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DIPLOMACY: The $100 billion CRA will act as a safety valve to BRICS countries in case of foreign exchange crisis
Banking on BRICS: Remapping global ﬁnancial architecture
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The 6th BRICS summit in Fortaleza marks a major step in modernising the global financial order with the creation of institutions like the New Development Bank that will fund infrastructure building in emerging economies. KONSTANTIN GEGALOV RIBR
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Russian President Vladimir Putin is upbeat about the role of BRICS in creating a new international order.
BRICS must bolster rule of international law: Putin Russian President Vladimir Putin outlined his thoughts on the role of the BRICS grouping in an interview to ItarTass on the eve of the BRICS summit in Brazil. Here are key highlights: “The modern world is indeed multipolar, complex, and dynamic – this is objective reality. Any attempts to create a model of international relations where all decisions are made within a single ‘pole’ are ineffective, malfunction regularly, and are ultimately set to fail.” “In the BRICS case we see a whole set of coinciding strategic interests… First of all, this is the common intention to reform the international monetary and financial system. In the present form it is unjust to the BRICS countries and to new economies in general. We should take a more active part in the IMF and the World Bank’s decision-making system. The international monetary system itself depends a lot on the US dollar, or, to be precise, on the monetary and financial policy of the US authorities. The BRICS countries want to change this…” “Another long-term common interest is strengthening the rule of international law and the UN’s leading role in the international system. Without Russia’s and China’s principled position on Syria in the Security Council the events in that coun-
try would have followed the Libyan and Iraqi scenario.” “It is clear that all the BRICS economies need serious infrastructure modernisation. Our initiative to establish the Development Bank is aimed at expanding cooperation in this sphere. Another important initiative is creating a BRICS pool of foreign currency reserves. It will become a safety net to help us form a joint response to economic challenges.” “It is in our common interest to use the complementarity of national economies. to the maximum. This is the market with almost three billion consumers.” “Together we should think about a system of measures that would help prevent the harassment of countries that do not agree with some foreign policy decisions made by the United States and their allies, but would promote a civilised dialogue on all points at issue based on mutual respect.” “We are planning to shape a joint information policy in the international arena to support BRICS’ activity and to present a more unbiased picture of the world.” “I believe it is time to raise the BRICS’ role to a new level and to make our association an unalienable part of the global management system for sustainable development.”
precisely the BRICS Contingency Reserve Fund (CRA), with capital of $100 billion, another important outcome of the summit in Fortaleza, will provide financial assistance to member BRICS countries that are experiencing balance of payments problems. Given the current global economic volatility and fast flows of capital from developed countries into emerging economies, including the BRICS countries, and back again, may lead to balance of payments problems. The reserve fund may serve as a serious shock-absorbing mechanism in such situations. In the BRICS, the major financial burden will be taken on by China ($41 billion), while Brazil, India and Russia will each provide $18 billion and $5 billion will come from South Africa. The idea of mutual aid is also the basis of another major project, which Russia intends to propose and promote – a BRICS Energy Association, and inside of this – a Reserve Fuel Bank. The fuel bank, say the experts, can be used to strengthen the position of the country in the global market as the largest energy producer. New financial institutions of the BRICS may bring real benefits to Russia. And this is not because Russia needs stabilisation credits, but because it is vital to diversify the country’s markets and strengthen relations with partner countries. “This necessity is dictated by the aggravation of the political situation in the world and the aggressive rhetoric coming from the U.S. and the EU in relation to Moscow,” notes Daria Zhelannova, deputy director of the analytical department at the Alpari Company.
