Oliver Stuenkel

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Oliver Stuenkel

The Diplomat’s Justin McDonnell speaks with Oliver Stuenkel, a non-resident fellow at the Global Public Policy Institute, about the recent economic performance of the BRICS, their response to the crisis in Crimea, the upcoming BRICS Summit and the rising voice of emerging economies.

Oliver Stuenkel
Oliver StuenkelCredit: Twitter @oliverstuenkel

Why are the BRICS a dynamic force and how are they changing the role of global governance today?

Despite economic difficulties during the past years, the BRICS countries remain crucial contributors to global growth. The current lull in the emerging world does not alter long-term predictions that China will overtake the American economy, and India is set to become a major pillar of the world economy in the course of this century. We will not return to the distribution of economic power of the late 20th century. As a consequence, BRICS countries have turned into indispensable actors when it comes to addressing global challenges. International institution have yet to adapt to this new reality.

There’s been a lot of hype that the BRICS economies are running out of steam as we’re beginning to see a slowdown, and their stock markets have taken a beating. Russia’s adventures in Crimea are hurting its assets.  Also, the renminbi unexpectedly fell in value two weeks ago. Is the Ukrainian gambit hurting the BRICS model? More generally, are you concerned about growth decline or still optimistic about long-term growth projections?

Stellar growth in several BRICS countries over the past decade may have led some to believe that the good times would go on indefinitely, and overly optimistic predictions may have convinced policymakers to postpone painful but necessary reforms – that was particularly the case in Brazil, where President Lula used his political capital to get his successor elected, rather than confronting Brazilian society with hard truths about the unsustainability of the pension system, inefficient public spending, and the need to reform an archaic tax code.

And yet, compared to the original BRICS projections made a decade ago, emerging countries are still doing extremely well (what is often forgotten is that in 2003, India grew by only 3.8 percent in 2002 and Brazil by only 1.1 percent). Goldman Sachs expected the combined GDP of the four economies to amount to about $8.7 trillion in 2013. Today’s reality is far rosier: Even including the recent years of lower growth, the combined GDP will amount to over $15 trillion. Brazil, Russia, India and China have grown faster than Jim O’Neill ever expected.

Temporarily lower growth may be necessary for policymakers in Brasília, New Delhi and elsewhere to adopt reforms that seemed unnecessary during the fat years. Perhaps not surprisingly, of all the BRICS, it is the Chinese government that has been most aware of the urgency to undertake economic reforms so far. Provided that other leaders can catch up, the BRICS countries are indeed likely to be larger in U.S. dollar terms than the G-6 (U.S., Germany, Japan, the U.K., France and Italy) by 2050.

I don’t think the situation in Crimea will affect the BRICS economically or politically more than the rest – provided that there will be no armed confrontation, of course. In the face of Western anxiety about the Russian annexation of Crimea, the BRICS have contributed to calming things down. It is easy to accuse India and China of not taking a principled stand. Yet in a situation where Russia feels pushed against the wall, even Western policymakers privately agree that they do not expect sanctions to change President Putin’s behavior in a way the West would like. Quite to the contrary, sanctions usually increase domestic approval ratings of targeted governments.

In the Hague, the BRICS came together and criticized the West’s attempt to isolate Russia, pointing out that the escalation of hostile language, sanctions and counter-sanctions does not contribute to a sustainable and peaceful solution. And indeed, what could excluding Russia from the G8 and the G20 possibly achieve? Irrespective of who is right and who is wrong, abolishing platforms and channels of communication has rarely helped solve international crises.

As a counterpoint to the BRICS, people have started talking about the MINTs, referring to Mexico, Indonesia, Nigeria, and Turkey. Do the MINTs have anything to teach the BRICS economies?

Banks constantly invent new fads to convince investors to jump on the next big opportunity, so it is not surprising that new models and concepts have sprung up. The MINTs are certainly an interesting group of countries, and some may grow faster than the BRICS in the coming years. The Mexican government has undertaken a series of promising reforms, some of which Brazil could learn from. Yet Mexico’s economy differs in many ways from Brazil’s, not at least regarding its proximity to the United States, so one has to be careful to readily emulate models applied elsewhere. Just like the BRICS, the MINTs face enormous challenges, even though they have great potential. Nigeria is overtaking South Africa as the continent’s greatest economy. Indonesia could become one of the most exciting growth stories of this decade if its political leadership can tackle corruption and improve infrastructure. Turkey’s economy also holds promise, even though the government has lost a lot of credibility and legitimacy over the past year.

What kind of reform do you think the World Bank and IMF need to increase the voice of developing countries?

At the G-20 Summit in 2009, it seemed as if both the World Bank and the IMF would successfully adapt to a more multipolar order. At the time, global leaders announced that the heads of international financial institutions should be appointed through an open, transparent, and merit-based selection process. The reforms would also have made China the third largest quota-holder at the Fund (second only to the U.S. and Japan), and Brazil, Russia, and India would have turned into top-ten quota-holders. Under the reform, U.S. voting power would have decreased slightly but it would still maintain its veto. In addition, in reforming the Fund’s Articles of Agreement, the changes agreed on would move two of the 24 IMF directorships from European to developing countries. These reforms were widely agreed to be an important step in the right direction.

Two years later, however, European leaders failed to honor their promise and insisted on a European to replace Dominique Strauss-Kahn as director of the IMF. In 2012, the Obama administration nominated Jim Yong Kim as its choice to be the new World Bank president. Obama’s nomination of Kim essentially ensured his selection, causing exasperation among emerging powers for the United States’ failure to consider the Nigerian candidate, Ngozi Okonjo-Iweala, who was widely thought to be more qualified. A similar logic is likely to apply to quota IMF reforms, which have been rejected by U.S. Congress in January. Last year, almost 100 policymakers and academics sent a letter to U.S. Congress urging the ratification of the reforms, arguing that any further delay would crucially reduce the United States’ credibility in the Fund.

