Power of 5

BRICS, 9 Apr 2012

Shobhan Saxena – The Times of India

Far from Delhi’s decked-up roundabouts and sanitised hotels, Robert Zoellick was aboard a boat on Wednesday, crossing the river Bhitarkanika on his way to a village in Orissa. After greeting the villagers with folded hands, the World Bank president sat down to talk to a global news agency. A few stock questions later, the Bank chief turned his attention to the proposed BRICS bank. “It’s a complicated venture which will have a hard time getting off the ground and match the expertise of the World Bank,” Zoellick said.

It was hard to miss the symbolism of Zoellick’s foray into a dark corner of India and raise doubts about a new development bank just one day before the leaders of Brazil, Russia, India, China and South Africa (BRICS) met in the Capital to thrash out the nitty-gritty of the Delhi Declaration. It was clear that the Bank didn’t want a new global rival that couldn’t be controlled from Washington.

But by Thursday evening, BRICS leaders had proposed to trade among themselves in their local currencies, made significant progress on the setting up of the new development bank, expressed their concern at the slow pace of quota and governance reforms in IMF, and decided to abide by UN sanctions and not the unilateral ones imposed by the US and European countries on Iran and Syria. “We wish to see these countries living in peace and regain stability and prosperity as respected members of the global community,” the declaration said.

This was a giant leap forward, much more than what skeptics like Zoellick had expected. In the days leading to the summit, the air was thick with negativity. “What do they talk at these summits? It’s just a talk shop and a photo op,” an American diplomat had said, making no effort to hide biting sarcasm. The same day, an op-ed piece in the New York Times argued that the focus of the new bank was misplaced. “It is the fundamental incompatibility of the BRICS nations , not their lack of organisation, which prevents this collection of emerging economies from acting as a meaningful force on the world stage,” the op-ed said. In this western worldview, BRICS is an idea whose time hasn’t come.

By Thursday evening, however, the mood at the summit was upbeat, with ministers, diplomats, businessmen and journalists smelling a change in the air. “BRICS is not an idea. It’s already a reality. The balance of the existing global order is tipping,” says Jackson Schneider, vice-president of Embraer, the Brazilian aviation giant. “If BRICS has no force, why is the NYT wasting so much ink and time on us?”

The problem with the view from New York is that it ignores ground reality. Today, the BRICS countries account for 25% of global GDP based on the purchasing power parity of national currencies; 30% of land area and 45% of the world’s population. The bloc’s contribution to global economic growth has now reached almost 50%, making this group the principal driver of global economic development. “Last year, trade between the BRICS countries stood at around $230 billion and we are targeting $500 billion by 2015. We all are important countries in our respective regions and we want the world architecture to be more inclusive,” says Maria Reis, the top Brazilian diplomat for BRICS affairs, also known as the ‘BRICS Sherpa’ . “We are not against anyone but we want changes in terms of transparency in global affairs.”

Signs of change are already there. On the morning of the meeting, the Syrian prime minister sent a letter to his Indian counterpart Manmohan Singh about the situation in his country and his government’s commitment to the peace process. By evening, the BRICS leaders had taken a collective and clear stand: no foreign interference in Syria. “By making clear that issues like Syria, Iran and Palestine-Israel dispute be resolved within the UN framework, the BRICS leaders have moved from plain rhetoric to specific areas, and have also given a message to those countries which tend to act unilaterally outside the UN framework. It’s a huge development,” says Vivan Sharan, an associate fellow at the Observer Research Foundation which hosted the BRICS academic forum this month in preparation for the summit.

Experts like Sharan see the Delhi summit as a success in terms of the changing global order. “They have demanded specific reforms in the IMF-World bank structure. Now Exim banks will be able to give loans to each other in local currency. This is deepening of financial integration. Even on the issue of a development bank, it’s a win-win situation for everyone . This summit has cleared a lot of noise and confusion,” says the ORF expert. “I don’t see any major obstacle in the creation of the BRICS bank.”

The bank, according to participants in the summit, is now a question of when and not if. This can fundamentally change the existing world order. “According to the West, in the global village, the Chinese manufacture , the Indians provide services, the Brazilians do farming, the Russians supply oil, and we are a source of cheap labour. But, not anymore,” says a South African diplomat. “Because of our history, the entire African continent is looking at the BRICS bank.”

