India-Africa Ties: Economics and Multilateralism

If India is serious about its Africa initiative, a lot will depend on how it marshals its banking and financial sector there

The Leaders’ Declaration from G20 this year comes with an added annexure. It is called the G20 Africa Partnership, included at the insistence of Germany, which has the G20 presidency for 2017 and is at liberty to set the multilateral grouping’s agenda for the year. The annexure states its purpose: “The Partnership intends to support related initiatives of the G20 and facilitate investment compacts between interested African countries, international organisations and interested partners to support private investment, sustainable infrastructure and employment in African countries.”

Germany, as well as the European Union, have an abiding interest in Africa. The unrelenting waves of migration from North African shores (often leading to loss of lives while crossing the tempestuous Mediterranean Sea) and Europe’s volatile immigration politics are likely to have prompted Germany to rally the international community around Africa’s plight. Hence the partnership document focuses, among other things, on creating sustainable employment opportunities so that African youth do not risk lives in search of livelihood elsewhere.

Ironically, the G20 club includes only one African nation, South Africa. The Partnership document has its fair share of detractors, especially within African nations, and suspicions about its overwhelming reliance on private sector investment.

It also holds out three lessons for India.

The first relates to deeply embedded historical attitudes towards Africa. These rose to the surface again, perhaps unwittingly, while French President Emmanuel Macron was addressing a G20 press conference in Hamburg. Answering a question on why there was no Marshall Plan for Africa, Macron is believed to have said Africa had a different set of problems, which included “civilizational” problems. Some of the unique problems cited by Macron included failed states, complex democratic transitions and African women giving birth to seven-eight children. This predictably triggered a maelstrom of protests and diverted attention to Africa’s colonial past and France’s role in it. Macron’s statement was also viewed as reflecting Europe’s smug (and enduring) belief of civilizational superiority. Macron almost buried the partnership even before it had an opportunity to take off.

India must take note of this public relations disaster. The impact of government’s intensive outreach programmes has often been blunted by violent displays of racism against African students and citizens living in Indian cities. It is indeed an odd occurrence for India, which boasts of a long and shared history with Africa—especially cultural, social and trade ties. If at all, there is a felt need to accelerate the Indian Technical and Economic Cooperation (Itec) programme which provides capacity building for officials from low- income countries.

The second lesson arises from the G20’s internal contradictions and the possible impact on India. The document has a section on strengthening the framework for investments and private finance in Africa, in which the G20 welcomes other partners and “…complementary measures by the forthcoming EU External Investment Plan, the Forum of China Africa Cooperation, the Tokyo International Conference on African Development as well as others”.

Herein lie the conflicts within the G20: China, Japan, Turkey and the US are all independently competing for a foothold in Africa, with each country aggressively courting nations and their heads of state. Germany and the European Union are joining the fray now. India also has its own India Africa Forum Summit, which has been re-energized and supplemented with state visits by Prime Minister Narendra Modi, then president Pranab Mukherjee, vice-president Hamid Ansari and other senior ministers.

Given the multiplicity of competing interests, it has to be seen whether different countries will be willing to subsume their Africa ambitions under an over-arching multilateral approach. India will need to watch this effort closely. If required, India could consider activating the Asia-Africa Growth Corridor (AAGC), its joint initiative with Japan, through the G20 compact. The AAGC, which places significant emphasis on both infrastructure investment and capacity building, aligns well with the G20’s Africa approach.

The third point relates to the implicit assumptions behind private sector investments—that they will automatically generate more trade. Unfortunately, intra-Africa trade accounts for only 14% of Africa’s total trade. It is true that poor infrastructure slows down intra-Africa trade traffic, and therefore higher investments in road and rail infrastructure will surely help. The problem lies elsewhere—the lack of a trade facilitation culture and customs capacity which hinders cargo movement. India and Itec can definitely help here.

More importantly, there are other opportunities for India. Data from the African Development Bank shows only 31% of Africa’s trade is backed by bank-intermediated trade finance. This is clearly an opportunity for Indian banks. India’s banking presence in Africa seems to have lost its relevance over time: The geographical footprint is built around traditional Indian diaspora habitats in east and south Africa, and operations are tailored around ethnic banking services. Late in entering Africa, Chinese banks have already acquired stakes in leading banks. If India is serious about its Africa initiative, a lot will depend on how it marshals its banking and financial sector there.

