Bridges Weekly Trade News Digest • Volume 13 • Number 22 • 17th June 2009

Emerging Economies Push for Global Influence at First-Ever BRIC Summit

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BRIC leaders signalled their interest in becoming major players in global economic policy at the group’s first summit meeting on Tuesday. Leaders of Brazil, Russia, India, and China called for a larger role in global financial infrastructure, but steered clear of addressing the future of the dollar as the world’s reserve currency.

“The emerging and developing economies must have a greater voice and representation in international financial institutions,” the BRIC countries announced in a joint communiqué. “We also believe that there is a strong need for a stable, predictable and more diversified international monetary system.”

The BRIC countries have a common position on International Monetary Fund (IMF) reform, according to Arkady Dvorkovich, a top Russian economic aide. The parties hope to expand the number of currencies that comprise the Special Drawing Rights (SDR), the IMF’s reserve asset, to include the Chinese yuan, Russian ruble, Australian and Canadian dollars, and gold. The IMF is set to review the SDR basket of currencies in November 2010.

Before the summit, China, Russia and Brazil pledged to invest heavily in the IMF in order to garner more influence within the financial regulatory institution. Voting power at the IMF is determined by the size of a country’s quota, or investment, in SDRs. Currently, Brazil has 1.4 percent voting power, Russia 2.7 percent, India 1.9 percent, and China 3.7 percent.

Indian Prime Minister Manmohan Singh encouraged the other BRIC leaders to implement the short-term measures discussed at the G20 summit to address the global financial crisis. The BRIC countries generated interest at the summit in April when they issued a joint declaration outlining their proposals for responding to the crisis (see Bridges Weekly, 18 March 2009, http://ictsd.net/i/news/bridgesweekly/43467/). In light of the BRIC’s bold first unified statement at the G20 summit, spectators were curious to see how the four largest emerging economies would continue to assert their power.

But this week’s summit was less controversial. The joint statement was notably silent on a Russian proposal to decrease reliance on the dollar as the world’s reserve currency. The BRIC countries depend heavily on the dollar as the world’s reserve currency, but would like to become less wedded to the US economy.

“The world economy should not remain entangled, so directly and unnecessarily, in the vicissitudes of a single great world power,” Roberto Mangabeira Unger, Brazil’s minister for strategic affairs, told The New York Times. “The developing countries should not have to see painfully accumulated hard-currency reserves fall under the shadow of major devaluations.”As the group’s driving force for policy reform, Russia made an early call for a new international reserve currency, but has since shied away from such a step. “There is an understanding that the last thing we need now is turmoil on financial markets,” Dvorkovich said during a news briefing Tuesday.

But the countries plan to invest in each others’ economies, even without a unified position on the dollar. BRIC leaders were expected to discuss investing their reserves in each others’ currencies, settling bilateral trade in domestic currencies in lieu of the dollar, and developing currency swap agreements, Dvorkovich said.

The new reserve currency issue is one illustration of divergent opinions among the diverse group. Russia and Brazil, the group’s smallest economies, have been the most vocal on the currency. China, which holds US$ 1 trillion in US debt, has been silent on the issue, indicating its reluctance to do anything that might threaten the value of its holdings. The issue is less important to India, whose financial system relies less on international trade and more on its domestic market. However, India has also been reluctant to disrupt the dollar-based system.

The countries have different economic interests as well. China, whose GDP is as big as the other three BRIC states combined, relies heavily on exports to the United States and Europe. China and India have large labour pools, while Russia and Brazil both have vast supplies of natural resources. As a result, China would prefer lower prices on natural resources like oil, whereas Russia and Brazil hope to keep prices high.

“Between the BRIC countries, there is really little in common,” Yevgeny G. Yasin, head of research at the Higher School of Economics in Moscow, told the New York Times. “Each of them has its own destiny, its own special character, and it will be much more difficult for them to agree among themselves than separately with Western countries.”

However, the parties will seek to cooperate as they can. “[P]artial cooperation is possible, and a meeting like this will help amplify their shared voice,” Qin Yaqing, vice president of China Foreign Affairs University in Beijing, told Reuters.

Together, the BRIC countries account for 15 percent of the world’s economy and 12 percent of trade volume. They comprise 42 percent of the global population and contributed more than 50 percent of international economic growth last year. They will meet again in 2010 in Brazil.

ICTSD reporting; “UPDATE 2-Russia seeks currency debate at first BRIC summit,” REUTERS, 16 June 2009; “Emerging Powers Prepare to Meet in Russia,” THE NEW YORK TIMES, 16 June 2009; “BRIC seeks global voice at first summit,” REUTERS, 14 June 2009.