Game Changer - The New BRICS Development Bank

[David Guyatt]

This, assuming it is not sabotaged and with Russia and China involved I just don't see that easily happening, is a real game changer, I think. Wave farewell, albeit slowly, to dollar hegemony. For me it will be interesting to see how the City of London adapt to this over the next few years. And the US will suffer most of all, because their Treasury Market is going to suffer a great deal over the next decade or so.

New Development Bank: BRICS bank may be a game changer for emerging countries


Shobhan Saxena, ET Bureau

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  [*=center]FORTALEZA (BRAZIL): On July 14, within three hours of Air India One touching down at Fortaleza, prime minister Narendra Modi's cavalcade left a star hotel to enter another down the road where
  

(Tough negotiations, a common…)

FORTALEZA (BRAZIL): On July 14, within three hours of Air India One touching down at Fortaleza, prime minister Narendra Modi's cavalcade left a star hotel to enter another down the road where Chinese president Xi Jinping was staying. The Chinese leader too had landed in this northeastern city just a few hours ago.

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As soon as they settled in, the two leaders began chatting, with their talks bouncing from one topic to another: Mansarovar route for Indian pilgrims, trade and people-to-people contact. During the course of their meeting which was planned for 40 minutes but lasted an hour and 20 minutes, the Chinese leader summarized the essence of the meeting: "When India and China meet, the whole world watches."
As the leaders of the two countries were having their "fruitful meeting", in a room at the Fortaleza Convention Centre, diplomats from the BRICS (Brazil, Russia, India, China and South Africa) countries were busy thrashing out the details of the New Development Bank to be announced the next day. Amid unending rounds of black coffee and backroom talks, negotiations over the bank's headquarters and first presidency lasted until the eleventh hour.
Win-win Situation
"We pulled it off 10 minutes before the end of the game," said a Brazilian diplomat, requesting anonymity. "The Chinese got the headquarters. The Indians got the first presidency. The South Africans got a regional headquarters. We were happy to facilitate all this. And the Russians were happy that finally there is a bank that could challenge the IMF and World Bank."
Often mocked at as an "impractical idea", the creation of the bank is the first major achievement of the BRICS countries since they got together in 2009 to press for a bigger say in the global financial order run by the International Monetary Fund and the World Bank. "It will help contain the volatility faced by diverse economies as a result of the tapering of the United States' policy of monetary expansion," Rousseff said, after the signing of the document. "It is a sign of the times, which demand reform of the IMF," she added.
While the announcement about the new bank reflects the growing influence of the BRICS, which account for almost half the world's population and about one-fifth of global economic output, it also made huge political statements on behalf of the five leaders.
For Rousseff, who faces a re-election in October, it was a great achievement at home; for Putin, who has been sidelined by the Western governments, it was a moment of acceptance; for Xi, who has promised to take China to new heights, it was an assertion of China's growing power; for Zuma, who recently won an election, it was reiteration of his role as Africa's main leader; and for Modi, it was his first chance to make an impression at a big global gathering.
Game-changer
An unknown quantity in this part of the world, Modi hasn't received much coverage in the Brazilian media before or after his election. But, in the run-up to the BRICS summit a few articles and TV reports have taken note of the Indian prime minister. An article this week in Brasil Economico, a reputed national daily, described Modi as a "pro-business" leader who "loves designer kurtas" and "likes to take quick decisions".

There were also some articles which suggested that Modi may not be very excited about the idea of the BRICS bank. But speaking, in English, at the summit, the Indian leader threw his weight behind the initiative.
"An open international trading regime is critical for global economic growth as the global economic environment remains uncertain and recovery was still fragile despite improved prospects," Modi said in his address. He even suggested broadening of the BRICS agenda. "We must encourage engagement between our states, cities and other local bodies," Modi said, calling for BRICS to be driven by "peopleto-people" contact.
The new Indian government's enthusiasm for BRICS shows how important this grouping has become. On Wednesday, as the focus shifted to Brasilia where the BRICS leader held a joint meeting with all South American presidents and Modi had a one on one with Dilma Rousseff, the Brazilian president besides meeting members of the Indian community in Brazil, Indian diplomats were quite upbeat about the BRICS bank.
"The biggest achievement of the document is that it will be governed through 'one country, one vote' model. All fears of this turning into a Chinese bank are baseless," said an Indian diplomat who was part of negotiations.
"With the first bank president coming from India, we will play a major role in its structuring and policies. Just imagine an Indian heading an international bank in Shanghai. It's a game changer." With India and China and three other emerging countries working so closely on global finance, the rest of the world will be watching BRICS with even more interest.