Why five strange bedfellows should make the United States pay attention, at least for a little while
Shakespeare wrote "misery acquaints a man with strange bedfellows." However, for the BRICS, it wasn't misery, at first, but in fact prosperity, that brought together this diverse band of nations. Today, as the BRICS countries confront domestic under-performance and dissatisfaction, it is unclear whether misery will bind or tear them apart in the future. After all, politically, economically, culturally, and historically (the list of differences outweigh the similarities), the BRICS leaders have little more to agree upon around the dinner table than do Sarah Palin and Hillary Clinton.
At present, the BRICS are a far cry from being heralded the "greatest prospects for long-term economic growth," a glowing accolade bestowed on the emerging economies not long after Jim O'Neill of Goldman Sachs coined the term in 2001. Rather, Brazil, South Africa, and Russia have seen their economic growth slow to a crawl, with GDP forecasted to grow 1.5%, 2.3%, and 0.6%, respectively, according to Economist Intelligence Unit predictions. China's growth is also expected to slow, although forecasts still put it at about 7.3% for the year. (The exception among the democratic powers is India, with a predicted growth rate this year of 6%). Although the BRICS will continue as a notable force of combined GDP, the uninhibited growth these emerging powers felt a decade ago, some argue, may very well never occur again. With such a grim outlook, should Washington write off the BRICS?
Despite their downward turn, six summits later and thirteen years since Brazil, India, Russia, and China's collective baptism as the BRICs (South Africa joined only in 2010), they continue to flex their combined political and economic muscle on the international stage. Furthermore, after years of ceremonious rhetoric, the coalition of strange bedfellows has now proven that it can actually churn out a tangible product - the New Development Bank - however unpolished it may be.
At this year's BRICS summit in Fortaleza, Brazil, the dominant agenda item was the New Development Bank. Per the "Fortaleza Declaration," the bank will be used for "mobilizing resources for infrastructure and sustainable development projects in BRICS and other emerging and developing economies." The bank, which plans to give its first loan in 2016, will have a total funding pool of $50 billion as well as $100 billion in currency reserves.
As I wrote in my Folha de São Paulo column last week, the bank will likely have little immediate impact, but it should not be summarily dismissed. Caught up in a half-dozen major international crises, including a refugee wave at its own border, the United States has held its tongue. While the launch of the bank may not be a near-term, earth-shattering global event, its potential consequences are real.
The launch of the New Development Bank is a positive PR move for all of the BRICS leaders and helps push their own domestic agendas forward. Should the development bank survive, according to a United Nations Discussion Paper, the stock of loans could reach $350 billion, and the bank could lend as much as the World Bank in 20 years. Still, domestic issues dominate the agendas for most if not all of the BRICS, raising doubts as to just how much of a priority each will make the bank, and perhaps, crippling its potential from the start.
In Brazil, still recovering from what statistics guru Nate Silver referred to as "the most shocking result in World Cup history," transportation, education, and healthcare woes have once again moved to the forefront of public discourse. Dilma in particular has too much on the line with impending elections to expend considerable political capital trying to fortify the BRICS Bank or pursue closer diplomatic ties with other BRICS countries at this time. The launch of the BRICS Bank may very well win her a few political points with those who favor Brazil adopting a more antagonistic relationship with the United States, but with the election increasingly up for grabs, it's unclear foreign policy points will increase her margin.
In India, the newly minted prime minister Narendra Modi rose to the top of India's five-week long election process on a campaign for domestic reform and promise of future Indian prosperity. He used his past success in the state of Gujarat as a model for what he could do throughout the country. His trip to Brazil for the BRICS summit, his first abroad, was rightly viewed in the Indian media as an opportunity to flesh out his international agenda. However, given his domestic focus and goal of building the infrastructure that enables "India to rival China, the economic powerhouse next door," it is unlikely the BRICS will rank as his top priority either.
And what about China? Contributing a cool $41 billion of a total $100 billion, China is the primary financier of the Contingent Reserve Arrangement, an emergency fund launched in conjunction with the bank that is designed to ease liquidity crises in the BRICS or for other sovereigns. China also reportedly sparred with the other BRICS for greater control over the bank, holding out until the last minute before agreeing to an equal funding scheme. Indeed, China may end up pulling a majority of the strings, making the bank virtually a puppet for Chinese infrastructure projects. If China shows restraint, even better. Either way, the bank is a win domestically and internationally for the country.
South Africa - by contrast - is the smallest contributor to the contingency currency pool ($5 billion). However, the announcement of a "New Development Bank Africa Regional Center" based in South Africa represents a political success for the country, which continues to expand its influence throughout sub-Saharan Africa.
And ah, mother Russia. For today's version of Vladimir Putin, the BRICS provide an opportunity to wave the anti-Western flag, finding solace among new "partners" who will stay quiet when he does something a little bit - or very - questionable. In fact, the Fortaleza Declaration's deafening quasi-silence over Ukraine made no mention of Russia's role in fomenting the crisis there, referring only to the need for "de-escalation of the conflict and restraint from all actors involved." Nor have Brazil, South Africa, and India commented to date on allegations of Russia's involvement in the downing of MH17. China has condemned these allegations as "yet another example of the power of Western opinion as a political tool."
Given all of these competing and self-serving priorities, what can we expect from the BRICS Bank, and what should this mean in the context of bilateral relations between the United States and the BRICS countries? The BRICS Bank has been viewed by some as a "challenge to [the] world financial order" of the United States- and European-backed World Bank and IMF. Should it be? The skeptic in me chuckles at the governance structure of the bank: a Russian chair of the Board of Governors, a Brazilian chair of the Board of Directors, an Indian President, and a Chinese headquarters. This coalition sounds like a train that could very well go off the rails sooner rather than later. Beyond the leadership structure of the bank, its viability as an effective development institution or rescue facility is also dubious at best. Watch the labor and environment side of the ledger--it's hard to imagine the democratic BRICS members will muster, without unlikely pressure from their own publics, much enthusiasm for best practices in those arenas.
On the side of the optimist, there is undoubtedly a geopolitical significance to the BRICS continued partnership, and it is worth noting that the bank is their first major accomplishment as a group. Especially against the backdrop of domestic disarray, and particularly with Russia at the table, the fact that the BRICS continue to stand together is in itself a victory. At best, the challenge from the BRICS Bank could push the IMF to implement the quota reforms that the BRICS and the developing world at large have called for on numerous occasions.
Regardless, if the BRICS Bank is a jab at the powers that be, then the powers that be have not taken much notice. And, is encouraging South-South lending something that should worry U.S. policymakers? Making others foot the bill instead of always ponying up the cash makes sense in an era of globalization and continued austerity. And for the nationalists worried about America's waning power, as Alan Beattie of the Financial Times points out, "in reality each [BRICS] country's relationship with the US remains generally more important than their relationships with each other."
For now, the BRICS Bank is a global statement certainly, and one with the ability to score each of these leaders some political capital domestically. Whether or not it crashes and burns is an entirely different conversation. If it doesn't, is sharing the bill for global development such a bad thing?