Despite their deep mutual differences, the global South has managed to forge a healthy collective
“The developed countries cannot play the role of the engine of Southern growth. The new locomotive forces have to be found within the South itself. South-South co-operation is, therefore, crucial.”
Manmohan Singh, then secretary-general of the South Commission, said this at a symposium on development at Espoo, Finland, in May 1989.
The Commission, which later became South Centre, is an inter-governmental grouping of developing countries in the South.
Twenty-three years later, in 2012, when Singh was Prime Minister, India proposed setting up a multilateral financial institution to support economic development of emerging economies.
The proposal became a reality in another two years, , with five emerging economies — Brazil, Russia, India, China and South Africa, or Brics — agreeing to form a development bank and a pool of currency swaps at their sixth annual summit in Fortaleza, Brazil.
The July 15-16 summit marked a new beginning in the global economic order because for the first time in post-War history there was a collective, institutionalised effort from major economies to challenge the hegemony of the West-focused World Bank and International Monetary Fund (IMF).
The New Development Bank (NDB) of Brics, which will start operations with $50 billion in capital and fund infrastructure projects and “sustainable development” in the developing world, is a potential rival to the World Bank, while the proposed $100-billion Contingent Reserve Arrangement (CRA) will work parallel to the IMF.
New financial architecture
The Brics nations will contribute $10 billion each to the NDB corpus and will hold equal stake in the institution, unlike the World Bank and IMF.
The developed powers have always resisted emerging nations’ efforts to make these institutions more representative.
Take the IMF, for example. The US, whose share of global GDP is 19.2 per cent, holds 16.8 per cent voting rights in the global lender, against 3.8 per cent in the case of China, the world’s second largest economy with 16.1 per cent share in global GDP.
India, whose global GDP share is 6 per cent, is also unhappy with its 2.3 per cent voting rights in the Fund. In other words, Brics, which represents around 40 per cent of the world’s population and contributes 24.5 per cent to its GDP, languishes with 10.3 per cent of the votes at the IMF.
To address this imbalance, the Fund had agreed to reform governance and voting rights quota in 2010, but it hasn’t achieved much courtesy US opposition.
If the quota reforms had been carried out, India’s voting share would have risen to 2.75 per cent, making it the eighth largest shareholder, from the current 11th position.
The Brics nations did not want to follow this model. India, particularly, had insisted that all countries should hold equal stake in the development bank.
The $50 billion initial corpus is not a big amount given the huge demand for capital for infrastructure projects in the developing world. The World Bank estimates that South Asia alone requires $2.5 trillion over the next 10 years.
China was ready to pitch in more, but other countries, wary of China’s rising economic and geopolitical clout, stuck to the even contribution model. They zeroed in on $10 billion each because South Africa could afford only that much.
Many challenges
Notwithstanding the significance of these new institutions, doubts linger about Brics’ ability to turn them into global institutions.
Critics point to the differences within the Brics camp on economic, ideological and geopolitical issues. Of the five Brics countries, three are democracies, one is ruled by a Communist party and the other has a quasi-authoritarian regime.
The economic philosophy of these countries ranges from free-marketism to state capitalism to social democracy.
On geopolitical issues, China and Russia take strong anti-American positions, while India, the second largest economy in the bloc, remains cautious so as not to upset the US.
Interestingly, India and China even fought a bloody war in 1962, and a border dispute is still a determinant of bilateral ties.
So the $100-billion question is whether these countries could become the “locomotive forces” of the global South , as Singh would like to call them, despite these differences.
Time of the impossible
It remains to be seen how the new institutions will evolve and how Brics will respond to global crises. But the emergence of Brics --- as political scientist Vijay Prashad notes in The Poorer Nations, which tells the history of the global South and locates the historical moments that led to the formation of Brics -- opened “some space allowing a breath of air to oxygenate the stagnant world…”
And the fact remains that these countries, despite deep differences between themselves, managed to pull themselves in one direction in the past six years — at least in terms of economic cooperation — and agreed to build two global financial institutions.
It shows their collective resolve to challenge the architecture of the Western economic order, and assumes greater significance in the wake of the crisis in capitalism and the decline of the West.
If this resolve is anything to go by, Brics’ articulation of cooperation between developing nations vis-à-vis the dominance of the developed world has the potential to take them a long way. The Fortaleza summit has just endorsed this argument