BRIC is the acronym for the four country alliance, Brazil, Russia, India and China economic group. BRIC had their first major summit in Russia in June 2009, calling for a more diversified International monetary system and wanting a bigger say in the global financial system. “The emerging and developing economies must have a greater voice and representation in international financial institutions.” “The summit must create the conditions for a fairer world order,” the BRIC leaders said in their final statement of the first summit. In December 2010 South Africa got invited by China and it is now commonly known as BRICS. The term BRICS came about from former Goldman Sachs economist Jim O’Neill, in his publication Building Better Global Economic BRICs.
As of 2014, the five BRICS countries represent nearly 3 billion people or 40 percent of the world population, they have about US$4 trillion in combined foreign reserves and their global economic output is around 18 percent. In 2003 Goldman Sachs forecast that China and India would become the first and third largest economies by 2050, with Brazil and Russia taking the fifth and sixth spots.
In 2010 at the Group of twenty (G20) summit in Canada, the global financial system discussion turned to the International Money Fund’s (IMF) and reforms of the fund’s quotas and governance. The IMF was created in 1945 by 29 member countries at the end of World War ll, to rebuild the global economic system and provide money and resources in times of crisis. Countries contribute funds to the IMF through a quota system with the current quota formula being a weighted average of gross domestic product (GDP); weight at 50 percent, openness at 30 percent, economic variability at 15 percent, and International reserves at 5 percent. GDP is measured through a blend of GDP based on market exchange rates; weight at 60 percent and on PPP exchange rates of 40 percent. Quotas are denominated in Special Drawing Rights (SDRs), the IMF’s unit of accounting. The largest member of the IMF is the US, with a current quota of SDR 42.1bn (about $65bn), and the smallest member is Tuvalu, with a current quota of SDR 1.8 m (about $2.78m).
In essence the developed countries are the ‘creditors’ and provide the funds and the developing countries are the ‘borrowers’. In 1989 English economist John Williamson presented his set of 10 economic policies the Washington Consensus, which was reform package modelling for developing countries in economic crisis for the likes of the IMF, World Bank, and the US Treasury Department. It includes policies such as privatisation, de-regulation, trade liberalisation and austerity measures. The IMF has been criticised for it’s policies not working in many areas, with some countries claiming a loss of sovereignty by agreeing to support their measures. The common theme in these criticisms is that the policies are too generalised, out dated and narrow to suit different countries economic situations.
In 2012 China offered $43Bn to the IMF reserves, joining other BRICS who had pledged new funds totaling $75Bn, to strengthen the global financial system during Europe’s debt crisis after the Global Financial Crisis (GFC). “These new contributions are being made in anticipation that all the reforms agreed upon in 2010 will be fully implemented in a timely manner, including a comprehensive reform of voting power and reform of quota shares,” the BRICS leaders said in a joint statement.
At the fifth BRICS summit in South Africa in 2013, an alternative to the IMF was agreed to by the BRICS leaders and it was named The New Development Bank (NDB). In July at the sixth summit they issued a lengthy 72-point Fortaleza Declaration which included agreeing to form the NDB to fund infrastructure and other development projects in BRICS and other developing nations economies. With the two most relevant paragraphs being:“12. The Bank shall have an initial authorized capital of US$ 100 billion. The initial subscribed capital shall be of US$ 50 billion, equally shared among founding members. The first chair of the Board of Governors shall be from Russia. The first chair of the Board of Directors shall be from Brazil. The first President of the Bank shall be from India. The headquarters of the Bank shall be located in Shanghai. The New Development Bank Africa Regional Center shall be established in South Africa concurrently with the headquarters.
“13. We are pleased to announce the signing of the Treaty for the establishment of the BRICS Contingent Reserve Arrangement (CRA) with an initial size of US$ 100 billion. This arrangement will have a positive precautionary effect, help countries forestall short-term liquidity pressures, promote further BRICS cooperation, strengthen the global financial safety net and complement existing international arrangements.
The US is the current largest shareholder of the fund; and their voting share is currently set at 16.8 percent, with the BRICS getting 11 percent of the votes in the IMF, despite accounting for more than 20 percent of global economic activity. Countries representing nearly 80 percent of IMF votes have approved the reforms but major decisions need 85 percent approval therefore giving the US veto power. This years G20 in Brisbane is rapidly approaching and the US still hasn’t signed off on it, with many world financial leaders including Australian Treasurer Joe Hockey unhappy about the lack of progress. British Chancellor of the Exchequer George Osborne, said that by failing to ratify the agreement it “is bad for the institution and bad for the international community.” He also said the changes will allow countries such as Brazil “to have the enhanced status and say that your economic strength earns you the right to.”
The US President Barrack Obama’s Chief Communications Strategist, Dan Pfeiffer laid the blame with the Republicans saying that “It’s simply irresponsible that the Republican leadership insisted on holding I.M.F. reforms hostage in an effort to protect their special-interest campaign contributors’ ability to pour money into the system unchecked.”
BRICS had concerns in March this year ahead of the G20 in Brisbane of the reporting of the banning of Russian President Vladimir Putin: “The Ministers noted with concern, the recent media statement on the forthcoming G20 Summit to be held in Brisbane in November 2014. The custodianship of the G20 belongs to all Member States equally and no one Member State can unilaterally determine its nature and character,” said a joint BRICS statement after the Australian Foreign Minister Julie Bishop had said that Putin could be barred from attending the G20 summit.
The Ministers also noted that they thought that the role of global governments should be to focus on “finance, security, information and production”. And “The BRICS agenda is not centered around any specific country or related issue and shares a common vision which drives it to also increasingly identify common areas for cooperation to assist with finding global solutions to global challenges,” noted the joint communiqué.
The BRICS meet was convened by South African Foreign Minister Maite Nkoana-Mashabane and was attended by counterparts Sergey Lavrov, Salman Khurshid, Wang Yi and Carlos Antonio Paranhos and the Under-Secretary General for Political Affairs of the Federative Republic of Brazil.
The BRICS Ministers also discussed cybersecurity and challenges to peace and security, “notably the significant infringements of privacy and related rights in the wake of the cyber threats experienced, for which there is a need to address these implications in respect of national laws as well as in terms of international law.” said the statement and that BRICS would “continue to act as positive catalysts for inclusive change in the transformation process towards a new and more equitable global order.” The five nations also agreed that the challenges that exist within the regions of the BRICS countries must be addressed by the United Nations. And that: “The escalation of hostile language, sanctions and counter-sanctions, and force does not contribute to a sustainable and peaceful solution, according to international law, including the principles and purposes of the United Nations Charter.”
The US, through the IMF and it’s Washington Consensus set of policies, increasingly appear to have lost their way globally with their constant interference in other countries economies and as a consequence their leadership; whilst it’s own economy isn’t doing well and hasn’t for quite some time. The developing countries obviously deserve more of a say in global financial matters, particularly when the US is in debt to China with a massive deficit that I’m sure must keep many financial leaders including Mr Hockey awake at night.