BRICS is the acronym for an association of five major emerging national economies: Brazil, Russia, India, China, and South Africa. The grouping was originally known as “BRIC” before the inclusion of South Africa in 2011. The BRICS members are all developing or newly industrialised countries, but they are distinguished by their large, fast-growing economies and significant influence on regional and global affairs; all five are G-20 members.As of 2014, the five BRICS countries represent almost 3 billion people which is 40% of the world population, with a combined nominal GDP of US$16.039 trillion (20% world GDP) and an estimated US$4 trillion in combined foreign reserves. As of 2014, the BRICS nations represented 18 percent of the world economy.Brazil held the chair of the BRICS group in 2014, having hosted the group’s sixth summit in 2014.The BRICS have received both praise and criticism from numerous quarters. The term, “BRICS”, was coined by economist Jim O’Neill in his publication, Building Better Global Economic BRICs.[9
Brazil hosted, on the 14th, 15th, and 16th July 2014, the 6th Summit of Heads of State and of Government of BRICS, held in Fortaleza and Brasília. The Summit adopted the Fortaleza Declaration and Action Plan, the Agreement on the New Development Bank, the Treaty for the Establishment of a BRICS Contingent Reserve Arrangement and agreements among BRICS Development Banks and Export Credit Insurance Agencies (available here)
At its 6th Summit, the BRICS emphasized social inclusion and sustainable development. The debate was be informed by the theme “Inclusive growth: sustainable solutions”. The Summit inaugurated the second cycle of BRICS. Each member country has hosted one meeting of Leaders.
The Fortaleza Summit showcased BRICS accomplishments and the discussions leading to the realization of its vast potential. Since its first Summit, in 2009, BRICS has consolidated its position as a positive force for the democratization of international relations and for the enhancement of existing institutions of international governance. It has also forged an impressive partnership carrying out cooperation initiatives in more than 30 areas between its members.
Among other topics, the Leaders discussed the Contingent Reserve Arrangement (CRA) and the New Development Bank (NBD). The CRA is an additional line of defense available to the BRICS countries in scenarios of Balance of Payments’ difficulties. The NBD will finance infrastructure and sustainable development projects.
In Brasília, on the 16th, a working session was held between the Leaders of BRICS and the Heads of State and/or Government of South America. The dialogue between BRICS Leaders and their South American counterparts reflects the priority accorded to developing countries in the BRICS outreach strategy.
On the 14th, in Fortaleza, as part of the BRICS Summit, the following meetings were held: Finance Ministers and Central Bank Governors meeting, Trade Ministers meeting, Development Bank Presidents meeting, Business Forum and a session of the Business Council of the BRICS.
The Academic Forum of the BRICS was held in Rio de Janeiro, on the 18th and 19th March 2014; the meeting of the Think Tanks Council was also held in Rio de Janeiro, on the 17th March 2014.
‘World in indefinite depression’
Published time: September 19, 2014 15:06
We are in global depression which started in 2007 and is going to continue indefinitely, Jim Rickards, economist and author of “Currency Wars: The Making of the Next Global Crisis,” told RT.
China’s central bank is injecting a combined 500 billion Yuan into the country’s top banks – a move signaling the deep concerns of an economic slowdown in China. A downturn in China`s economy, as investment is scaled back in Chinese real estate, has prompted economists to forecast further financial defaults and slowing economic growth in the second half of the year. Will this monetary easing fix China’s short-term problem and put it back on the path to prosperity in the long-term? Erin from “Boom Bust” asked economist, Jim Rickards, in her show.
RT: The Chinese Central bank is now offering stimulus. Is this a part of a new round of “currency wars”?
