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Opinion Lead
Published: March 27, 2012 00:04 IST | Updated: March 27, 2012
00:04 IST
Banking on BRICS to deliverSamir Saran
Vivan Sharan
f conceptualised carefull, the Bank can help rebalance the
global econom leading to equitable and resilient
Even as New Delhi prepares for the arrival of BRICS Heads of
States towards the later part of the weeexperts across the world
continue to debate the relevance, capacity and cohesiveness of the
grouping.refrain in the western press is that it is a motley crew'
with little in common and therefore with littlecreate institutions
and multilateral platforms of substance. Well, they may be in for a
surprise. In fact,also surprise itself.
Besides the usual declarations on cooperation on political
matters, social challenges, climate and enerwater, health and
education, industry and trade, BRICS is likely to make two
significant announcemewhich will, in many ways, mark its coming of
age. First the formal launch of the BRICS Exchangewhich the major
stock exchanges of BRICS countries will offer investors index-based
derivatives tradiexchanges in domestic currency. This will allow
investors within BRICS to invest in each other's progrofferings of
the individual exchanges, facilitate greater liquidity, while
simultaneously strengthening efinancial integration through
market-determined mechanisms. From talking to people in the know,
thgood to go, and the operational modalities around currency,
settlement cycles and inter-exchange regcoordination are all issues
that have been thought through and resolved.
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account monetary policy and exchange rate imperatives of each of
the primary sovereign stakeholdersmanner that makes this venture
uncomplicated and attractive to other stakeholders as well.
The fourth aspect is the business mandate of such a bank. An
effective development bank would have tmultiple economic
priorities. Key areas such as infrastructure and the medium and
small scale enterpcould be natural starting points. The Brazilian
Development Bank (BNDES) could be considered an exBNDES disbursed
close to $140 billion in 2011, with around 30 per cent going to the
medium to smallsector (MSME) and about 40 per cent going to large
infrastructure projects. The BNDES also played a
stabilising the Brazilian economy after the financial crisis by
stepping up development assistance. SimBank could also assume the
role of a financial support mechanism which appropriately responds
to ththe global economy.
Corporations are the primary growth drivers of BRICS economies.
They create economic momentum,opportunities and, most importantly,
in the context of BRICS, employment. The creation of SPVs to
cinvestment and insurance needs of corporations would therefore
complement the development agendBank's International Finance
Corporation (IFC) and Multilateral Investment Guarantee Agency
(MIGreadymade frameworks. The IFC provides investment solutions for
the private sector through servicesfinance and structured finance,
while the MIGA provides non commercial risk insurance
guarantees.against political risk which is a significant investment
constraint in emerging markets could faci
new business activity within BRICS, and lest we imagine this
instrument to be risk-laden, MIGA has pinsurance claims since it
was set up in 1988 and needs no counter guarantees.
Need for consensus
BRICS is in transition and cannot afford to lose growth
momentum. Multilateral institutions such ascan aid in sustaining
directed, equitable and resilient growth. A consensus on the
creation of such an
would be a very real expression of intent by BRICS to craft
alternative development trajectories to thoy the OECD countries.
And it is also time to Bank with BRICS.
(Samir Saran is Vice-President and Vivan Sharan an Associate
Fellow at the Observer Research Fooundation hosted the BRICS
Academic Forum in March this ear.)
Keywords: BRICS meeting, global economy, BRICS Exchange
Alliance, medium to small enterprises seBank's International
Finance Corporation, Multilateral Investment Guarantee Agency
Shae
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