On February 7th Russia hosted an online meeting of Deputy heads of the Central Banks and Ministries of Finance of BRICS economies. One of the key themes on the agenda was the reform of the international financial system as well as the revamping of the BRICS Contingent Reserve Arrangement (BRICS CRA). The latter initiative may turn out to be the single most important initiative in the BRICS financial cooperation track after the creation of the New Development Bank (NDB) nearly 10 years ago. The question at this stage is whether the reform of the BRICS CRA is going to be material enough to make it an effective instrument of assisting developing economies in stabilizing their macroeconomic dynamics. The ample experience of the IMF may serve as a guide in shaping the modalities of the BRICS CRA, though there may also be a need for new approaches in shaping the framework of the arrangement to take into account the values and priorities of the Global South.
The BRICS Contingent Reserve Arrangement (CRA) is an arrangement for the provision of liquidity and precautionary financial resources to cope with actual or potential short-term balance of payments difficulties. The importance of revamping the BRICS has been one of my long-standing calls with respect to making the financial track of BRICS cooperation more effective – as argued in one of my articles last year “the BRICS CRA in its current form is not capable of addressing the needs of developing economies… the Global South should create institutions that can emulate and surpass the success stories that have been built on the basis of the Bretton Woods international organizations”. Indeed, since its creation in 2014 the BRICS CRA remained on the sidelines despite at times significant needs experienced by BRICS economies to receive financial resources and policy advice in stabilizing their macroeconomic frameworks.
In charting the future contours of the BRICS CRA the experience of the International Monetary Fund (IMF) will be an important guide. If the BRICS CRA is to start providing liquidity resources to member economies, it will need to borrow extensively from the IMF’s conditionality framework and the wide array of borrowing instruments developed by the IMF over the past decades. It may also emulate the Fund (that has agreements and a Concordat with the World Bank) in building a “BRICS concordat” with other development institutions of the Global South such as NDB and the regional financing arrangements (RFAs) in which BRICS countries are members. In fact, it was the IMF that pioneered the regular dialogues with regional financing arrangements (RFAs), including the BRICS CRA – in this respect the BRICS CRA could build its own network of alliances that may span the Bretton Woods institutions as well as the regional financing arrangements (RFAs) from the Global South and the developed world.
But while there may be a wealth of features that could be taken on board by the BRICS CRA from its Bretton Woods analog, there may also be differences pertaining to conditionality as well as the distribution of votes in the decision-making process. With respect to the latter, the BRICS CRA in further expanding its membership could aim for a more balanced distribution of countries’ shares compared to the Fund, where glaring imbalances are slow to be bridged. With respect to conditionality, the BRICS CRA may explore the possibilities of placing greater emphasis in its financing arrangements on the attainment of ownership of the stabilization program by the recipient economies. The BRICS CRA conditionality approach could also place more emphasis on growth and trade liberalization with more care accorded to the risks associated with drastic stabilization measures for the social indicators of BRICS economies. There may also be a need for coordination with the IMF over extending resources to countries that already have a Fund arrangement to avoid cross-conditionality problems. Operationally, the BRICS CRA may become one of the channels of greater use of national BRICS currencies in the financial operations of BRICS platforms and institutions.
Finally, the BRICS CRA could become the key center of analyzing macroeconomic performance and macroeconomic risks across the BRICS+ and the Global South space – much like the IMF has evolved into a key source of macroeconomic expertise on the global economy. At this stage, there is a palpable lack of analysis of Global South macroeconomic developments undertaken by the developing economies themselves. There could be ample scope to build research capabilities by the BRICS CRA together with the UN economic institutions such as the United Nations Conference on Trade and Development (UNCTAD) and the United Nations Development Program (UNDP). In the end, revamping the BRICS CRA is an opportunity to provide a different perspective on international platforms of macroeconomic stabilization or as framed by Brazil’s G20/T20 presidency to “re-think the world”. And it is crucial that this re-imagining of how the world economy could be stabilized by impulses from the Global South is done in close cooperation with the trail-blazers from the Bretton Woods. Amid intensifying global risks and headwinds, the IMF and advanced economies would benefit from a more structured and organized effort at macroeconomic stabilization coming from the developing world.
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