July 20, 2012 | by JUSTINE DOODY
Western dominance of global financial and political institutions is about to end if the BRICS (Brazil, Russia, India, China and South Africa) have anything to do with it. Their fortunes will certainly affect the world economy, Justine Doody reports.
In June 2012, as Europe stumbled, the BRICS came to the rescue. Between them, the emerging powerhouse economies of Brazil, Russia, India, China and South Africa pledged $75 billion to the IMF's Eurozone bailout fund of $460 billion. The move illustrates the bloc's increased importance in the global economy: according to Najim Azahaf, project manager of the Bertelsmann Stiftung's SGI project which analyses the governance structures and reform capacities of countries and whose forthcoming study on Sustainable Governance in the BRICS will be published this fall, “the BRICS are about to change the power structure in the world economic system of the 21st century”.
The BRICS' growth has slowed in 2012. But their success in the global downturn compared to the developed economies has seen their relative importance to the global economy skyrocket. In 2012, according to the IMF, the economies of Brazil, Russia, India and China accounted for 20 per cent of world economic output, a fourfold increase in the last ten years. Along with South Africa, the grouping's most recent member, the countries are home to 43 per cent of the world's population. And they see in cooperation a way to make their mark on global governance, just as they have on the global economy.
One of the major motivations behind the BRICS' cooperation is their shared desire to limit the power of the developed economies in the global financial system. Since its first summit in 2009, the group has sought changes to the structures of the IMF and the World Bank. At their March 2012 summit in New Delhi, the leaders of the BRICS again called on the IMF to implement quota reforms agreed at the G20 summit in 2010. The $75 billion promised to the bailout fund in June was given “in anticipation that all the reforms agreed upon in 2010 will be fully implemented in a timely manner, including a comprehensive reform of voting power and reform of quota shares”.
The BRICS agree that Western dominance of financial structures must end. But they have been slow to put forward suggestions for a new order. At New Delhi, the nations failed to unite around a candidate for the presidency of the World Bank, such as Nigerian Finance Minister Ngozi Okonjo-Iweala. And their action plan was heavy on agreements for future meetings, and light on specific policy pronunciations.
This lack of specificity can be traced back to the considerable differences between the countries, on economics as well as on geopolitical issues. Russia is an energy exporter, and benefits from high energy prices that threaten the manufacturing economies of India and China. Brazil profits from high food prices that disadvantage others in the bloc. China is a true economic superpower, where South Africa is a minnow; India's population and economic potential is expanding quickly, while Russia's is in decline.
On security, the bloc has to overcome mutual suspicions that stretch back generations. China and India have long-standing border disputes, and Russia fears that China has designs on Siberian resources. And the five countries have very different systems of government. India, Brazil and South Africa are democracies, China is a communist state, and Russia's democratisation can at times appear in doubt.
But in spite of their divergences, the BRICS have found ways to work together that will impact their own development and that of the rest of the world. Intra-BRICS trade stood at $230 billion in 2011 and the group is targeting $500 billion by 2015. And at the G20 summit in June 2012, the BRICS' leaders discussed creating a joint safety net in the form of a reserve fund to be used to counter capital flight in any of the BRICS countries. The proposal should be finalised at the BRICS summit in 2013. At the New Delhi summit in March, they had already agreed to explore the creation of a joint development bank. The June declaration brought this plan closer to reality.
Financial cooperation will give the BRICS greater power to shape the world economy. But already, their influence has been felt across developed and developing economies alike. The BRICS' involvement in development funding is growing. A study by Global Health Strategies showed that between 2005 and 2010, Brazil's foreign assistance spending rose about 20 per cent a year, China's grew by about 24 per cent, and India's by 11 per cent – far more quickly than growth in development assistance from the G7 countries. And an IMF working paper in 2011 argued that the spillover effects of the BRICS' good performance during the economic crisis added 0.3 to 1.1 percentage points to the growth of low-income countries.
The world is watching to find out whether the BRICS can provide an alternate engine for growth in a post-Western world, or whether their star will fall along with that of the developed economies. But in growth or decline, it is clear that their fortunes will have significant implications for the future of the global economy. SGI's new study will provide a major new insight into the internal motivating forces in the BRICS. As Najim Azahaf says, “the availability of data and information on the internal governance capacities of these countries remains behind that of OECD nations.” The study will provide “a detailed profile of strengths and weaknesses in terms of institutional frameworks, government performance and governance capacity.” In so doing, it will help to answer central questions such as ”what exactly are the key internal political factors behind the recent development in these countries? What differences and similarities can be identified in their strategies and management policy? How sustainable is their economic development – and to what extent do the people benefit from it?”