Don't bank on BRICS

The proposal of a BRICS bank, to be set up as an alternative to existing global lending agencies, for disbursing funds to core sector projects within the five-nation grouping and other emerging economies, is an idea that should be viewed with a healthy dose of caution. China, Russia, Brazil, India and South Africa appear to be coming together with the ostensible ambition of standing up for the interests of emerging and developing countries. But developing nations are not a homogeneous group with similar interests. With the expansion of Chinese business interests in Africa, the first question India needs to ask is whether the loans given by the BRICS bank, assuming it is set up, will be used primarily to further China's political interests. Could it become a means for China and Russia to support governments of their choice? More than a coalition of fast-growing economies, BRICS is now an alliance of economies that have slowed down. How can the grouping ensure that it will promote areas of mutual interest, rather than the political ambitions of its most formidable and aggressive member?

The second question is about the principles that determine the provision of loans to various countries. They should be transparent and based on the rule of law. In Russia and China, however, transparency, democratic institutions and rule of law don't quite form the foundations of governance. Chinese foreign currency reserves are enormous and China can afford to make a big contribution to the equity capital of the bank. Will this inevitably give that country greater rights in terms of its vote and the power to influence who is given loans?

Even if the unease among members on the extent of China's clout in the venture were to be allayed, there are procedural roadblocks. BRICS countries need to reach a consensus on the capital composition, governance structure, location, and on the person heading the proposed organisation — no easy task by any measure. Getting a top credit rating to ensure access to cheap funds is another key challenge for the venture. With the initial exuberance about the proposal being increasingly tempered by the realisation of the disparate interests of the members — India's keenness to promote capital inflows, China's focus on a progressive globalisation of the renminbi and Brazil's largely indifferent approach — a consensus within BRICS becomes even more elusive.

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