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26 March, 2012

BRICS seeking greater say

BRP Bhaskar
Gulf Today

Leaders of Brazil, Russia, India, China and South Africa (BRICS), who will gather in New Delhi this week for their annual summit, are expected to pitch for a greater role in world affairs in keeping with their growing clout as newly emergent economies. The main item on the agenda of the summit, scheduled for March 28 and 29, is global governance. While China is not keen on early reform of the United Nations system, it shares the BRICS partners’ enthusiasm for reform of the global financial institutions.

As it happens, the summit takes place ahead of a meeting of the World Bank to choose its next president.  Since the creation of the World Bank and the International Monetary Fund at the end of World War II, the former has been headed by an American and the latter by a European.

On Friday President Barak Obama named Jim Yong Kim, an American of South Korean origin, as the US nominee for the post. Two other candidates are also in the field: Ngozi Okonjo-Iweala of Nigeria, whose sponsors include South Africa, and Jose Antonio Ocampo of Colombia, who has been nominated by Brazil.

China recently suggested that a non-American must head the institution. It is not clear if the BRICS nations can agree on a common non-American candidate. Even if they can, the US may be able to ensure the election of its nominee as it continues to wield considerable influence in the global financial system. However, the ideas the BRICS nations are working on may make reform of the system inevitable.

As an institution charged with the task of making resources available to member countries to tide over balance-of-payments difficulties, the IMF has a critical role in helping Europe to overcome its distress. The BRICS nations have already injected a large amount of capital into the IMF but some Europeans are asking for more.

“BRICS’ voice in the IMF must be enhanced if the European countries want it to provide more capital,” a Russian government spokesman said last week. At the New Delhi meet, the group is expected to work out a strategy to link increased participation in the European recovery programme to restructuring of the IMF’s capital base to bring it in tune with the new financial realities.

A parallel initiative envisages the setting up of a development bank of the BRICS nations. A proposal made by India in this connection has evoked a favourable response from Russia and China. India views the proposed bank, which will facilitate indirect investment of foreign exchange reserves of the central banks of the member countries, as an institution with the potential to become a powerful player in global decision-making.

For China, the BRICS development bank offers a platform to expand the international role of its currency, the renminbi. It has been facing criticism from other countries for manipulating the value of the renminbi to maintain export competitiveness.

With the Western economies in the doldrums, the BRICS nations are now the most favoured investment destinations. Their efforts to forge common strategies have set alarm bells ringing in some Western financial circles, particularly investment promoters.

One investment research group, in a recent report, bemoaned that countries like Indonesia and Mexico, which are beginning to rival some BRICS nations in terms of growth and investment strength, are often overlooked in favour of them.

Smaller markets such as Malaysia, Poland and Peru are also surging in importance although their total size is tiny compared to the trillion-dollar economies of BRICS, it said, adding they could be interesting picks for investors.

Against this background, the decision of leading stock exchanges of the five countries to establish the BRICS Exchanges Alliance assumes significance. Beginning March 30, members of the Alliance will begin cross-listing benchmark equity index derivatives on one another’s trading platform.

Initially, members of the Alliance aim to expand their product offerings beyond their home markets and give investors exposure to the other BRICS economies.

While in New Delhi for the summit Chinese President Hu Jintao is expected to formally declare 2012 as Year of India-China Friendship and Co-operation. With memories of the disastrous end of the Hindi Chini bhai bhai (Indians and Chinese are brothers) era, inaugurated by Jawaharlal Nehru and Chou Enlai, still fresh in mind, this slogan is sure to be viewed with scepticism by many people. But the good that can result from renewed friendship must not be lost sight of. -- Gulf Today, Sharjah, March 26, 2012.

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