Brics Will It Be Reality

7/29/2019 Brics Will It Be Reality

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Brics Bank:will It be reality

Portfolio Management

Mohit Shah- 45

Vishal Jain- 24

Pooja gokani- 12

Sejal zaveri- 58

Imran patel- 35

Arzoo shah- 41


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Acknowledgement

We would like to express our gratitude to Prof. Kapil for giving

us this topic for our project as it gave me the opportunity to go

beyond the book and look at the topic from a more practicalpoint of view. It broadened my horizons and improved my

understanding of this topic.


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Contents

Serial No Topic Page No1 Brics bank:Introduction

2 Brics:Dream or Reality

3 Brics bank:No

thanks!IMF and World

Bank are bad enough

4 Recent articles on Bric

bank

5 Bibliography


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Brics bank:Introduction

The BRICS Development Bankis a proposed development bank of

the BRICS nations. Its establishment was agreed to by BRICS leadersat the 2013 BRICS summit held in Durban, South Africa on 27 March2013. Among its goals is to provide funding for infrastructureprojects, and create a "Contingent Reserve Arrangement" worth $100billion which will help member countries counteract future financialshocks.

BRICS is a group of countries including Brazil, Russia, India, China,and South Africa.
http://en.wikipedia.org/wiki/BRICShttp://en.wikipedia.org/wiki/BRICShttp://en.wikipedia.org/wiki/2013_BRICS_summithttp://en.wikipedia.org/wiki/2013_BRICS_summithttp://en.wikipedia.org/wiki/BRICShttp://en.wikipedia.org/wiki/BRICS


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Brics:Dream or Reality

First they embarked on a brick by brick development for

themselves. Now they have jointly agreed to fund $4.5 trillion in

infrastructure projects for themselves and for the developing

world. The BRICS are at it.

Having established themselves as the new face of global

economy, Brazil, Russia, India, China and South Africa

(BRICS) recently decided to set up their own joint development

bank. Preparations for the bank are planned to be completed

by 2014 BRICS Summit.

Exact details of the vision, mission, function, and operations of

the BRICS Development Bank have not been finalised yet. But

development industry watchers say the institution is expected

to a hybrid of the children of Bretton Woods, namely the World

Bank and the International Monetary Fund.

The move was initially seen as a challenge to mainstream

global development lenders such as the World Bank and the

Asian Development Bank. However, both these global lenders

have in fact welcomed the BRICS proposal.

Leaders from both the World Bank and Asian Development


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Bank have dismissed the views that BRICS Development Bank

will be threat to them. Instead, they have termed BRICS bank

as a complimenting factor in the global development lending

business.

Still it is not going to be an easy ride for BRICS Development

Bank. If formed, the bank will have significant impact on global

political economy.

Mulling on this note, Isobel Coleman of Council of Foreign

Relations makes an important point. Coleman said that unlikethe World Bank, the BRICS Development Bank cannot be

expected to promote values like democracy, competitiveness,

better governance, transparency, human rights, freedom of

speech and related affairs.

This is largely because the BRICS can hardly claim to have a

unified political view - Brazil has a democracy, Russia ismarked by entrenched oligarchy, while China has a unique

state-led capitalist model run by single party.

Then there is a voting problem. If the BRICS bank ends being

mainly financed by China - which is what Beijing wants at the

moment - then China will have a global institution at its hands

just as the US and EU have their grips on the IMF and WorldBank.

If these are not enough barriers to materialisation of BRICS

bank, here is another major one: The IMF is still tight-lipped

about the whole deal. While the ADB and World Bank

welcomed the news, all that the IMF could say "we e following

this initiative with great interest".


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Recall that the IMF has had a tendency to dominate the market

of global lenders of the last resort. This tendency surfaced

when the agency joined the US government to shoot down the

idea of Asian Monetary Fund in 1997.

In 1997, Japan - along with China - offered $100 billion to help

create an Asian Monetary fund. But, according to Nobel

laureate Joseph Stiglitz, the US Treasury did everything in its

position to squelch the idea and the IMF joined in.

"The reason for IMFs position was clear: While the IMF was a

strong advocate of competition in markets, it did not want

competition in its own domain and the Asian Monetary Fund

would have provided that," Stiglitz wrote in 2002.

Keeping these ideological and historical threads in mind,

BRICS are up for a daunting challenge. Winning this battle iscrucial for them to prove that they are the new economic

masters of the world.


