The September 2016 meeting of the BRICS leaders — Brazilian President Michel Temer, Russian President Vladimir Putin, Indian Prime Minister Narendra Modi, Chinese President Xi Jinping, and South African President Jacob Zuma — which occurred on the sidelines of the G20 Summit in Hangzhou, China, was noteworthy as it confirmed the new Brazilian government’s commitment to the BRICS grouping.
The new Brazilian President Michel Temer came into office following the August 31, 2016 impeachment of his predecessor Dilma Rousseff (Marcello & Boadle, 2016). During the months-long impeachment proceedings, some observers suggested that the US was the hidden hand behind what Rousseff herself had described as a coup d'état (Trevisani, 2016; Greenwald, Fishman & Miranda, 2016; “Is the U.S. Backing,” 2016). Some even speculated that under the new administration, Brazil would “say goodbye to close relations to BRICS, and say hello to close relations with Washington” (Saxena, 2016; “Brazil’s Dilma Faces,” 2016). This was especially since Rousseff and her predecessor Luiz Inacio Lula da Silva, who is himself embroiled in a corruption scandal, were strong advocates of the BRICS grouping (Escobar, 2016). The appearance of Temer at the meeting of the BRICS leaders hence reassured observers that Brazil, for the time being at least, has not decided to leave the grouping (Hu, 2016). The question of Brazil’s continued commitment to the BRICS grouping will be answered again in October 2016 when the BRICS meet in Goa, India, for their 8th annual summit (Singh, 2016; “India to host,” 2016).
In another meeting on the sidelines of the G20 Summit, Presidents Xi and Temer agreed to raise the comprehensive strategic partnership between their countries to “new heights,” with a focus on “trade, energy, aviation, agriculture, finance, infrastructure and reactions to climate change.” President Xi also highlighted Sino-Brazilian cooperation in industrial capacity and sustainable development, as well as the proposed Cross Andes railway megaproject that will connect the Atlantic and Pacific oceans through Brazil and Peru (Lim, 2015; “China, Brazil to,” 2016).
Chinese companies including China Railway Construction Corporation are also hopeful that the new Temer administration will revive the 400 km Sao Paulo-Rio de Janeiro high-speed railway project, which had stalled over disagreements over the financing arrangements. However, the project, which was originally estimated to cost USD 11 billion, is likely to cost even more now. In addition, given that the Brazilian economy is in recession, it is not likely that the Temer government will decide to revive the project (Soto & Goy, 2016).
The collapse of the Tinaco-Anaco high-speed railway project in Venezuela stands as a warning for the ambitious Cross Andes railway and Sao Paulo-Rio de Janeiro high-speed railway projects. Despite having constructed almost half the project, the Chinese rail consortium had little choice but to withdraw and count its losses due to Venezuela’s economic collapse which has left its government unable to meet its payment schedule. The Chinese government has reportedly held meetings with Venezuelan opposition leaders to prepare for the possibility of regime change (Romero, 2015; Goodman, 2016).
Chinese companies are also hopeful that the new Temer administration will revive the 400 km Sao Paulo-Rio de Janeiro high-speed railway project.
On the economic front, India and China have been active in their cooperation, with, for example, both sides “signing contracts worth about $50 billion for Chinese investments in India in the next five years.” In addition, India is the second-largest stakeholder, just after China, in the China-led international financial institution (IFI), the Asian Infrastructure Investment Bank (AIIB) (Singh, 2016). However, Sino-Indian relations are not all rosy, and India has expressed security concerns over China’s economic engagement with Pakistan. In particular India has concerns over the China-Pakistan Economic Corridor (CPEC) megaproject, as CPEC runs through some territory that is claimed by India, as well as other territory which India alleges has been used by terrorist groups (Aneja, 2016; Lim, 2016). Prime Minister Modi himself exacerbated Indo-Pakistani tensions in August 2016 when he mentioned the peoples of Balochistan, Gilgit-Baltistan, and Pakistan-occupied Kashmir — all of them regions with separatist struggles — in his Independence Day address (Lee, 2016; Shahid, 2016; “Protests erupt,” 2016).