If BRICS has become a force to reckon with, it’s because of the hard work done by a lot of people. Contrary to the perception that BRICS leaders meet once a year to click some snaps together, the members have already put in place a number of mechanisms to deepen their cooperation. In the past couple of years, there have been a number of meetings between BRICS ministers for trade, other ministers for agriculture, health, and a contact group on economic and trade issues. “The BRICS countries today comprise new growth poles in a multipolar world,” says Sudhir Vyas, secretary (economic relations), in the ministry of external affairs and the Indian sherpa for the summit.

Though the BRICS countries have been meeting and talking for the past eight years, they realised their power only in 2008, when the western economies began to wobble. “During the financial crisis, the BRICS countries played a vital role as drivers of growth that helped the global economy. They are not a threat to global growth, but an opportunity for global growth,” says Vyas. Despite suspicions in the western capitals, no one in BRICS is seeking confrontation . “We need very much the euro zone to recover. No one wants this crisis to aggravate,” says Maria Reis of Brazil.

Of course, there are challenges ahead, even misgivings . But everyone is willing to give BRICS a chance. Li Zhongmin, an expert on the grouping at the Chinese Academy of Social Sciences, says it was essential for their future for the members to “finance each other’s infrastructure projects, internationalise their currencies , provide trade credit to each other, ease visa norms and encourage investment in each other’s country.”

All this was achieved at BRICS 2012. Now the next step should be the creation of an institution -a new global bank -that holds the grouping together. “Foremost amongst the reasons for the creation of the institution is the need for BRICS to assume pole position in global financial governance,” says Sharan of ORF.

On Thursday evening, the delegates were confident that the bank will be a reality sooner than later. It could be real good news for India, which was the first country to propose this bank.

On Friday, Zoellick landed in Delhi, met ministers and businessmen and told them how the World Bank “can help India meet the challenges ahead.”

Zoellick is going to retire soon. Is he trying extra hard to sell an idea whose time may be up?

A ‘MISREPRESENTATION’, SAYS WORLD BANK

TOI has received the following comments from a World Bank representative: The article states that “It was clear that the Bank didn’t want a new global rival that couldn’t be controlled from Washington”.

This is a misrepresentation of what Mr. Zoellick actually said during his media interactions in India. I have pasted here relevant portions of the transcripts of his media engagements which highlight the Bank’s intention to work with the proposed BRICS Development Bank, while adding that it would be a complicated process setting it up. The line in the article conveys the opposite.

1. Question at the press conference in Delhi: You know, we’ve had the BRICS meeting in Delhi and they’re talking about a bank, the BRICS bank, and you said that it will take time in sort of coming up to be operational. What will be your role as and when it comes up? What’s your comment on that?

Mr. Zoellick: Well, I didn’t get to look at the exact communique language, but I was told that the next step was for the finance ministers to analyze the concept. And you’re all shrewd journalists. Analysis of concepts can either be done quickly or take a while. So, I really don’t know how quickly it will move ahead. But let me tell you what I think is driving this. It’s partly the question we had here. I think India was one of the sponsors of this idea, and partly it was because they want to get more money into infrastructure and development, which is exactly one of the topics that I’ve been trying to talk about here, so I think it’s a reasonable concern and issue that people have.

If they do develop the institution, the Bank will want to be a partner with it, just as we are with regional development banks and NGOs and civil society groups and national development banks. And where I suspect we will be able to complement each other is that some of the institutions that have been developed in individual countries are stronger on the financing side than they are on the knowledge and learning and expertise side. We have the benefit of being global and operate in 187–we have 187 shareholders. We operate in about 120 countries. So, we might be able to share knowledge and then do joint financing. We do this with the Islamic Development Bank.

So, we worked on projects with the Islamic Development Bank, which probably has more in the way of financing than some of the technical, sort of analytical work. And so, the spirit that I’ve tried to take with the Bank is not to be a monopolist but to cooperate whether it’s private banks, BRIC banks, development banks.

As a practical matter, because I was involved with setting up some of the regional development banks earlier in my career, it’s not an easy sort of task.