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Brics bank:No thanks!IMF and World Bank are bad

enough

Led by China, the five BRICS states (Brazil, Russia, India,China, South Africa) plan to set up a development bank of theirown. This is loosely characterized as an IMF andWorld Bank

rival, which is to say an unholy combination of the two. Doesthis mean the fast-growing graduates of the Developing Worldare finally coming together as a potent force?

It does not. Chen Yuan, the veteran of the China DevelopmentBank, has been tasked with making this ill-defined BRICS Banka reality, but as of yet there is no plan even on paper. The newinstitution might support infrastructure projects in the non-developed world, or leverage a stronger presence for China

and its four friends anywhere they find takers, but so far it is stilla phantom project.
http://www.forbes.com/sites/laursonpieler/2013/03/29/cyprus-has-in-effect-moved-out-of-the-eurozone-roach-motel/


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What is most striking about this first really tangible BRICsinitiative is its lack of originality. Everything so far points to theBRICs bank mimicking one or more of the Bretton Woodsinstitutions that western nations devised after WWII with theobjectives of supporting war recovery and spurring (peaceful)postwar development. (Whether their track record ondevelopment really makes them such good models for imitationis a question for another day.)

At the core of the planned development bank of the BRICs is alarge void: an apparent lack of a central mission thesecountries want to collectively accomplish. Their developmentbank-project amounts more to an announcement that they willhave one, too just like the established economic powers.Theyre free to have one, of course. The BRICs nations arealready enmeshed in the status quostructure of internationaldevelopment finance, as it is, though they are clearly not

satisfied with the role they play in the IMF and World Bank.China especially, which has long demanded a larger role in theBretton Woods institutions, has a valid point.

But these institutions seem a strange model to emulate: Chinais renowned for offering no-strings development aid, particularlyin Africa, as opposed to the tied or limited aid that usuallycomes from the development banks or bilateral deals. Thewestern concern has been that its own development aims,

whether in the field of human rights, public health, or improved
http://www.forbes.com/sites/laursonpieler/2013/02/07/on-government-spending-its-time-for-short-term-thinking/


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governance, will be shot to bits if aid recipients can getunconditional deals from China.

What the supposed BRICs bank could do, though, is heighten

Chinas influence in places perceived as outside of its currentrealm of influence, yet more amenable to suasion by Russia,India, or Brazil. That would allow China to render services (orcash and credits as needed) via the other four BRICS. Aid-laundering, as it were. This also makes sense of South Africasmembership: While the country doesnt fit the rapid-growthcriteria of the other four, it is in the mix for prestige and an

African presence.

None of this will necessarily have profound geopoliticalrepercussions: The BRICs have not yet proposed their owntrading bloc, and deal with their share of trade tensions withinthe group. Particularly Brazil and South Africa lock horns onagricultural products. They arent trying to stop the plannedTrans Pacific Partnership anchored by the US. They say theyare committed to the WTO principles of free trade as anaspiration of the postwar world trade order. They are certainly

not planning a Euro-style currency bloc, although China keepspushing for Renmimbi convertibility to establish its currency asan eventual competitor for the dollar. They dont have treatiesof mutual defense and support, and they continue to embraceall the status quo institutions of international relations, in shortglobal governance: the UN, WTO, G20, and the variousdevelopment banks.

The BRICs alliance is probably best seen as a collective effortto secure greater leverage in all these longstanding institutions,and generally to be seen as the champion(s) of less developednations in their decision-making processes. Not anunreasonable goal, but not a very exciting one especially sincethe BRICs agenda doesnt trump the BRICs members extantindividual obligations as members of the Bretton Woodsinstitutions, or their commitments and treaty obligations with therest of the developed and developing world.


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The BRICs are waiting expectantly, and not necessarily vulture-like, to see what their opportunities in a multipolar world will be.Everyone assumes the so-called unipolar world revolvingaround the United States is on its way out (if it isnt already),and (to the extent the Eurozone is counted as part of the U.S.orbit) it isnt daring to predict that will happen sooner, ratherthan later.

Its fair enough to extrapolate from todays trends a trajectoryfor the global economy, but it would be folly to assume it cantcome out any other way. And if it werent to happen soon,expect the loose BRICs-alliance to break apart before long.

Russia needs China much more than the reverse, and thelongstanding territorial rivalries between China and India areseething just below the surface. Brazil may be better placed toplay a leading role in the economies of the southernhemisphere than get enmeshed in global power-plays.

