If any more evidence was required that the BRICS grouping – Brazil, Russia, India, China and South Africa – deserved to remain a clever investment-banker fantasy rather than a reality on the ground, with a summit and all the paraphernalia of international diplomacy, the proposal “cleared” at its recent Durban meeting for a BRICS bank would have provided it.
The leaders of the five major emerging markets agreed in principle that such a bank should be set up, to finance infrastructure in the developing world, calling it “feasible and viable”. This statement, it would appear, is a diplomatic evasion – for, after all, big development banks need a corpus, and the world is in recession.
Brazil and South Africa are struggling to return to their potential growth paths, as is India. Russia has its own problems with financing. Only China has the money to spare for grandiose projects. It is unsurprising, therefore, that it is China that believes that the initial corpus should be $100 billion.
India might theoretically be willing to pledge $10 billion – but, at the moment, finding that amount would be tough, given the finance minister’s extremely tight arithmetic in the 2013-14 Budget. The BRICS bank is simply too expensive a proposition for a group of developing countries that includes many who are already overspending domestically.
Nor, in truth, is the organisation of a possible BRICS bank easy to imagine. Will it be mainly funded by China, with voting rights distributed as per financing, in the manner of the Bretton Woods institutions? If so, it is inexplicable as to why India would sign up, rather than focusing on modifying its status within the World Bank and the International Monetary Fund. It will, after all, not aid in the democratisation of international development financing if the “replacement” for the World Bank marches at the command of the People’s Republic of China. India’s troubles with financing from the Asian Development Bank, thanks to China’s interference in some sensitive projects, are well known.
Further, if India’s money in the proposed bank is lent out through a Beijing-controlled system to infrastructure projects in, say, Africa, it is likely that Indian taxpayers will wind up seeing their taxes serve the national interests of China, not of India. China’s footprint in Africa has seen ample use of financing by Beijing of local infrastructure in ways set up to benefit Chinese companies. Nor will such lending have the necessary squeamishness that the Bretton Woods institutions have now developed about riding roughshod over local objections to infrastructure projects.
The BRICS leaders seem to see such concerns as negligible, “directing” their finance ministers to solve them before next year’s meeting. It remains to be seen if any reasonable solution is possible. More worrying are reports that, for example, China is willing to sponsor some of Brazil’s and South Africa’s initial contributions to the bank’s corpus. A bank that begins so indebted to Beijing is hardly a good idea. The BRICS countries are so diverse in interests and in capacity that it is hard to see what good ever comes of their summits – but it is clear from this proposal that bad could certainly come of them.