By Indrani Talukdar,JTW
BRICS summit participants: President of Russia Vladmir Putin, Prime Minister of India Narendra Modi, President of Brazil Dilma Rousseff, President of China Xi Jinping, President of South Africa Jacob Zuma. Source: www.kremlin.ru.
One of the successful outcomes of the 6th BRICS summit on July 15-16 in Fortaleza was the creation of the $100 billion New Development Bank (NDB) and an emergency $100 billion BRICS Contingent Reserve Arrangement (CRA) established to tackle infrastructure finance deficit and short-term liquidity pressures. These institutions might be put to the test with the announcement of new sanctions on Russia by the US and the EU. Russia is now facing harsher restrictions that will affect the key sectors of the Russian economy – energy, arms and finance – because of its alleged complicity in the downing of the Malaysian Airlines flight MH17 over the province of Donetsk (eastern Ukraine) on July 18. The reaction of the other BRICS partners to these economic sanctions on Russia remains to be seen.
During the eve of the BRICS summit, with this year’s theme: Inclusive Growth: Sustainable Solutions, Russian President Vladimir Putin said that it is time to ‘raise the BRICS’ role to a new level’ and to make this grouping an unalienable part of the global management system for sustainable development.[1] For Russia, the main agenda during the summit was to counter-attack the West, especially ‘the Western bid to keep Russia out of global economic circles’[2] and also diplomatic sphere[3]. In the economic sphere, Russia has advocated breaking the West’s hegemony over the World Bank and the IMF. In the arena of international relations, Russia has been highlighting the unilateral sanctions imposed by the West, especially the US, and advocating the rule of international law, stressing the need for the United Nations to take a leading role in the international system. Russia was also to set out rules of responsible behaviour regarding global information networks after the Snowden revelations.
The end result of the summit was the reiteration of all five BRICS partners’ cooperation on the above issues along with their common understanding of the global challenges in Ukraine, Syria, Iraq and Afghanistan. It also saw the common pledge amongst them to deepen their partnership with a renewed vision, based on openness, inclusiveness and mutually beneficial cooperation.[4] The 6th BRICS summit provided a platform for Russia to garner support from other BRICS partners and form an umbrella of protection from the West.
One of the significant issues anticipated during the summit was the group’s unconditional support of Russia with respect to the Ukrainian crisis. All of the BRICS countries have opposed the introduction of sanctions on Russia and there has been absence of public criticism of Russia for the secession of Crimea from Ukraine. To a large extent, this camaraderie among the BRICS partners indicates the weakening of the Western monopoly on influencing international politics and the emergence of an alternate power bloc.[5] For Russia, the muteness of its partners was a triumph against the US and the West, indicating Moscow’s clout in building cooperation in the East.
Apart from the reactions to the Ukraine issue, the creation of the NDB and CRA was momentous and yet another victory for Russia. This is because Russia had suggested that the BRICS nations should set up a bank and a foreign currency reserve pool in order to weaken the West’s domination propagated through the IMF and World Bank.[6] However, the initial foundation for these initiatives was laid during the Delhi summit.
The NDB will have an authorized capital of $100 billion, with the initial subscribed capital of $50 billion to be comprised of equal contributions by the founding members. The bank aims to allocate resources for infrastructure and sustainable development purposes amongst the BRICS and other emerging and developing economies. The CRA, on the other hand, is composed of contributions based on the strength of the members’ economies; China has committed to contribute $41 billion; Brazil, Russia and India have assured $18 billion; while South Africa has agreed to contribute $5 billion.[7]
With the announcement of the latest sanctions on Russia, it will be a litmus test for these newly established financial institutions to bail the country out, if the situation so demands. The NDB and CRA are still in their embryonic stages and will take time to demonstrate their full capacity and global utility. Besides, these institutions also face denigration. From the moment of their creation, the NDB and CRA have been exposed to criticism. For example, the initial $50 billion subscription of capital is good, but further capital is needed in order for the bank to be sufficient enough for the global community. Also, the cost of borrowing for the NDB will be higher due to the difference in credit rankings amongst the partners (China is ranked at AA-, with the rest at BBB-).[8] Moreover, China, being the biggest contributor, is being seen as an overshadowing force in the institution that might be causing some discomfort to the other partners in private. However, the NDB can carve its own niche in the global financial market on behalf of the BRICS and other developing countries and emerging markets.
As for Russia, currently, it has a foreign currency reserve of $480 billion, which should sustain the country for the time being. However, how long this can hold out remains questionable given the continuing crisis in Ukraine. To what extent the NDB and CRA can cushion Russia from spiralling into a recession is what needs to be observed.
For its part, Russia will try to strengthen its partnership with the other BRICS partners along with other countries such as those in Latin America, Africa, Asia, etc. as it is facing isolation from the West that will affect its economy in the long run.
Dr. Indrani Talukdar is a Research Fellow at Indian Council of World Affairs, New Delhi.
Notes:
[1]“Putin: BRICS should counteract attempts to impose policy of displacing unwanted regimes”, ITAR-TASS, July 15, 2014. http://en.itar-tass.com/russia/740574 (Accessed on July 15, 2014).
[2]“BRICS Round-up: India Strengthens Position; China, Russia Secure Interests”,Niticentral, July 15, 2014. http://www.niticentral.com/2014/07/15/brics-round-up-india-strengthens-position-china-russia-secure-interests-233373.html (Accessed on July 16, 2014).
[3]The West especially the US is trying to isolate Russia from the international sphere of influence. Moscow, meanwhile, is trying to expand its own circle of influence in East as well as in Latin America and Africa.
[4]“Brics forges stronger economic partnership”, The Herald, July 17, 2014.http://www.herald.co.zw/brics-forges-stronger-economic-partnership/ (Accessed on July 18, 2014).
[5]Mark Adomonis, “BRICS Bank, Ukraine likely to dominate 2014 BRICS Summit “, The BRICS Post, July 16, 2014. http://thebricspost.com/brics-bank-ukraine-likely-to-dominate-2014-brics-summit/#.U8j6kvmSyRM (Accessed on July 18, 2014).
[6]BRICS Round-up: India Strengthens Position”, op.cit.
[7]Unmesh Rajendran, “BRICS Bank: The New Kid on the Block”, The Diplomat, July 28, 2014. http://thediplomat.com/2014/07/brics-bank-the-new-kid-on-the-block/(Accessed on July 29, 2014).
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