Despiteslowprogress,theNewDevelopmentBankisasharedtoolforBRICStomeetitsowndevelopmentgoals
ByJeremyStevens
ThelaunchoftheNewDevelopmentBank(NDB)bytheBRICScountries-Brazil,Russia,India,ChinaandSouthAfrica-in2015wastimely,atatimewhentheoriginalvalidationfortheestablishmentofthegrouping-rapidandstableeconomicgrowth-hadbeencomprehensivelyundermined,threateningtoturnBRICSintoageopoliticalfad.
ItseemedtheNDBwouldprovidethemuchneededinstitutionalunderpinningforthegrouptocreatecommonobjectives,andtranscendintoaforcewithtangibleimpactontheglobaldevelopmentstage.
However,twoyearsonandtheNDBhasn’tcomeclosetoservingasanykindofspearhead.Clearlythen,agreatdealofworkliesaheadoftheNDBinestablishingaclearroleandpresenceinthefabricoftheglobalfinancialarchitecture.
ThelastfewyearssappedlifefromBRICS,revealingwhatitreallyis:ablocofgloballyinterdependentemerging-marketeconomies.Itisundeniablethatintherun-uptothefinancialcrisisin2008,BRICS’growthstronglyexceededtheeconomicgrowthofindustrializedcountries,resultinginasurgeincross-borderportfolioinvestmentflows.Theallureoftheseeconomieswasheightenedwhenthefinancialcrisisfirsthittherealeconomyofadvancednations.Manyspeculatedthatthisnewgroupoflargeanddiversifiedemerging-marketeconomieswouldbeabletoinsulateitselffromtheproblemsmanifestingelsewhere.
Slowestpace
Indeed,intermsofGDPgrowth,BRICSmanagedtooutperform,sendingtheoptimisticnarrativetodizzyheights.Nevertheless,theall-hands-ondeckattitudeofpolicymakerstoplaceafloorundereconomicactivityhascomeatacost.Wehaveseenahugeriseinleverageintheemergingmarketsuniverse,whichhashelpedshieldtheseeconomiesfromtheslowdown.However,thereisincreasingconcerninthisregard,especiallygiventheslowdownofnominalgrowth,whichreducesthedebtcapacity.Today,BRICSisinaverydifferentsituationthanbeforethecollapseofLehmanBrothers.
Now,ithasbecomeincreasinglydifficulttomaintaintheveneerofgrowth.TheBRICSgrowthhasslowedeveryyearsince2010,stumblingmostrecentlyfromanaverage3.4percentin2014tojust1.7percentin2015,theslowestpaceofexpansioninnearly30years(exceptfor2009).
TheconceptandemergenceofBRICSdidshatterthemacroeconomicstereotypesprevailingatthetime.Untilthemid-2000s,theworldeconomyhadbeendividedintodevelopedanddevelopingeconomies,whichhadin-builtassumptionsaboutrisks,returnsandvariouspolicyscenarios.BRICSalteredthestatusquomaterially,addingmuch-needednuance.Yet,atthesametime,itissimplynotpossibletoignorethestrongbusinesscyclesynchronizationbetweentherestoftheworldandBRICS.
Dealingwithfragilities
Now,lookingattheeconomiclandscape,itiscriticaltoavoidforgettingthelessonofnuance:eachBRICSmemberisverydifferent,andsoaretheirrespectiveeconomicchallenges.Perhapsthemostpowerfulcharacteristiceachsharesisthattheyneedtodealwiththeirowndomesticfragilitiesnow.
JeremyStevensItisquiteclearthatChinamustembarkondeleveraginganddomesticrestructuring.ForBrazil,theinabilityofsuccessivegovernmentstoimplementsuccessfuleconomicreformsisproblematic.Indiarunschronictradeandfiscaldeficits,andthegovernmentspendsasignificantpartofitsrevenueoninterestpayments,subsidies,salaries,andpensions.Russia’seconomyfacesweakgrowthandlowoilprices,exacerbatingtheweakunderlyinginvestmentenvironment.AndSouthAfricahastodealwiththingssuchasitshugeunemploymentrateandglacialeconomicgrowth.
Thequestionis:willtheeconomicandpoliticalchallengesderailthegroup’sbroaderambitionstoplayamoresignificantroleinglobalaffairs?Theanswermustbearesounding“no.”Collectively,theirGDPnownearlyequalstheUnitedStates’.Moregenerally,intermsofeco-nomics,demographicsandgeography,BRICSstandsout.Quitesimply,itmattersbecauseitisfeltinanymacrovariable.
Hereinliestherub:bigisnotthesameascohesive.ThisiswhytheBRICSbankmatterssomuch.InformingtheNDB,thegrouphastakenagiantstepcreatinganinstitutionalunderpinningaroundwhichtheycantakeconcretestepsforcreatingclearandsharedobjectivesthatcanleadtoacollectivejourney.Thus,theNDBisthecrownjewelofBRICS.
TheNDBcangoalongwayinestablishingthegroup’seconomicandpoliticalpositioninamoremultipolarglobalfinancialarchitecture.Itwillworkwiththeexistinginstitutionsoftheglobalfinancialarchitecture,liketheInternationalMonetaryFund.Infact,themajorityoftheNDB’sleadershiphasexperienceintheseinstitutionsandthebankhasmadeformalpledgesforcooperationonahostofoccasions.
Sure,theNDBhasalreadyconfirmedthatitsfirstloanwillbedenominatedinyuan,butthedevelopmentaltaskaheadofBRICSislargeandthereismorethanenoughspaceforlike-mindedinstitutions.Thebank’sprimaryfunctionwillbetomobilizeresourcesforinfrastructureandsustainabledevelopmentprojectsinsideBRICSandotheremergingeconomies.
Despiteslowprogress,thebankisviewedwithmuchenthusiasmamongBRICSsinceitwasfirstsuggestedattheconclusionoftheFourthBRICSSummitinNewDelhiin2012.TheNDBannouncedinmid-2015thatitsfirstloanswouldoccurin2016.Optimisticforecastspredictthatitcouldlendasmuchas$30billionperyearinthenextfiveyears.
Irrespectiveoftheaccuracyofthesepredictions,thebankprovidesthegroupwithasharedtooltomeetitsowndevelopmentalobjectives.Gettingthisrightisimportant,thoughthepathaheadwillbechallenging.Yet,moreimportantly,muchoftheenvisionedeconomicchangesweexpectinthesekeyeconomiesincomingyearswillplacethemonfirmerfooting.CA
(TheauthorisaneconomistforStandardAdvisoryChina,basedinBeijing,China)