The above article was published in Mint newspaper on July 26, 2017, and can also be accessed here 

Caught Between The Dragon And The Elephant

India’s trade diplomats will need some deft footwork to manage two trade partners—China and the US

Two large beasts cramp our geostrategic mindspace. One, China’s dragon refuses to vacate our imagination. The second one stirring about in the same space is expected to further cramp room for manoeuvrability. The current US administration, much like the Republican Party’s elephant symbol, is steamrollering global multilateral negotiations. Both these heavyweights present India with a difficult balancing act.

The first inkling of India’s expected high-wire act came from Chile last week when 11 members of the floundering Trans-Pacific Partnership (TPP), all founding nations barring the US, met to revive the plurilateral agreement. An added twist was China’s presence at the meeting.

It is expected that China will step into the US’ large shoes. America’s withdrawal from the TPP was seen as a parting kiss of death since its stewardship had kept negotiations alive. Having invested time, resources and political capital—especially on beyond-the-border issues like labour standards, environment rules and intellectual property laws—many developing countries are loath to let all that work go to waste.

These developments point to the likelihood of an alternative Asia-Pacific trade agreement, perhaps without the trademark TPP markers. Importantly, China was not part of the TPP, which was seen as an instrument and extension of the US’ strategic power. While it is still early to predict how it will all shape up, hopes are the new pact will be built on the back of Latin America’s four-country Pacific Alliance and South-East Asia’s Regional Comprehensive Economic Partnership (RCEP).

India is part of the RCEP trade and investment initiative being negotiated between 16 countries—10 countries from the Association of South-East Asian Nations (Singapore, Malaysia, Thailand, Indonesia, Cambodia, Vietnam, Laos, Myanmar, Brunei and the Philippines) and six others with which the regional grouping has a free trade agreement (India, China, Japan, South Korea, Australia and New Zealand). Many of these nations are also TPP members. The RCEP provides India an opportunity to stamp its strategic and economic presence across the Asia-Pacific. It also provides India an opportunity to bring multilateralism back to centre stage.

But here’s the thing. With China assuming leadership of the RCEP and the putative Asia-Pacific alliance, the world will be keenly watching the shape of the new trade and investment agreement, especially who gets to set standards and the nature of standards finalized. The TPP’s insistence on standardized labour, environment and intellectual property right (IPR) regulations (apart from a host of other issues) conflicted with notions of sovereignty.

The question now is: Will China impose similar standards?

While China has publicly endorsed World Trade Organization (WTO)-compatible trade agreements, will it cherrypick rules? India and China share an uneasy geostrategic relationship, especially in trade. India’s three-tiered tariff proposal for the RCEP has already met with disapproval and India’s push for inclusion of trade in services faces multiple headwinds.

In the other corner, the US’ browbeating at the recently concluded G20 meeting in Germany provides a glimpse of forthcoming challenges to the existing world trade order and globalization. During the drafting of the final communiqué, the US bullied all members to drop pro forma references to free trade and protectionism. Not surprisingly, all members complied, though they did grumble in private.

US President Donald Trump’s administration has repeatedly emphasized that it prefers bilateral agreements over multilateral compacts. The 2017 Trade Policy Agenda makes it official: “The overarching purpose of our trade policy…will be to expand trade in a way that is freer and fairer for all Americans…these goals can be best accomplished by focusing on bilateral negotiations rather than multilateral negotiations—and by renegotiating and revising trade agreements when our goals are not being met.”

India does not have a free trade agreement with the US and negotiations over a bilateral investment treaty between the two countries is stuck over, among other things, the investor-state dispute system. IPR laws are the other thorn in the relationship: India claims its IPR regime is compliant with the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights while the US insists on a WTO-plus framework. This has prompted the US to unilaterally include India in its “Priority Watch List” under Special 301.

The trade agenda outlines the future course of the bilateral: “Although existing Indian trade and regulatory policies have inhibited an even more robust trade and investment relationship, India’s economic growth and development could support significantly more US exports…In 2017, the United States will press India to make meaningful progress…on intellectual property rights, promoting investment in manufacturing, agriculture, and trade in goods and services.”

