings as well as the nature of the journey they have embarked upon. The big picture, however, confounds the skeptics.
The economic growth of the BRICS bloc over the past four decades has been phenomenal, while the developed world got stuck in a groove. Global desideratum entailing massive invest-ments now and in the future are beyond its ken. Development assistance has been faltering with the limited perspectives of the existing multi-lateral financial institutions which do not appre-ciate the urgency of meeting the problems of climate change and sustainable development without which sheer human survival, inequality and poverty will ironically hound the develo-ping world the most. BRICS had to take matters into its own hands but in a spirit that co-opts, rather than confronts, the existing state of affairs, given the enormity of the tasks ahead.
The author is a Bengaluru-based journalist.