Changing calculus

Sanya Brics Summit

The emergence of the group Brazil, Russia, India and China (Bric) has been impressive; with the induction of South Africa as its latest member, Bric becomes Brics. With the latest summit at Sanya in the Hainan province of China, the grouping completed three rounds of annual leadership summit and is heading for the fourth round in India in 2012. This pace of events is prompting many to wonder if Brics is slowly getting institutionalised in global politics.

While many still question its relevance as the group consists of diverse powers in diverse continents with various strategic interests, the very fact that Brics has emerged as a group and has been meeting regularly has confirmed to some extent that global politics is changing its hue with the lead of the developing economies. Moreover, Brics has never been static; it has matured into some sort of an alliance that looks at key global political, economic and trade issues from the perspective of the developing world and offers an emerging model for global economic cooperation and competition.

The Sanya summit was strategically important for a few reasons: South Africa’s debut as a new member, making the club grow; gathering support for Russia’s entry into WTO; the idea of trading directly among Brics nations and cutting out unstable globally convertible currencies. The Sanya summit also underlines the growing Chinese seriousness to push the club as a credible alternative to the western-dominated global financial system.

South Africa’s entry into the club has been a matter of mystery for many. It is still unclear whether this was done through consensus or by the pressure of the Chinese. Unlike the other members of the Bric combination, South Africa’s economy remains far from impressive. South Africa’s current GDP, $268 billion, is almost a quarter that of Russia.

Nevertheless, South Africa is the largest economy of the African continent and geographically is a gateway for the Bric members’ entry into the continent of Africa.
The Sanya summit also witnessed Russia’s growing clout in its global posture and it got endorsement for its accession to the WTO in the current year. It has so far been denied accession to the WTO because of political reasons. With Russia’s entry to the WTO, the clout of Brics vis-à-vis developing economies is likely to increase in the global financial bodies. This is also an opportunity for Russia to make its presence felt at a time when its economy is still struggling to be on par with those of China and India.

A breathtaking development at Sanya was the idea of having a common currency among Brics members. The proposal bears direct implications for the US dollar particularly. The proposal is a formulation to place better the developing world’s market voice for a greater say in the global financial order and on which the developing market’s currencies will have substantial drawing rights in the International Monetary Fund (IMF).

Limitations

It is generally seen that the West-dominated economic world is undermining developing economies like South Africa by inflating its own currencies as investors always look for superior exchange rates. But while the idea of a common currency sounds great, it remains to be seen how the conversion rate would be computed. The geographic distances between Brics members also poses difficulties in formulating something similar to euro as common currency among the entire European countries. Nevertheless, a beginning has been made at Sanya for a world order that provide an alternative to US hegemony.

The bottom line of the Sanya declaration is also on similar lines: it clearly reiterates the need for a greater ‘global financial decision-making’ structure and reform of the IMF. The Brics countries are currently on a massive growth trajectory and plan to use the IMF as a starting point of their strategy to influence the global financial structure. The Chinese role and dialogue in this strategy remain an interesting phenomenon. While the markets in EU and the US are still struggling to overcome their current financial crisis, the Chinese have emerged from the global economic slowdown stronger than ever, buying up 10 billions of pound sterling of debt to help recover some of the EU economies like Spain, Greece and Portugal.

The rise of Brics could help China achieve numerous global objectives, overcoming the pressures from the western and European powers. On issues like climate change, Doha talks and bringing transparency to the global financial structure, the Chinese need the support of India and Brazil. Brics nations were among those who abstained during the recent UN Security Council veto on supporting military intervention in Libya. The Sanya declaration on a common currency will also help China to successfully sideline the supremacy of the US dollar in the global financial order.

The idea of promoting trade settlements in ‘alternative currencies’ is also a strategy to test the India-US and US-Brazil relationship as both India and Brazil share close trade relations with the US. The Chinese president Hu Jintao categorically highlighted in his speech at Sanya the Chinese effort to restructure the global economic system and governance process.

Future expansion proposals suggest new representation from the West Asia, with Egypt coming to the grouping; this will have greater continental representation. There is optimism that Brics share a vision for inclusive growth and prosperity in global politics through South-South dialogue. What it requires is a non-confrontational approach among its members. The Sanya summit confirms that the emerging economies seek a more balanced global and financial system more than anything else.

(The writer is research fellow at the Institute for Defence Studies and Analyses, New Delhi)

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