Can BRICS evolve into a power bloc?
(The views expressed in this column are the author’s own and do not represent those of Reuters)
The fourth BRICS meeting held in New Delhi on March 29 did not end with mere rhetoric; it agreed to some substantive mutual arrangements that would promote common interests.
These common interests include intra BRICS trade and investment and to facilitate that, agreement was reached on extending credit facilities in local currencies and multilateral letter of credit. These arrangements will reduce currency risk as also transaction costs and help trade expansion.
There are obvious reasons why trade and investment should be the first issue to be discussed and resolved. For one, trading opportunities with developed countries, including the U.S., EU and Japan are not expanding fast enough because these countries are in recession or moving in and out of it. For another, the BRICS are developing fast, creating expanding opportunities for trade.
There are also significant complementarities between these countries which, if exploited, can expand trade much further. Brazil and Russia have great potential for export of raw materials while China and India have the potential to export manufactures and services. Hence, a change in trade routes can keep growth in BRICS going.
In investment and technology, the conventional flow pattern has undergone considerable change. Investment is no longer one-way traffic from developed to emerging market economies. China and India have made huge investments in the U.S. and EU. The desire for BRICS Development Bank was expressed and may be pursued later to expand investment in developing countries.
Trade and investment opportunities will remain the substantive issues on the agenda at many more meetings in the future. But to become an effective power bloc, the agenda will have to be stretched much beyond that. That appears unlikely at least in the near future because there are internal contradictions within the BRICS that make it difficult to forge an acceptable comprehensive global agenda. Even the EU has not quite succeeded in that respect.
In the BRICS, China is in a class by itself. Its economy is four times as large as Brazil’s with foreign exchange reserves ten times those of India. That may be one reason why the BRICS Bank did not find easy acceptance. Besides, the political systems are different and cloud the market mechanism.
Also, in spite of the complementarities, these countries compete with each other in the markets of developed countries. In this perspective, it appears that, for the present, BRICS can be a group which can work mainly for economic cooperation among themselves rather than act as a power bloc in international arena.
The importance of emerging market economies is internationally recognised. In 2008, when the U.S. was faced with the financial crisis, President Bush invited emerging market economies to evolve and adopt a recovery plan. BRICS counts and can be a good pressure group in G20. But it will take time for the BRICS, possibly with enlarged membership to include the Middle East as well, to evolve into a standalone power bloc in global governance.