Jim Rickards: Yes, that is right. I think this is one long “currency war”. We are now getting into more of a battle, more of a confrontation. The US dollar is the only strong currency that cannot last: the US cannot have a strong currency, because we are desperate for inflation. We have done all the quantitative easing, we have raised the zero, we have issued further guidance, we have done a twist, and we have done three versions of QE. We have done everything possible. The only thing left is to try to cheapen the currency and in fact the dollar is getting stronger. The Fed might not have minded a stronger dollar. Six months ago it did look like the economy was getting stronger. We saw strong second quarter GDP. So it was a little bit of a good day. And Europe was desperate for the help: they were stepping into recession. Japan`s economy collapsed in the second quarter. So you could see the feds saying “ok…we will have a stronger dollar and give Europe and Japan a break”. But that is over. Now the US is becoming a loser and we are the ones who need to take a break. The only way to get it is a cheaper dollar. I would look for that in the months ahead.
RT: PIMCO says that Chinese growth will slow to 6.5% over the next year and this is despite the official 7.5% target now in place. Do you think PIMCO is right?
JR: Yes, it is about to go down further. I have been going for Chinese growth to get to 3 or 4%. I would say that China`s growth is already at 4%. I know they print 7.5%. But about half of the GDP they produce is wasted. So if I build a $5 billion train station in a small town that is $5 billion of GDP- this money is completely wasted because 10 people getting on the train are not going to pay for a $5 billion station. So you go around China with these ghost cities we have talked about before… So it is generating GDP, but it is completely wasted. If you adjusted the published GDP figures for the amount of waste, their actual growth is probably already roughly 4%. That is going to go lower.
RT: China is slowing the other BRICS, except for India is slowing, and Europe is slowing. Who is going to pick up the slack?
JR: Nobody, we are in a depression. This is a global depression. It started in 2007 and it is going to continue indefinitely. Depressions are structural, monetary solutions are cyclical: you cannot solve a structural problem with a cyclical remedy – monetary policy will not work. What it could do eventually is cause inflation. So far people say: “Where is the inflation?…We printed trillions of dollars, there is no inflation”. That is because we would have had deflation, extreme deflation, but for the money printing. It did produce inflation to the extent that it offset the deflation… The world is in depression, we are not getting out of it.
RT: In the last year or so we haven’t seen any notable economic crises in North America or in Europe. So are the pressures building towards another crisis, and if so where? Is it just globally?
JR: It will erupt somewhere, it will emerge somewhere but it will spread globally. I think there are a couple of candidates. One is obviously US stocks, that is a bubble. Maybe China is more likely. We talked about China`s economy slowing down- that is the case. The worst case is that the credit bubble collapses. Chinese savers – you know they are a wealthy country – they credit a lot of wealth. They don`t have many places to go. They can`t invest in foreign stocks, they don`t trust their own stock market… the banks pay them nothing. So they are putting all money in real estate and also wealth management products, these are structure products like CDO`s but they have real estate behind them. Their sponsors raise money in these funds; give you a wealth management certificate. And then they take money and put it into real estate. But the real estate is not producing, it is all speculation, it is all a bubble. That bubble will collapse…
The group of emerging economies signed the long-anticipated document to create the $100 bn BRICS Development Bank and a reserve currency pool worth over another $100 bn. Both will counter the influence of Western-based lending institutions and the dollar.
The new bank will provide money for infrastructure and development projects in BRICS countries, and unlike the IMF or World Bank, each nation has equal say, regardless of GDP size.
Each BRICS member is expected to put an equal share into establishing the startup capital of $50 billion with a goal to reach $100 billion. The BRICS bank will be headquartered in Shanghai, India will preside as president the first year, and Russia will be the chairman of the representatives.
“BRICS Bank will be one of the major multilateral development finance institutions in this world,” Russian President Vladimir Putin said on Tuesday at the 6th BRICS summit in Fortaleza, Brazil.
The big launch of the BRICS bank is seen as a first step to break the dominance of the US dollar in global trade, as well as dollar-backed institutions such as the International Monetary Fund (IMF) and the World Bank, both US-based institutions BRICS countries have little influence within.
“In terms of escalating international competition the task of activating the trade and investment cooperation between BRICS member states becomes important,” Putin said.
