A decade after first being lumped together, the world's leading emerging economies show all signs of claiming a growing slice of influence. Yet at their latest summit, plans emerged to pool their resources in a bank to rival the World Bank. It&am
In 2001, Jim O'Neill, then-economist at investment bank Goldman Sachs, coined the acronym BRIC to refer to the world's four biggest and fastest-growing emerging markets, hot on the heels of the West. The term was an overnight success. By grouping together with a handy moniker the nations of Brazil, Russia, India and China -- and adding South Africa in 2011 to make it BRICS with a final "s' -- O'Neill highlighted exactly which up-and-coming countries the global media should be focusing on.
It is impossible not to take this alliance seriously: it comprises 45% of the world's population; it owns one-fourth of the planet's natural resources; and it generates about two-thirds of global growth. One cannot fail to be impressed by these five world champions of development who have been organizing group summits since 2009, the last of which took place in New Delhi last week.
If we are to believe the group's concluding statement from this meeting, the BRICS's unity is absolute. In the Delhi Declaration they admonished the developed world for injecting "excess liquidity" into the economy to maintain its own growth, which provoked "volatile capital flows and raw material prices." They also criticized "the slow rate" of reforms of the IMF International Monetary Fund currently underway with the aim of giving the BRICS a stronger position in the management structure.
Furthermore, the BRICS decided to entrust their respective central banks with the task of developing the use of their national currencies, instead of the dollar, for commercial transactions within the group. These transactions added up to $230 billion in 2011 (+28%).
Their second financial proposal – the creation of a "BRICS bank" to finance their development – seems more risky. Of course, if the World Bank, the largest provider of loans globally, were to neglect BRICS funding in favor of poorer countries, a "BRICS bank" would be their only option. However, that is not the case. India, for example, has received the tidy sum of $42 billion in various loans from the Washington D.C.-based institution.
Robert Zoellick, the World Bank's outgoing president, diplomatically chose to congratulate them on this project, which will provide new competition for the World Bank and stated that he was "enough of an economist not to be in favor of monopolies."
But this is a perilous initiative because the future BRICS bank may well have the money, but it won't have the expertise which allows the World Bank to offer the kind of advice, as well as funding, that can develop major projects like a country's agricultural sector or the fight against female illiteracy.
The project promises to be slow and onerous, as proved by the Latin American "Banco del Sur" that the continent has not yet finalized despite work starting in 2007. Furthermore, only China has the copious amounts of money necessary for the project to succeed ($3.2 trillion in reserves): this means that the Chinese will expect to be in charge of the institution, something that neither Russia nor India would be prepared to accept.
"It is a very long-term project," said François Bourguignon, director of the Paris School of Economics. "It will be a long time before the BRICS bank is capable of offering the same quality of service as other regional multilateral banks. And will its reserves be large enough for the bank to enjoy the Triple A rating?" If not, it will not be able to borrow from the markets with the same advantageous rates as the World Bank.
It should be noted that the BRICS cannot even manage to come to an agreement on symbolic issues, like who should replace Robert Zoellick at the head of the World Bank. The only chance the BRICS have of ending American control of the post and securing the prestigious position for one of their own is to present a united front behind a single candidate – someone sufficiently competent in the field of development to end the monopoly of the past. Otherwise, the American candidate, Jim Yong Kim, is sure to achieve a majority thanks to support from the developed world. And yet, the BRICS are incapable of overcoming infighting to rally behind either Ngozi Okonjo-Iweala, the Nigerian Finance Minister and former Managing Director of the World Bank, or José Antonio Ocampo, the ex-Colombian Finance Minister and a former Under-Secretary-General at the UN.
At the end of the day, the BRICS don't agree on much, except on the need to contest the developed world's domination of global government. This is a line of argument regularly trotted out by the Chinese, though they may soon find themselves charged with the lead role in the destiny of the global economy, when they will be obliged to demonstrate significant improvements in terms of their monetary, commercial and social responsibilities.
The BRICS, and above all, their supposed unity, are a figment of the media's imagination, but a very convincing one nevertheless.
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Photo – Brazilian President's office