Still, there is hope that continued economic cooperation, and the benefits of economic growth in the region, can further improve Sino-Indian relations, or even help resolve the security challenges. The President of the BRICS-led New Development Bank (NDB), K. V. Kamath, has suggested that China’s industrial overcapacity, which has become a major challenge for China and the global economy, can in fact be harnessed to accelerate the growth of developing countries like India, perhaps by helping these countries increase their employment opportunities, or empower them to ascend the ladder of industrial production and “produce high value-added products” (Iyer, 2016). The social benefits of such economic growth could significantly reduce the allure of terrorism or militancy among the general population, and contribute to the expansion of peace and security in the region.
New Development Bank
The NDB has quickly become one of the most visible projects of cooperation among the BRICS countries. The NDB has approved USD 911 million in loans for its first set of projects: a renewable energy project in each of the 5 BRICS countries, which are all scheduled to be completed within 2 years. In contrast to the AIIB, which has partnered with established IFIs like the World Bank and the Asian Development Bank to finance its projects, the NDB has eschewed co-financing for the time being on the grounds that “coordinating between various lenders” is “time- and resource-consuming” (Wang & Feng, 2016). However, the NDB may consider co-financing for future projects. The NDB has recently signed a memorandum of understanding with the World Bank which “paves the way for the two institutions to explore country-level co-operation,” including “co-financing of projects; facilitation of knowledge exchange regarding their operations in accordance with their respective policies and procedures; exploring and pursuing opportunities for advisory services; and facilitating secondments and staff exchanges” (Maswanganyi, 2016).
To increase its capital beyond the USD 10 billion that has been raised from the BRICS member states, the NDB has issued a “five-year yuan-denominated bond worth 3 billion yuan ($450 million) with an interest rate of 3.07 percent,” and it “plans to issue more bonds denominated in the currency of the target country” (Wang & Feng, 2016). This first bond is a green bond, which means its proceeds will finance projects concerned with environmental sustainability (Guryanova, 2016). The NDB’s second issue of bonds will be in India (Iyer, 2016). The NDB also plans to issue bonds denominated in the ruble by the end of 2016, which will “allow the Bank to efficiently step up its operations in Russia and the proceeds of the bond will be used for financing infrastructure and sustainable development projects in the country” (“Bonds in Ruble,” 2016). Unlike the AIIB, which has decided to only issue USD-denominated loans, the NDB has already issued “a yuan-denominated loan to solar and wind power projects in Shanghai.” In terms of its structure, while the AIIB is dominated by China, which holds veto power over its decisions, the NDB is jointly run by the BRICS nations, each of whom has one vote, and none of whom has veto power (Wang & Feng, 2016).
The NDB recently announced that it is open to offering financing to South Africa’s state-owned enterprises (SOEs). Lesley Maasdorp, the NDB’s Chief Financial Officer, pointed out that the NDB had been “set up to help member states, including their public enterprises,” and as such, “South Africa’s state owned enterprises are free to approach their bank for assistance” (“Brics bank open for,” 2016). Should such loans be approved, however, this could raise questions from investors about the bank’s decision-making processes, especially since two private financing institutions have stopped offering financing to South African SOEs due to concerns over their “governance and transparency” (“Brics bank open to,” 2016). Loans to SOEs may also raise questions about the NDB’s commitment to its sustainable development agenda, especially if the SOEs’ businesses do not contribute to sustainable development (Roychoudhury & Vazquez, 2016).
By 2018 the NDB expects to expand its membership to additional countries beyond the BRICS founding members, allowing “the bank to become a truly global player” (Zhang, 2016). Apart from the expansion of the NDB, other initiatives the BRICS are considering to increase their economic clout include proposals such as “setting up a rating agency for the five-member bloc” and “issuing ‘BRICS visas’ for businesspeople and visa-on-arrival for other visitors” (Singh, 2016). Further announcements on new directions for the BRICS may be expected at next month’s BRICS Summit in Goa.
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