A BRICS bank struggling to be born

The World Bank’s Senior Vice President and Chief Economist Kaushik Basu who used to be the chief economic advisor to the Indian government until lately has a reputation for plain-speaking. Last April, while on a visit to Washington, he startled the audience at the eminent think tank Carnegie Endowment for International Peace with an acknowledgment that economic reforms in India had slowed down and might remain that way until the 2014 parliamentary election.

Basu disclosed that the Indian government was as good as dead for the remaining two years in office on the reform front. No one in Delhi likes to hear that and the Indian government, which had been wearing a ‘reformist’ hat, looked sheepish. But Basu was not off the mark substantively.

Thus, it merits attention that Basu has poured cold water on the hype being built up – largely by the Indians – that the creation of a new lending institution mooted by them is sailing into view. He estimates that the creation of a the BRICS bank involves a “humongous task”,  – meaning that it is not as simple and predictable as, say, the sun rising in the East.

Our only quarrel could be that being an Indian, Basu should have used the expression “Himalayan task”, since China and India also happen to be key protagonists in the BRICS project. The idea, it seems, first occurred to the Indians and they unveiled it somewhat theatrically at the BRICS summit they hosted in Delhi last year. But, everyone, including the Indians, would agree that it is China’s big buck that could get a BRICS bank going.

Be that as it may, Basu has done the right thing by voicing skepticism that the BRICS development bank is round the corner and all that is to be expected now that at the forthcoming summit at Durban, South Africa, on March 26-27 it will sail into view.

Curiously, the Russian Deputy Finance Minister Sergei Storchak also has made a similar realistic assessment. Speaking in Moscow, Storchak flagged that the proposal is awaiting the approval of the BRICS leaders as regards its “political advisability” and, indeed, very many key issues in the downstream needed to be fleshed out.

But then, who is queering the pitch? According to the WSJ, unnamed Indians based in Delhi who claim to be in the loop are claiming that not only is the proposed development bank a done thing, the BRICS leaders might even consider offering countries such as the United States and Britain, which have high credit ratings, to take stakes up to 45% in the bank and that if these non-BRICS countries become shareholders, they might also get voting rights in the bank.

Now, this is all getting a bit hilarious. The WSJ story’s thrust is that the BRICS economies are all in dire straits and don’t inspire confidence – except the solitary exception of China – and if a BRICS development bank were to gain credibility and traction, it needs to go with a begging bowl to the western countries. But then, why should the US and UK put their money into the BRICS development bank when they have the Bretton Woods institutions already?

Whether this is it yet another typical case of wild Indian imagination putting the cart before the horse we do not know. But surely, the WSJ report makes the stuff of a good spoof. Indeed, all sorts of kite-flying can be expected in the run up to the Durban summit, especially from pro-western lobbies interested in creating confusion within the BRICS ranks.

All the same, the view from South Africa sounds upbeat. The Chinese reports also voice enthusiasm about the Durban summit, with Xinhua reporting recently that the “BRICS development bank is an agenda item which is sure to feature strongly” at the Durban summit, although “pragmatic issues that require resolution” still remain for consideration. This was also what Storchak broadly conveyed. 

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