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he grouping of BRICS countries, which account for 42 percent of the world’s population and 28 percent of the global GDP, until now has been nothing more than a political club of the largest “non-Western” countries, not marked by any significant real deeds or global initiatives. The sixth BRICS summit, being held in Fortaleza, Brazil, aims to change this situation, and start forming not only a “non-Western” agenda, but also international economic institutions. “BRICS is obviously aiming at the modernisation and updating of the global financial architecture,” said Sergey Lusyanin, deputy director of the Institute of Far Eastern Studies of RAS. “The dominance of one superpower, the USA, has led to the results that we have seen in the last 20 years, and these results have brought horrors to the global society. BRICS countries will not be able to drastically change anything, but will be able to make their voices heard.” In this cotext, the BRICS Development Bank (or more formally – the New Development Bank) will coordinate investment policies of sovereign funds of BRICS countries (including Russia’s National Wealth Fund), says Natalia Orlova, chief economist at Alfa Bank. “The task of the IMF is to distribute funds of developed countries among the emerging markets. I think that the aim of the new fund will be to keep the monies invested in the territories of the BRICS countries themselves. In this sense, Russia’s interest lies in the fact that Russia, also, can attract these resources to finance projects on its territory.” The Bank will focus on infrastructure projects, to build ports and roads, as well as telecommunications networks – primarily on the territories of the BRICS countries. One of the first projects of the Development Bank may be the construction of a network of ground stations for the GLONASS system. The goal of the project would be to improve the accuracy of the signals and navigation. The placement of ground stations on the territories of the BRICS countries will make the GLONASS system more competitive. “The creation of a Development Bank – is the start of a serious process of institutionalisation of the BRICS,” opines Professor Vladimir Davydov, director of the Latin American Institute at the Russian Academy of Sciences. The organisation, he says, should push forward in the following areas: banking, stock exchange alliances, foreign currency insurance funds, alternative rating agencies, payment mechanisms in national currencies, etc. A pool of conventional currencies, more
Jointly tackling ISIS extremists in Iraq DEBIDATTA AUROBINDA MAHAPATRA Foreign policy analyst
he rise of the Sunni extremist group in Islamic States of Iraq and Syria, and its control of vast swathes of territory and oil fields in the two countries, have put the greater Middle East region once again on the international stage. The group, by proclaiming the establishment of a Caliph and calling all Muslims to join jihad, has fuelled fears in democratic and multi-ethnic societies. In this backdrop, the role of India and Russia –- both multi-ethnic and pluralistic societies –- is crucial, and coordination of their policies can help address the crisis. India and Russia as individual powers, as well as collectively, have since the beginning of the crisis in the Arab world emphasised on dialogue and political resolution of conflict. The Sunni-Shia schism in Iraq is not
a standalone case; it has links with the sectarian strife in Syria, which in turn has been a battleground of extremist forces, affiliated to Al Qaeda and others. The whole region is not only a sectarian bomb shell with implications far beyond the region. The energy resources and strategic location at the fault lines of some of the major religions has made Iraq subject to complicated geopolitical ambitions between the major players. Between India and Russia, the latter has better geopolitical leverage in the region. New Delhi has sought to use Moscow’s influence to address its concerns, particularly with regard to Indian citizens stranded in conflict zones. Russia’s Deputy Foreign Minister Sergei Rybakov recently asserted that Russia “will not remain passive to the attempts by some groups to spread
terrorism in the region.” President Vladimir Putin assured the Iraqi Prime Minister Nul al-Maliki Russia’s full support to stem the crisis. Russia’s concerns can be explained by two major factors. First, Russia opposes the victory of radical Islam, as it will have global implications, including for Russia. The ISIS, which is exclusivist, anti-democratic and as violent as Al Qaeda in its methods, has not hidden its ambition to craft an orthodox religious regime. Before it controlled vast swathes of territory including cities of Tikrit and Mosul, the ISIS made forays against Syria’s Assad regime. Russia, which has elements of extremism in southern parts, like in India’s north-western part, will not support the rise of extremism. With some Chechen radicals fighting against Assad’s forces, Russia’s concerns about proliferation of these forces is understandable. Juxtapose this to the video released last month by Al Qaeda calling for jihad in Kashmir, and displaying footages from Iraq and Syria as inspiration for Muslims to fight in Kashmir. As members of multilateral bodies like BRICS, India and Russia have opposed violent means of conflict resolution in the Arab world. Through its pronouncements in summit meetings and also in international forums such as the UN, the group has opposed any plan to use force or sanctions against Assad, and harped on political process, in-
cluding the Geneva talks for peace and stability in the region. The forthcoming BRICS summit in Brazil this month will likely reiterate this position, in addition to denouncing extremist organisations like ISIS and their ambitions. Russia’s military power has vaulted it to play a key role in the Iraq crisis. Russia recently delivered Sukhoi 25 fighter planes to the distraught al-Maliki government to fight the ISIS forces. Russia, which enjoys good relations with Iran and Iraq, can use diplomatic resources to bring the two countries closer by encouraging reconciliation between different factions. By enlisting support of Iran, and other partners such as India and China, it can help defeat the extremists. Russia and India can work together towards a political solution of the crisis. Dmitry Rogozin’s visit to India helped promote this joint resolve, and the coming days may witness joint actions in the crisis torn country. Iraq is turning into a humanitarian disaster with more than 1000 people already dead and 1.2 million displaced. India and Russia can play key roles not only to stem the extremist onslaught, but also to promote peace and stability in the region. The views expressed are of the author only.
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Published on Jul 15, 2014