BRICS Nations Reveal World Bank Alternative
DAVID GREENE, HOST:
The leaders of five giant economies gathered in South Africa this week for a summit. The group is known as the BRIC nations - that would be Brazil, Russia, India and China. Now South Africa is sometimes in the group, which puts the S in BRICS. The meeting and the grouping are largely an effort to counterbalance what many in the developing world see as the dominance of America and Europe in the global economy.
Now, to talk more about what came out of this meeting, we're joined by Arvind Subramanian; he's with the Peterson Institute for International Economics.
Arvind, thanks for joining us.
ARVIND SUBRAMANIAN: Great to be here, David.
GREENE: It's a little ironic when we talk about these BRIC countries because the name BRIC was first coined by a British banker who was working at Goldman Sachs, the investment bank, right?
SUBRAMANIAN: Exactly. And it's an amazing tribute to the power of an idea that he came up with this grouping and now it's become a political reality.
GREENE: Well, before we get to this meeting, I mean give us the background. These countries ran with this idea. What are they trying to create? A political bloc? Are we just talking about economics?
SUBRAMANIAN: Well, I think initially we're just talking about, you know, and economic grouping aimed at achieving certain things. But primarily the motivation is what you said, David, that, you know, there is a lot of frustration at the fact that the existing international institutions are dominated by America and Europe.
Take the IMF, for example. This is an organization where the voting structure and who has power was shaped about 50 years ago after World War II, and that has barely changed. So we have a situation where Europe, which is now a debtor - it's borrowing from this - still has veto power de facto in the institution. And, you know, the new guys are saying, hey, this can't be right. You know, the world has changed. We, China, are a big creditor. We're going to give a lot of money and we don't have the same say that the U.S. and Europe have, so we want to change that. Now, they're unable to change that, and the frustration is getting reflected partly in creating these new alternative structures.
GREENE: And one reason is, right, that they're not natural allies, these countries. I mean Russian President Vladimir Putin, didn't he refer to these five countries as different kinds of animals that are very different?
SUBRAMANIAN: Exactly. I think that's going to be the challenge, that there's a negative reason for getting together - i.e., we don't like the dominance of the status quo powers. But you need something positive to actually translate that negative commonality into action, and that - it's far from clear that they have that.
GREENE: Let me just make sure I understand this. So the IMF is out there. There's this dominance of the United States and Europe over the IMF. But now China is basically saying, look, Europe, you're in debt. We, China, have a lot of money. If you're not going to give us a say in the IMF, we're going to go create some other institution where we can put a lot of money in and help different countries that are our members.
SUBRAMANIAN: Exactly. And I think BRICS should also be seen as part of a bigger Chinese strategy of diversifying its international engagement. China is part of the IMF. Yes. But China is also creating Asian institutions. It's lending a lot to Africa. And so this is yet another way China is engaging with the world and trying to assert its kind of influence. 'Cause in Africa, for example, attitudes to China are a bit ambivalent. On the one hand, the Africans need Chinese money but they don't exactly like the way China is kind of asserting itself in Africa. So for the Chinese it's also buying legitimacy as part of a bigger geostrategic game.
GREENE: This is really interesting. Well, let's talk about how the BRIC is doing. They have this meeting in South Africa. They have some ideas to create sort of their own version of an IMF, their own version of a World Bank...
GREENE: ...to fund infrastructure projects around the world. I mean can they actually succeed in creating these institutions?
SUBRAMANIAN: So going back to what you said earlier, you know, what is common to these countries?
SUBRAMANIAN: And the fact that they don't have that much in common actually is reflected in the fact - they've now and five summits. But what came out was actually very little concrete action and more by way of promises. So what they want to do is to set up a World Bank-like institution, putting in $50 billion and then hoping to, you know, lend money to countries for infrastructure. But more interestingly, they want to also create an IMF-type institution by pulling together the foreign exchange reserves of these countries - and China has $3 trillion, India has about 300 billion - to pool these together so that like the IMF, if countries get into trouble, they can draw upon this pool of reserves. But in both cases you can see that, you know, it's far from clear that it will take off because there's not a whole lot of agreement yet as to how much money should there be, who should have the power, who should put in the money, what should be the terms of borrowing, etcetera, etcetera.
GREENE: None of that sounds easy...
SUBRAMANIAN: Exactly. Yeah. And you need kind of some common vision, some common interest even, for this to go forward, and we're not there yet.
GREENE: Thanks so much for coming in. I've learned a lot from this conversation.
SUBRAMANIAN: Thanks, David.
GREENE: Arvind Subramanian is with the Peterson Institute for International Economics.