Live from Brazil: Banking on BRICS, the Modi way

FORTALEZA (BRAZIL): Underlining the importance of the BRICS grouping as a force for stability in the conflicted international landscape, India’s Prime Minister Narendra Modi has struck a hopeful note about the “successful conclusion” of two signature BRICS initiatives – a New Development Bank for the global south and Contingency Reserve Fund to insulate emerging economies from currency volatility.

The 63-year-old Modi stopped en route in Berlin on his way to the balmy Brazilian city Fortaleza where he will participate in the sixth BRICS summit July 15-16. Ahead of the summit, he will have two back-to-back bilateral meetings with Chinese President Xi Jinping and Russian President Vladimir Putin July 14.

Soccer frenzy: Highs and lows

In Fortaleza, the mood is slightly sombre after Brazil’s crushing defeat in the World Cup soccer finals, but with the soccer carnival out of the way, the inhabitants of the capital of Ceara state, are gearing to have a taste of the first multilateral summit their beloved coastal city will host. Russian President Vladimir Putin and his South African counterpart Jacob Zuma have already arrived in the country and managed to soak in the 2014 FIFA Soccer World Cup final between Argentina and Germany in Rio de Janerio on Sunday evening.

For Mr Modi, the BRICS summit in Brazil will be his first major diplomatic outing after he scored a blockbuster victory in the May parliamentary elections in India that brought him to power to helm the world’s largest and most raucous democracy. This will also be the first interface of the leaders of BRICS countries with India’s new prime minister, who is known to be business-minded and reform-friendly.

Modi’s BRICS agenda

Ahead of the summit, Mr Modi has shared some thoughts on the role of the BRICS grouping amid a shifting international landscape riven by a host of regional crises. “I look at the BRICS Summit as an opportunity to discuss with my BRICS partners how we can contribute to international efforts to address regional crises, address security threats and restore a climate of peace and stability in the world,” he said in a statement before the summit. Pitching for greater intra-BRICS economic cooperation, the prime minister underscored the grouping’s collective efforts to advance global economic stability and prosperity.

Banking on BRICS

Mr Modi has voiced hope that the sixth summit will culminate “in successful conclusion of major BRICS initiatives, like the New Development Bank and the Contingent Reserve Arrangement, which have seen significant progress since their launch in New Delhi in 2012.” “ These initiatives will support growth and stability in BRICS and also benefit other developing countries.”

For India, the launch of the Bank will be a matter of special gratification as the idea was floated by India and was first proposed at the New Delhi summit in 2012. The broad architecture of the bank is almost complete, and once it starts lending around 2016, it is poised to be a game-changer in not only rewriting rules of multilateral financing, which have been set by the Bretton Woods system, but also in spurring the restructuring of the global financial governance architecture that remains heavily tilted in favour of the West and the Washington consensus. The New Development Bank – the working name of the new multilateral bank – will be managed and driven by the BRICS, and will cater the burgeoning needs of infrastructure finance for the developing world. While the modalities of the Bank are being firmed up, there is a broad consensus that equity would be the cardinal principle governing capitalization, which entails all BRICS countries having equal shares of US$ 10 billion each. The bank is, therefore, expected to have an initial corpus of US$ 50 billion.

The other key facets of the bank, including the nomenclature, the headquarters and the presidency of the bank, remain to be decided and negotiations are expected to go down the wire. In particular, the headquarters of the bank remain a matter of intense contestation, with China, the largest economy in the BRICS, going all out to get other BRICS countries to support Shanghai as the seat of the new Bank. India, which sees itself as a leader of the developing world and a voice of moderation in international affairs, is also pitching to host the bank, an issue that has become laden with national pride and sentiments. South Africa, the African continent’s powerhouse, is determined not to let go of this opportunity that will bolster the country’s credentials as the repository of African aspirations.

The sixth summit is expected to see a formal unveiling of a contingency reserve fund (CRA) of $100 billion, which will act as a safety valve for the five emerging economies by providing them with a fall-back option to deal with short-term volatility in their capital flows. According to an understanding firmed up at the meeting of the leaders of BRICS countries on the sidelines of the G20 summit in St. Petersburg in September 2013, China will contribute $41 billion, while Brazil, Russia and India will chip in with $18 billion each. South Africa, the smallest economy in the grouping, will commit $5 billion to the CRF.

The sixth summit is happening at a time of festering crises in the Middle East and central Europe, and the Fortaleza declaration will be scrutinised carefully for signs of out-of-box thinking on key international issues like global governance reforms, the deadlock in Syria and the Russia-West standoff over the Ukraine issue. In his statement, Prime Minister Modi alluded to the complicated and fraught international environment that marks the context of the sixth BRICS summit. “We meet at a time of political turmoil, conflict and humanitarian crisis in several parts of the world, and persisting weakness and risks in the global economy,” he said. “Many emerging economies have experienced a slowdown, which has increased the challenge of pursuing inclusive and sustainable economic development.”

The sixth BRICS summit in Brazil, spread over the cities of Fortaleza and Brasilia, usher in second cycle of the summit process, and will be watched closely to see how this five-member grouping maps out an agenda that seeks to renovate the international system and provide a cohesive counterpart to the West-dictated discourse on pressing global issues of the day.

(Manish Chand is Editor-in-Chief of India Writes Network, www.indiawrites.org, a portal and e-magazine-journal focused on international affairs, emerging powers and the India Story. He is in Fortaleza to report and analyse the sixth BRICS summit for India Writes Network)

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Manish Chand

Manish Chand is Founder-CEO and Editor-in-Chief of India Writes Network (www.indiawrites.org) and India and World, a pioneering magazine focused on international affairs. He is CEO/Director of TGII Media Private Limited, an India-based media, publishing, research and consultancy company.