Role of BRICS in the Global Economy / Marina Larionova
Marina Larionova - Doctor of Sciences in Political Problems of International Relations, Head of the Center for International Institutions Research, Russian Presidential Academy of National Economy and Public Administration (RANEPA), Member of the BRICS Russia Expert Council
© RANEPA
In the ten years since its first summit (Yekaterinburg, 2009) BRICS has become an institution of global economic governance and a platform for coordination and cooperation of its memberstates. The increasing role of BRICS in the global economy has come about due to several factors among which the key ones are the economic might of the five сountries, the contribution to the reform of international economic institutions and the impact on the transformation of the international monetary and financial systems.
In terms of the economic might, in spite of the consequences of the financial and economic crisis of 2008, the fluctuations of global economic growth, an increase in protectionism, the ongoing deficit of funding for infrastructure and other issues over the postcrisis decade, the average GDP per capita for the population of the BRICS countries (5,4%) was three times higher than worldwide (1,7%). The share of BRICS in the global GDP has added 10 p.р., standing in 2019 at 33%. It is predicted that the growth rate of the BRICS member-states which is higher than the global rate (4,5% as compared to 2,5% in the coming years) will lead to further increase in the share of the five сountries. By 2030 it will exceed that of the USA and European countries combined, reaching 37% of the global economy. Responsible monetary policy aimed at decreasing the sovereign debt , increasing international reserves, helps to ensure macroeconomic stability. The BRICS countries represent 19% of global exports, 16% of global imports, 19% of incoming and almost the same amount of outgoing direct investment.
These figures are not only important in themselves but they also are the key to achieve sustainable growth and economic equality in the countries of the five сountries, in the partner countries and globally as a whole. The BRICS countries represent 42% of the global population which in turn legitimizes the decisions taken by the five сountries and is a source of credibility for them. The increase in combined economic potential of these countries increases the opportunities for economic and political influence in order to strengthen and reform the multilateral system, including international economic organizations, to ensure that it is more inclusive, democratic and representative, to enhance participation of developing countries and states with emerging markets in the process of international decision-making.
BRICS played a decisive role with regard to the reforms of international financial institutions. The coordination of the BRICS countries’ positions facilitated reaching the agreement by the G20 at the summit in Seoul in 2010 on the reform of quotas and management of the IMF and the World Bank: redistribution of quotas of 6% and 5% accordingly in line with the interests of developing countries and having developed by January 2013 a new formula to calculate quotas. The decision on quotas came into force in January 2016. The issue of reviewing the calculation formula has been postponed year on year. And in October 2019 the issue was delayed again, this time for the period of General reviewing of quotas from 2020 until December 2023. Given the increasing contribution of emerging markets to the global GDP, the stalling in the implementation of the reform leads to further increasing disparity in their shares of the global GDP and shares of the IMF quotas and, in turn, the level of influence on the Fund’s decisions.
It shows the need for the BRICS countries to have stronger coordination of their positions on this area of the reform and their collective advancement in the G20 and the IMF.
The relative success in developing and coordinating new standards of finance regulation is linked to BRICS.
The G-7 countries, primarily the USA with their major financial markets found themselves under significant pressure from the electorate calling for stronger regulation.
They sought to use international regulatory cooperation to create international rules of the game which would allow them to ensure both stability and persistent competitiveness of their national markets. BRICS, aware of the need to increase the quality of regulation, to improve national regulatory bases and to reform international system of financial regulation, focused specifically on coordination to prevent consequences and side effects, stemming from cross-border effects of the reform of regulation for the emerging markets and developing economies. While developing Basel III G-7 countries faced pressure from the banks which recovered after the crisis and lobbied against the reform, for lengthier periods of introduction and softer terms for new requirements. The position of the G-7 countries has changed accordingly. The participation of China, India and Brazil in the Basel committee has helped respond to pressure and dilute the standard. Although reforms of financial regulation are often blamed for reducing liquidity levels on several financial markets, they increased the resilience of financial institutions and markets.
The most significant contribution of BRICS to reforming international financial system was the creation of the New Development Bank (NDB) and BRICS Contingent Reserve Arrangement (CRA).
By mid - 2019 the NDB had approved financing of 44 infrastructure projects totaling about 13 billion US dollars, BRICS CRA totaling 100 billion US dollars. The US plays a role of a stabilizing fund, an insurance mechanism should a shortterm liquidity deficit arise as a result, for example, a rapid outflow from any BRICS state. Its testing has proved successful. A decision has been taken to create the System of exchange of macroeconomic information. In contrast to the IMF and the World Вank, regional development banks are intricately tied to distribution of financing to meet the specific needs of borrowers, the NDB loans are not limited by specific requirements.
The new institutions reflect the interests of the emerging markets and developing countries, provide social benefits for its members and their partners, and are pushing for more active reforms of the current system. The establishment by BRICS of its own institutions confirms they are not satisfied with the speed of the international financial institutional reforms. However, this does not imply the refusal of BRICS to cooperate within the existing formats. Essentially it is a creation of additional development mechanisms and insurance from risks. The cooperation of BRICS within the Bretton Woods institutions and with the G20 remains a priority of the five сountries to complete reforms of international monetary system, which will reflect the role of countries with growing markets and developing countries in the global economy and will remove vulnerabilities linked to the domination of the dollar in international trade and financial system.
Aimed at forming a multilateral currency system, t he co op eration within the IFI and further strengthening of the NDB, BRICS CRA, the Interbank Cooperation Mechanism, provision of credit lines in national currencies and creation of infrastructure for the expansion of trade in national currencies will be the contribution of BRICS to creating a fairer system of the global economic governance and the provision of sustainable, strong balanced and inclusive growth.