Russia isnt growing so fast these days, Chinas growth hasbeen bogged down by systemic corruption and increasinglyobvious environmental and social limits, and slowed down by

design, to achieve a hope-for sustainability instead of a crash.The BRICs, by pushing modification of the old order whilepretending to proclaim a new one, merely reinforce the globalpreference for gradual evolution of global economic relations,not a revolution led by newly-wealthy players on the globalstage. This makes sense, given that wealth has been won byadopting western-style markets and at least to some extentnewfound respect for the rule of law in international relations.


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Recent Articles

Brics bank:A reality check

The South African Finance Minister, Pravin Gordhan expressedjubilation on the eve of the BRICS summit saying: We madevery good progress, the leaders will announce the details(about the BRICS bank). The BRICS bank is poised to be analternate economic pole in the post-Cold War world. With thissentiment, perhaps none of the members of the grouping woulddisagree. As the international financial system is not in a goodshape, with economies in the parts of the north are inshambles, it is perhaps a prudent decision on part of theleaders of the grouping to think of an alternative system incomparison to the Bretton Woods structures of InternationalMonetary Fund (IMF) and World Bank.

As the two-day summit takes place in the port city of Durban inSouth Africa, the expectations certainly galore. The media isabuzz that many novel things will be announced, among whichthe creation of the bank will be a core achievement of thesummit. South Africa expects that the bank will play a key rolein its development in funding projects like infrastructure. TheSouth African President, Jacob Zuma appeared enthusiasticabout the prospects of the bank and argued, BRICS provides

an opportunity for South Africa to promote its competitiveness.
http://indrus.in/news/2013/03/27/brics_finance_ministers_failed_to_agree_on_creation_of_brics_development_23261.htmlhttp://indrus.in/news/2013/03/27/brics_finance_ministers_failed_to_agree_on_creation_of_brics_development_23261.html


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HOT TOPIC: BRICS

Certainly a lot of deliberations and negotiations have gone intothe bank idea. Indias Finance Minister, P. Chidambaram toldthe press that We are reporting to the Heads (of governments)that the BRICS bank is feasible and viable. The tentative planis that each country will have to contribute seed money of$10billion. The bank is expected to emerge as a flagship banknot only for the members of the grouping but also of the wholedeveloping south. Chinese President, Xi Jinping during hisspeech in Tanzania, before arriving at Durban summit,elaborated his countrys role as an emerging power and arguedthat his country is interested in the growth of Africa, whilerespecting their dignity and independence. With $8.25 trillion,Chinas GDP is almost twenty times higher than South Africa at$390 billion.

An impartial assessment would make it clear that furtherdeliberations need to go into the making of the bank. The

establishment of the bank can be a cherished goal. But idealsthemselves do not make reality as appropriate flesh and bonehave to be supplied to give concrete shape to ideas. Myassessment reveals that there are three areas on whichfleshing out of differences between the members of thegrouping need to take place. These areas include: design,leadership and location. The current summit, as reportssuggest, may include in its final statement the idea of

establishment of bank. But, unless these three issues areaddressed the BRICS bank idea may not be an enduring one.
http://indrus.in/bricshttp://indrus.in/bricshttp://indrus.in/bricshttp://indrus.in/brics


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The design of the bank has not yet been fully finalised. Perhapsthese questions are to be analysed in detail. First, what will bethe criteria for membership of the bank? Will it be confined onlyto the members of the grouping, or any country includingdeveloping and developed be allowed to be a member of thebank? Will there be a system of quota as per the size ofeconomy of participating country as in case of Bretton Woodsstructures, or all participating members will have equal voice?Will the bank allow differential interest rates in sanctioningloans to countries, or will it have a standard interest ratethrough all cases? Unless these issues are fleshed out in detail,the problems will galore later even if the bank is established.

Russian Finance Minister, Anton Siluanov struck the right chordwhen he argued, There is positive movement, but there is nodecision on the creation of the bank, further addingInstructions will be given to speed up the process. He hintedthat in the forthcoming G-20 meeting in April the members willfurther deliberate on this issue.

