The leaders of five of the world’s largest emerging markets will showcase a new currency reserve fund and development bank this week. Critics say neither is enough to revive the group’s waning clout.
Brazil, Russia, India, China and South Africa, known as the BRICS, will approve the creation of the $100 billion reserve fund and $50 billion bank at a July 15-16 summit in Brazil’s coastal city of Fortaleza and the capital Brasilia, President Dilma Rousseff and other officials said last week. Negotiators are still trying to agree on shareholding in the bank, according to three Indian officials who requested not to be named because the talks were not public. India wants member stakes to be based on contributions not on economic weight.
The initiatives are born out of frustration with a lack of participation in global governance, particularly in the World Bank and International Monetary Fund, said Arvind Subramanian, senior fellow at the Peterson Institute for International Economics. The measures aren’t big enough to boost growth or cohesion in the group as foreign investor sentiment sours and member states focus on issues close to home, such as Brazil’s elections, the conflict in Ukraine and new economic policy plans in India.
“It’s hard to see a lot of impetus at this stage for the BRICS in general and for these initiatives in particular,” Subramanian said by telephone from Washington. “There’s going to be a lot of attention on domestic issues.”
Economic growth in the five countries is projected to average 5.37 percent this year, half the pace seen seven years ago, according to the median estimate of economists surveyed by Bloomberg. Brazil and Russia will grow 1.3 percent and 0.5 percent, respectively.
Yuri Ushakov, Russian presidential aide on foreign policy, said in an interview that the group’s growth rate is still above that of the global average and that its economic and political weight is increasing.
The BRICS have evolved from the original term coined in 2001 by then-Goldman Sachs Group Inc. economist Jim O’Neill to describe the growing weight of the largest emerging markets in the global economy. In 2011, South Africa joined to give the BRICS a broader geographic representation. The group’s track record in pursuing a common agenda on the world stage has been mixed.
“It’s easier to say what the BRICS aren’t than what they are,” said Jose Alfredo Graca Lima, under-secretary for political affairs at the Brazilian Foreign Ministry.
The five countries failed to agree on a candidate to head the World Bank in 2012 and the International Monetary Fund in 2011, two posts at the heart of their demands for more say in global economic matters.
The summit is unlikely to provide a common front to push ahead global trade talks either, even though the World Trade Organization is headed by Brazilian Roberto Azevedo. Brazil itself has increased protectionist measures under Rousseff.
India and South Africa have signaled they may backtrack on a trade facilitation agreement reached at the WTO talks in Bali, Indonesia in December 2013, wrote Carlos Braga and Jean-Pierre Lehmann, professors at Lausanne, Switzerland-based IMD business school.
The joint communique by BRICS trade ministers today said member countries stood by the Bali agreement. Brazilian Trade Minister Mauro Borges said he understood India had certain concerns about its implementation.
“The meeting of the BRICS trade ministers did not intend to forge a common position on the ratification of the Bali agreement,” Borges told reporters today in Fortaleza.
Indian Prime Minister Narendra Modi is unlikely to rock the boat at the Brazil summit, said N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a government-backed research institute in New Delhi.
“Domestic issues are dominating his agenda, especially growth and inflation,” Bhanumurthy said.
Russia expects BRICS leaders to discuss international issues, including the situation in Ukraine, and speak out against “sanction pressure,” Ushakov told reporters July 10.
All BRICS members except for Russia abstained from a United Nations vote that called on states not to recognize Crimea’s autonomy from Ukraine. Rousseff met with Russia’s Vladimir Putin earlier today in Brasilia.