Published on Pambazuka News, by William Gumede, March 27, 2013.
In order to prevent the BRICS from ending up as a talking shop they will have to work hard at forestalling the potential for them to become fierce competitors.
The success of the BRICS – Brazil, Russia, India and China and South Africa – partnership will depend on whether individual members can overcome the dilemma of being allies as well as fierce competitors, for markets, goods and geopolitical influence.
Given the diversity of interests of the BRICS members, it is not only very difficult to get the members to agree on priorities, but it is also very difficult to get them to act in concert.
CHINA HAS THE LARGEST PURSE:
Within the BRICS alliance, China has the largest purse. With about a quarter of its $3.2 trillion foreign exchange reserves in euros, China’s foreign exchange reserves are three times bigger than those of the four other BRICS countries combined.
This naturally brings an imbalance in power in favour of China. The sustainability of the BRICS alliance will heavily depend on whether the Chinese dragon, will use its financial muscle to force its way on issues.
Domestic growth policies in one partner often cause economic imbalances in the economies of other BRICS partners. China is at the target of most of the complaints. Policy-makers from South Africa, Brazil and India have alleged China keeps its currency, the renminbi, artificially undervalued to help boost Chinese exports, and so power its industrialisation and growth, which is causing imbalances in the economies of the BRICS partners.
THE ROLE OF CHINA’S CURRENCY: … //
… ESTABLISHING A RESERVE POOL OF EMERGENCY FUNDS: … //
… A NEW INTERNATIONAL RESERVE CURRENCY SYSTEM: … //
… REFORM OF IMF AND UN:
BRICS members’ specifically wants the IMF to increase the quotas of its members – and wants a new formula for quotas distribution. Again, there are wide differences between BRICS members over how such a new quota formula should look like – which is not going to be overcome easily.
Russia, for example, argues that if the IMF does not agree to quota reforms, the BRICs should use their planned foreign exchange reserves pool as an alternative to the IMF, to totally sideline the IMF as an organization; yet other members have a softer stance.
Reforming the United Nations Security Council is another of the core priorities of BRICS. Competing strategic interests of individual BRICS members may undermine their efforts. For example, China and Russia are permanent members of the United Nations’ Security Council, while SA, Brazil and India are looking for seats on the Security Council – yet China appear to be reluctant to firmly support India’s case for a seat on the council.
On the of the BRICS priorities is a joint strategy to deal with wildly fluctuation commodity prices. BRICs are heavily affected by persistent volatility in commodity prices which undermines their growth and industrialisation. South Africa, Brazil and Russia are major exporters of commodities, while China is a major importer.
China has blamed the dominance of the US dollar as one of the main reasons for the volatility in oil and commodity prices. China argues that replacing the US dollar as the sole issuer of the global reserve currency will almost immediately stabilize commodity prices.
Some of the BRICS proposals call for tightening of regulation of commodity derivatives, to prevent it from playing havoc with prices, for BRICs countries to coordinate their policy efforts to secure a ‘balanced supply and demand in the physical markets’.
Clearly, although there is lot of intent among the BRICs countries to manage swings in commodity prices, it will be harder in practice, given the vastly different domestic commodity strategies of individual BRICS countries, to secure a united response from the BRICS group.
A BRICS BANK:
Another of the major objectives of the BRICS group is plans to launch a joint development bank, based on the World Bank model. The aim of the bank would be to fund infrastructure and act as an alternate lender to the World Bank and other finance bodies. It will also be a vehicle for lending during financial crises. The big questions are how the bank would be structured and capitalized, where it would be based, and whether the bank would use different models and lending criteria than the World Bank.
It appears that China wants the new BRICS bank to be in Beijing – however, countries such as India and Russia oppose this. The expectation is that China will put in the most funds into such a bank given its buckets full of reserves. However, the best compromise would be for each partner to provide an equal start-up amount – pegged at lower levels. This would give each member state an equitable share – with no one dominating. It would also be prudent to have the bank in South Africa – which would be neutral territory.
Overcoming the conflict of being allies and competitors, agreeing on core priorities and cobbling together mechanisms to bind BRICS members to agreements will be crucial to prevent the BRICS partnership from ending up as a talk shop.
(full long text).
(William Gumede is author of the bestselling Restless Nation: Making Sense of Troubled Times, Tafelberg).
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