As per the leadership of the bank is concerned, it more veers

around the decision making process within the bank. Unlessthere is coordination among the members on this issue as towhat has to be the exact modicum in arriving a decision, thebank will fail to realise its purpose. If the bank is modeled in theline of Bretton Woods structures, the very purpose of the bankwill be put into question as it is aimed at providing a playingfield to developing countries. The very BRICS members havequestioned the working of IMF and World Bank. If the models ofthese banks are adopted, then certainly China will have moreweight than other members of the grouping. The point then iswhether the bank will be led by a particular member, China, orit has to be a collective body with each members having equalvoice. Unless this issue is settled, the bank will have to confrontproblems in future.


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The location issue is quite significant as well. Russian FinanceMinister, Anton Siluanov argued that A decision on the locationof the bank and funding still needs to be made. The location ofthe bank in a city will not only raise the profile of that city butalso of the country in which it is located; it will provide avantage point to the country itself. An analogy can be madehere. The location of the United Nations and Bretton Woodsstructures in New York in the US has provided the countryadvantages. Had these institutions been established in a city in

Asia or Africa the politics among nations perhaps could havebeen different. There seems to be underlying friction as to thesite for this bank. There may be branches of the bank in all

member countries though headquarter of the bank certainly willhave its special charm. A news report highlighted thedifferences and pointed out that, instead of the detractors of thegrouping, it is the differences within the grouping that havemarred the evolution of consensus among the members. Thislack of consensus is a major obstacle against establishment ofthe bank.

The BRICS idea is certainly a trend setter in world politics.Despite its myriad fallacies, it is no doubt that the emergence ofBRICS indicates that the world is no more confined toideological blocs or rivalries, rather the world has become morepolycentric. The very philosophy underlying BRICS needs to beapplied in the establishment of the bank. It will be fine if thefinal statement of the summit mentions the establishment of thebank in near future, while leaving scope for further deliberationson the issue. Perhaps by the time next summit takes place in2014, these issues will be sorted out, and BRICS will add bricksto the bank and emerge a more solid, vibrant and effectiveinternational power centre.
http://indrus.in/politics/2013/03/22/brics_key_element_of_the_emerging_multipolar_world-_putin_23135.htmlhttp://indrus.in/politics/2013/03/22/brics_key_element_of_the_emerging_multipolar_world-_putin_23135.html


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Brics bank:Set to become reality

NEW DELHI: The leaders of India , China, Russia, Brazil andSouth Africa are likely to announce the agreement to form a

BRICS bank in Durban on Wednesday, setting their finance

ministers the tough task of thrashing out vexed issues related

to the capital, membership and governance of the financial

institution supposed to cater to the development needs of

members of the grouping.

Sources said the leaders of the five-member BRICS grouping

will accept the recommendation of the finance ministers to set

up the bank. The group of finance ministers is likely to suggest

a roadmap for dealing with thorny issues, such as the corpus,

who should be its members and whether voting rights should

be proportionate to the contributions of member countries.

The bank was conceived to meet the infrastructure needs of

members an acute concern particularly for India and Brazil

after the proposal to set up an international infrastructure

bank exclusively for the purpose failed to take off. The foreign

exchange reserves will be a buffer against volatility of

international capital and speculators.

On the issue of corpus, China is keen that the developmentbank should start with $100 billion. As against this, India seems

to be more comfortable with a rather modest amount of $50

billion, given the financial health of BRICS countries. India is

wary of China's offer to do the heavy lifting for others, who may

not arrange the funds, as it will help China dominate the

functioning of the development bloc. Sources pointed out that a

corpus of $50 billion would be adequate for the grouping, and


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compares favourably with World Bank's $278 billion.

The concern to ensure democratic functioning of the proposed

bank is the driver also for the debate over whether voting rightsof member countries should be in proportion to their respective

contributions . India cannot be expected to be very enthusiastic

about the linkage between contributions and say in governance

, having seen how the US, with 17.5% voting rights, continues

to dominate functioning of the World Bank.

FMs will be required to sort out the issue of whethermembership of BRICS bank should be limited to members of

the grouping or should be thrown open to others. India is not

keen to have the bank headquartered in the country.


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Bibliographywww.guardian.co.uk

www.brecorder.com

www.timesofindia.comwww.wikipedia.com
http://www.guardian.co.uk/http://www.guardian.co.uk/http://www.brecorder.com/http://www.brecorder.com/http://www.timesofindia.com/http://www.timesofindia.com/http://www.wikipedia.com/http://www.wikipedia.com/http://www.wikipedia.com/http://www.timesofindia.com/http://www.brecorder.com/http://www.guardian.co.uk/

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