The lack of reform is particularly problematic as Europe will remain heavily over-represented at the IMF, at a time when the institution provides large loans to troubled eurozone countries. As a consequence, tensions between established powers and emerging ones are bound to continue.

In any case, the decision is an unmistakable sign that, at least for now, the United States is unwilling to play the leadership role it has assumed in the past. It remains to be seen in how far the BRICS are able and willing to fill the void.

Later this year, the BRICS will hold their sixth annual diplomatic summit in Fortaleza.  Negotiations on the development bank will be at the center of the agenda.  Setting up a multilateral bank between five very different countries is a daunting task.  How might the BRICS coordinate such a process?  If successful, could they in fact reshape the development discourse away from the Bretton Woods institutions?  

In theory, the situation is a boon for those who argue that, despite all the rhetoric among European and North American leaders, established powers will never allow the Bretton Woods institutions to become truly inclusive and democratic. Analysts in Brazil, India and South Africa were quick to point out that this would strengthen the BRICS’ resolve to go ahead with the creation of the BRICS Development Bank.

Yet bank-related progress since the 5th BRICS Summit in Durban in 2013 has been painfully slow. When asked about the new bank, diplomats in Brasília, Pretoria and Delhi keep pointing out how difficult setting up a multilateral development bank is. Coordinating such a process between five countries is indeed a challenge – but that cannot mask the fact that true political will from the top may be missing at this point. Brazil’s foreign ministry, for example, currently adapts a budget cut after years of expansion, and Dilma Rousseff seems more intent on consolidating Brazilian foreign policy than engaging in costly new projects.

Yet slower growth across the BRICS cannot be an excuse for their leaders to turn inwards and disregard the global challenges that require their active input to be dealt with successfully. If set up in the right way, a BRICS Development would make an important contribution to the global debate about development. For example, will the rise of the emerging economies portend just a broadening of the “great game,” the only result being a little more room for maneuver for developing countries? Or will the Global South seize this opportunity to forge a new and more inclusive paradigm that secures faster and more sustainable development for all citizens? Is there potential for paradigm shifts in the discourses on global trade, aid, development cooperation and the rhetoric of best practice? These are among the most important questions of our time. Yet, I think it will unfortunately take several years for the bank to start operating, and having China on board does not help when trying to have an open and inclusive debate.

What else needs to be addressed and on the agenda at the upcoming summit?  

I am personally rather skeptical about the upcoming summit. Rousseff will be in the midst of her reelection campaign, and her governing style is highly risk-averse and centralizing. Yet bold foreign policy moves always involve some risks, and the president has been unwilling to provide her foreign ministers the necessary freedom to assume international leadership. The president decided to organize the BRICS Summit in Fortaleza as a favor to a political ally, Governor Cid Gomes of the state of Ceará, who will be crucial in undermining the candidacy of Eduardo Campos, one of Rousseff’s rivals in her bid for reelection in October 2014. This will make it very difficult for NGOs to organize counter-summits and involve civil society or influence public opinion. Yet it is precisely that what made the 2013 Summit in Durban so much more interesting and meaningful than the 2011 Summit in China, which of course had no participation by civil society at all.

And yet the decision to postpone the summit (Brazil had initially proposed late March or early April) has one important positive consequence: Rather than outgoing Manmohan Singh, India’s new prime minister will participate, allowing the meeting’s debates to look ahead with greater confidence. It may be one of the newly elected leader’s first international trips, and will serve as a litmus test of India’s continued commitment to the grouping.

I understand you’re currently working on a book. Without giving too much away, could you tell our readers about your research and when it might be ready for print? 

After finishing a book about the history of the IBSA grouping earlier this year (with Routledge’s Global Institution Series), I am now finalizing a book on the BRICS and the future of global order (with Lexington) – both will be available by the end of 2014. The BRICS book deals with the transformation of the BRIC acronym from an investment term into a household name of international politics and, more recently, into a semi-institutionalized political outfit (called BRICS, with a capital ‘S’). This has been one of the defining developments in international politics in the past decade, with important implications of the international system. Yet while the concept is now commonly used in the general public debate and international media, it still remains often misunderstood – both inside and outside of the BRICS countries.

One of the most fascinating questions is how the BRICS countries’ goals compare to what developing countries have sought to achieve in the past. Like their predecessors who opposed neo-colonialism and promoted a New International Economic Order, India, Brazil, South Africa etc. continue to be concerned about the unequal distributional outcomes of the global political economy. As their predecessors did, they also seek to influence the processes of a number of global regimes in order to secure better results for them and for their allies among the non-aligned countries of the world.

What makes the BRICS different from previous generations of developing countries is that they include a novel element into their overall argument — namely, that emerging powers are successful and that the rise of the Global South is set to fundamentally change the distribution of power in global affairs. The BRICS grouping’s raison d’être is profoundly influenced by this narrative. Emerging powers are far more influential than ever before, and they have the ambition to shape the global debate. Secondly, given the benefits they enjoy and which have contributed to their rise, they have a stake in today’s structures, and are less willing to destabilize the status quo. As a consequence, they seek to balance a relatively status quo-oriented economic agenda that does not question the liberal elements of today’s political economy with a more change-oriented foreign policy that seeks to rebalance and reform structures of global governance.