Finally, the BRICS put money where their mouths used to be. At the sixth summit of the BRICS (Brazil, Russia, India, China and South Africa), held in Fortaleza, Brazil, the leaders of five of the largest developing economies unveiled the New Development Bank, which is unofficially known as the BRICS bank. This announcement marks a new phase in the evolution of the BRICS. Until these five powerful countries agreed on this new vehicle of development financing, most observers had doubted whether the BRICS could accomplish anything more than the production of the rhetoric of cooperation and mutual respect.
To be sure, despite its name, the New Development Bank (NDB) is a relatively modest financial undertaking. According to the agreement reached by the BRICS, the NDB will have only $10 billion in paid-in capital (to be funded over seven years), with each country contributing $2 billion. In addition, the NDB will have $40 billion that will be paid “upon request”. The $50 billion forms the initial funding pool for the NDB. Another $50 billion will also be made available to the NDB by the BRICS in the future. Of the $100 billion capital, China will provide $41 billion, India, Russia, and Brazil will contribute $18 billion each. The remaining $5 billion will come from South Africa, the smallest economy in the BRICS.
Based on the agreement on the governance and location of the NDB, it appears that the leaders of the BRICS worked hard to overcome their differences. To everyone’s relief, a face-saving solution was found. Shanghai gets the headquarters, India gets the first presidency, Russia and Brazil get the chairmanships of the two supervising boards.
In the short term, cooperation among the BRICS will be measured almost solely on the success or failure of the NDB. In this regard, perhaps, the BRICS should be given the benefit of doubt.
Given the tremendous technical difficulties involved, the NDB is unlikely to quickly deliver eye-popping results in fulfilling its mandates — infrastructural financing and currency stabilisation, primarily in the BRICS and secondarily in other developing countries.
In the long run, the challenges to the success of the BRICS are chiefly geopolitical, not economic. Although the BRICS may aspire to be the developing world’s answer to the G-7, it would be a mistake to overlook some of the fundamental differences between the BRICS and the G-7 that will greatly influence how the BRICS work with each other.
The first notable difference is in terms of political systems. While the G-7 countries are all mature, wealthy democracies, the BRICS contains two authoritarian colossi (China and Russia) and three democracies. The heterogeneity in political regimes is likely to hamper the development of mutual trust and respect.
The second stark difference …continued »