Russia, Brazil, India, China and South Africa account for 11 percent of global capital investment, and trade turnover almost doubled in the last 5 years, the president reminded.
Each country will send either their finance minister or Central Bank chair to the bank’s representative board.
Membership may not just be limited to just BRICS nations, either. Future members could include countries in other emerging markets blocs, such as Mexico, Indonesia, or Argentina, once it sorts out its debt burden.
BRICS represents 42 percent of the world’s population and roughly 20 percent of the world’s economy based on GDP, and 30 percent of the world’s GDP based on PPP, a more accurate reading of the real economy. Total trade between the countries is $6.14 trillion, or nearly 17 percent of the world’s total.
The $100 billion crisis lending fund, called the Contingent Reserve Arrangement (CRA), was also established. China will contribute the lion’s share, about $41 billion, Russia, Brazil and India will chip in $18 billion, and South Africa, the newest member of the economic bloc, will contribute $5 billion.
The idea is that the creation of the bank will lessen dependence on the West and create a more multi-polar world, at least financially.
“This mechanism creates the foundation for an effective protection of our national economies from a crisis in financial markets,” Russian President Vladimir Putin said.
The group has already created the BRICS Stock Alliance an initiative to cross list derivatives to smooth the path for international investors interested in emerging markets.
Russia has also proposed the countries come together under an energy alliancethat will include a fuel reserve, as well as an institute for energy policy
“We propose the establishment of the Energy Association of BRICS. Under this ‘umbrella’, a Fuel Reserve Bank and BRICS Energy Policy Institute could be set up,” Putin said.
Documents on cooperation between BRICS export credit agencies and an agreement of cooperation on innovation were also inked.
Bringing emerging economies closer has become vital at a time when the world is guttered by the financial crisis and BRICS countries can’t remain above international problems, said Brazil’s President Dilma Rousseff.
She cautioned the world not to see BRICS deals as a desire to dominate.
“We want justice and equal rights,” she said.
“The IMF should urgently revise distribution of voting rights to reflect the importance of emerging economies globally,” Rousseff said.
BRICS countries near development bank deal to rival IMF, WB
The emerging economies of Brazil, Russia, India, China and South Africa, are a couple of days from agreeing the $100 billion BRICS development bank, as well as a $100 billion currency pool. It could challenge global lenders like the IMF and World Bank.
The bank will be called the New Development Bank, and will provide finance for infrastructure projects. Its creation will meet the needs of emerging and poorer economies according to Russian Finance Minister Anton Siluanov.
In a speech Wednesday he confirmed the funding would be divided equally, Russia will contribute $2 billion in initial capital for the BRICS bank over seven years.
The bank will start with $10 billion in cash and $40 billion in guarantees. The $50 billion will be eventually built up to $100 billion.
The bank will be able to start lending in 2016, the minister says.
The final decisions concerning the creation of the bank are expected to be made by the BRICS leaders at a summit in Brazil on 14-16 July.
Apart from the BRICS countries other UN members may also participate in the bank’s development, but their total share won’t exceed 45 percent.
The location of the headquarters is still not decided, but Siluanov said the two favorite cities are Shanghai and New Delhi.
BRICS leaders are also expected to sign an agreement to establish an additional $100 billion fund to steady the currency markets.
“We have reached an agreement that, in the current conditions of capital volatility, it is important for our countries to have this buffer a so-called “mini-IMF”- a financial organization which could quickly react to capital outflow, providing liquidity in hard currency, in particular in US dollars,” Siluanov said.
The need arose after the long inflow of cheap dollars which fueled a boom in the BRICS countries for a decade reversed into a sharp outflow in 2013.
Even though the new bank will be a small rival to the World Bank which has capital of $223 billion, or the International Monetary Fund, it will serve as a reminder to the US of the shift in the global economy towards the developing world.
Currently BRICS countries make up over 40 percent of the world’s population and account for about 20 percent of global GDP.