People have to agree who is going to put up the capital. They have to agree on the governance structure. They have to agree on a location, and all these same questions that apply to things like the Bank President of the World Bank apply in that context. And if it’s going to borrow, you have to get a rating, and obviously the higher rating you get, the cheaper you can borrow. So, we have managed to keep the Bank as a AAA rating which is–the United States isn’t a AAA rating now. So, those will be challenges. But I don’t mean to suggest those in a way of being cool to the concept. I mean frankly, the more that countries want to work together on development cooperation, it should be our role in the Bank to support that.

2. Comment reported by Reuters :

Zoellick told Reuters in an interview late on Wednesday that there are already a series of regional development banks and many countries have their own such banks, but if a BRICS bank was formed, the World Bank would work closely with it.

“I think the interests of India may be more in terms of bringing capital in, the interests of China may be more in terms of internationalising the Renminbi. I think Russia is a little uncertain and Brazil has a very big development bank,” he said.

“The World Bank works with private sector funders, development banks, regional banks and we’d work with a BRICS bank, but it would probably be difficult for it to replicate the knowledge and expertise that we fund.”

SHOBHAN SAXENA REPLIES: NO MISREPRESENTATION

I haven’t misrepresented any facts in my story. In fact, it’s the World Bank representative who is being economical with truth in his response. The representative refers to Zoellick’s answer to just one question, claiming that it represents the World Bank chief’s views on the BRICS bank. Zoellick’s quote sent by the WB representative has been taken from his press conference in New Delhi on Friday, March 30, 2012.

The fact is Zoellick talked about the BRICS bank first on Wednesday, March 28, 2012, when he arrived in Gupti, a small village in Orissa, and spoke with the Reuters news agency. From what was put out by Reuters (part of which has been reproduced by the World Bank representative above), it was clear that Zoellick was completely sceptical about the proposed BRICS bank.

In the report titled, ‘BRICS interests differ over joint bank, says Zoellick’ By Nita Bhalla, on Thursday, March 29, 2012, the agency said that a “plan to form a joint development bank by the BRICS group of the world’s most powerful emerging economies will have a hard time getting off the ground and could struggle to match the World Bank’s expertise, World Bank President Robert Zoellick said”.

Further in the story, Zoellick raised doubts about the feasibility of the new bank. “I think the interests of India may be more in terms of bringing capital in, the interests of China may be more in terms of internationalizing the Renminbi. I think Russia is a little uncertain and Brazil has a very big development bank,” he said, according to the Reuters report.

My analysis and interpretation of Zoellick’s views on BRICS bank was based on what he had said in Orissa, one day before the BRICS summit in Delhi.

Another report on Reuters TV too made a similar interpretation.

According to the report, “World Bank President Robert Zoellick is in India making the rounds as he prepares to leave the top job at the global financial institution. His trip comes as India, along with the other powerful emerging economies that may up the BRICS: Brazil, Russia, China, and South Africa, seek a greater role on the world stage, including the idea of forming a joint development bank. Zoellick did not pan the idea but said it would be difficult to execute.”

Here’s what he said on Reuters TV.

Soundbite ROBERT ZOELLICK, PRESIDENT, WORLD BANK: “I think the interests of India may be more in terms of bringing capital in, the interests of China may be more in terms of internationalizing the renminbi. I think Russia is a little uncertain and Brazil has a very big development bank. I believe that even if such a bank were formed, it would probably work very closely with the World Bank because what is important to understand is that the World Bank is much more than an institution about loans and private sector investment. It is really the knowledge and experience so we work with private sector funders, development banks, regional banks and we’d work with a BRICS bank and it would probably be difficult to replicate the sort of the knowledge and expertise that we fund.”

It’s very clear from this statement that Zoellick expressing serious doubts about the possibility of the BRICS bank becoming a reality. He says, “..even if such a bank were formed…”; and “it would probably be difficult to replicate the sort of the knowledge and expertise that we fund.” Of course, he also says that the World Bank with work with the BRICS bank if comes into existence. My question: what choice does WB have if Brazil, India, Russia, China and South Africa, which form 40% of global population and 25% of world GDP, form a their own bank?

Of course, Zoellick became more open to the idea of BRICS bank on Friday, one day after the Delhi Declaration made it clear that the five emerging countries was reforms in IMF and World Bank and also working on creating their own development bank.

Go to Original – indiatimes.com

 

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