BRICS Build New Architecture for
Financial Democracy
Mario Osava
The
BRICS group alliance (Brazil, Russia, India, China
and South Africa) was consolidated with the creation
of a New Development Bank (NDB) and the Contingency
Reserves Agreement (CRA) during its Sixth Summit,
which
formalizes
a
new financial structure of the emerging powers.
The five BRICS leaders in the
official photo for the group’s Sixth Annual Summit,
in the city of Fortaleza, Brazil. Photo: Agencia de
Brasil/EBC.
Two
other agreements, one for Cooperation among Export
Credit and Guarantees Agencies and another on
Cooperation for Innovation among national
development banks, complete the structure
established by the five heads of state in the
northeastern city of Fortaleza, Brazil. The BRICS
Summit concluded with a meeting between the five
leaders and the presidents of the Union of South
American Nations (Unasur) held in Brasilia.
The
NDB and CRA are not being created “against anyone,”
but as a “response to our needs,” said the summit
host, Brazilian President Dilma Rousseff, at a press
conference after the meeting with Vladimir Putin
(Russia), Narendra Modi (India), Xi Jinping (China)
and Jacob Zuma (South Africa).
BRICS leaders reject interpretations that the
mechanisms have been created in opposition to or as
alternatives to the World Bank and the International
Monetary Fund (IMF), part of the Bretton Woods
global financial system established in the 1940s.
The
NDB will complement existing multilateral and
regional financial institutions, whose lack of
resources constrain financing of infrastructure
projects in developing countries, according to the
summit’s final declaration, signed by the
participating heads of state.
During the Summit it was also highlighted that
the
CRA, a mechanism through which the five countries
make available a total of 100 billion dollars from
their reserves, provides financial security for its
members, without departing from the IMF.
Brazil, Russia and India will be able to withdraw
the equivalent of their contributions, 18 billion
dollars each, while South Africa will have the right
to 10 billion dollars – double what it will
contribute to the CRA, whereas China will have
access to 20.5 billion dollars, half of its 41
billion dollar contribution.
The
new institutions “consolidate” the BRICS alliance,
stated Brazilian finance minister, Guido Mántega.
Before they become operational, they must be
ratified by the countries’ parliaments, he said. The
bank and the reserve fund are so constituted as to
prevent aspirations of dominance, Rousseff said.
The
countries will have equal shares in the NDB, of 10
billion dollars each, and equal voting rights. The
capital may later be doubled. In addition, bank
presidents and its governing councils will be
appointed on a rotating basis. China will contribute
41% of CRA funds but decisions will be taken by a
broader majority, reaching consensus for the
negotiation of larger loans, Mántega said.
Carlos Langoni, former president of the Brazilian
Central Bank, believes
that
the BRICS, with the CRA resting on “mega-economies”
with their enormous currency reserves, will in the
long term be able to “grow faster and have more
weight than the IMF, which is already facing
difficulties raising funds because of its rules.”
However, the IMF will remain the most powerful
multilateral financial body over the next decade, he
said. The rise of the BRICS reflects a multipolar
World, and progress in strengthening and
institutionalising the group could help reduce
border tensions existing between China and India, or
between Russia and the West, Langoni said.
In
his view, what cements the group is its “frustration
over the action of multilateral bodies, particularly
the IMF,” in the face of the financial crises. These
institutions are very complex and made up of a large
number of countries.
The
BRICS countries can operate with greater ease with
their own financial instruments, which can also
supply their urgent needs for investment in
infrastructure, especially in Brazil and India, he
argued.
The
BRICS “found their identity” by working with the
Group of Twenty (G20) industrial and emerging
countries to defend the stimulation of growth,
rather than recession-inducing austerity, after the
2008 global financial crisis, Mántega pointed out.
Later they came to demand reform of the IMF, which
led the response to the crisis.
Some
reforms to grant emerging countries greater
participation in IMF decision-making were approved
by the G20, but then stalled because they were
rejected in the U.S. Congress.
The
IMF is regarded as extremely undemocratic, because
the United States has power of veto and some
countries of the industrial North have a majority of
votes, in contradiction with the present correlation
of economic forces and the weight of emerging
powers.
The
absence of reforms “negatively impacts on the IMF’s
legitimacy, credibility and effectiveness.” The
reforms must lead to the “modernisation of its
governance structure so as to better reflect the
increasing weight of emerging markets and developing
countries,” says the Fortaleza Declaration, signed
by the five BRICS leaders.
(Excerpts from IPS)
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