This, in short, is the dilemma. India’s geostrategic ambitions include RCEP membership but it will have to contend with China’s growing heft and increasing pressures to further reduce tariffs. India’s trade deficit with China is growing every year and shows no signs of reversing. On the other hand, India’s support for multilateralism will have to contend with the US’ insistence on bilateral treaties and a re-examination of all existing trade relations. Ironically, India enjoys a trade surplus with the US—in 2015, it touched $30 billion. India’s trade diplomats will need some deft footwork to manage these two trade partners and contradictions.

The above article was published in Mint newspaper and can also be read here 

India’s Disenchantment with Multilateralism

India’s initial enthusiasm for multilateralism stemmed from the belief that the global economic governance system would take on board emerging economies’ concerns

India’s decision to pull out of the South Asian Association for Regional Cooperation (Saarc) summit in Islamabad marks a new milestone in the country’s growing disaffection with regional and multilateral groupings. This discontent was most visible at the G20 summit, which it used for some unsubtle political messaging. Its near-perfunctory chairmanship of the eighth Brics (Brazil, Russia, India, China, South Africa) summit raises further questions about its interest in multilateralism.

Is there an impending shift in India’s multilateral policy framework, in much the same way that the recent “surgical strikes” pushed the strategic restraint doctrine? Will the current administration give politics greater weightage in its external policies, which till now had an economic focus? Welcome to the post-Uri policy configuration.

The future of Saarc, perennially hostage to the hyphen dividing India and Pakistan, is now further jeopardized, with Bhutan, Bangladesh, Afghanistan and Sri Lanka joining India in boycotting the Islamabad summit in November.

The low-key run-up to the eighth Brics leadership summit, scheduled on 15-16 October in Goa under India’s chairmanship, further reveals the political leadership’s fatigue with such associations. Hopefully, this will be reversed when the Brics leaders get together.

India’s stand at the latest G20 summit in Hangzhou also betrayed frustration, with Prime Minister Narendra Modi highlighting Pakistan’s export of terror. This would have seemed logical at any other global gathering, but the G20’s purpose is fostering global financial stability and economic cooperation, not airing political differences. But then, isn’t economics also about politics?

Modi’s outburst against Pakistan at a China-curated G20 summit was strategic. China has repeatedly blocked India’s attempts to enforce a UN-sponsored ban on Jaish-e-Mohammad chief Masood Azhar. In addition, Beijing is going ahead with the China-Pakistan Economic Corridor, a vital component of the One Belt, One Road initiative, which plans to pass through contested territory in Pakistan-occupied Kashmir despite India’s reservations. The last straw perhaps was China’s public opposition to India’s entry into the Nuclear Suppliers Group. India also denied China some moments of glory in Hangzhou: It refused to ratify the Paris climate accord there.

There’s also growing global disenchantment with the G20, with the weak structural engineering of this alignment now becoming slowly visible. The Hangzhou summit communique reads much like its predecessors’. It included all the well-intentioned, oft-repeated noises about policy coordination, economic growth, governance, development, inequality. Here’s the problem: The communique lacks a credible path to policy action, or any quantifiable targets. Similar communiques in the past have also helped create an atmosphere of scepticism. For example, the 2014 Brisbane summit had announced a policy framework for increasing global gross domestic product by an additional 2% by 2018, predicated on large-scale infrastructure investments. The International Monetary Fund’s staff note for the 2016 summit says the target looks unattainable because of low investment rates in most advanced economies. Consequently, analysts are rushing to publish the G20’s untimely obituary (goo.gl/57hQsn).

The G20’s shaky foundations can be traced to the circumstances of its birth. It was created in 1999—primarily as a reaction to the 1997 Asian financial crisis—as a platform for finance ministers and central bankers to discuss international financial and monetary policies, global economic trends and reform of multilateral financial institutions. In November 2008, then US president George W. Bush invited global leaders to Washington, DC to discuss a coordinated global response to the financial crisis. This became the G20’s first leadership summit, and provided the defining character of its birth: a fire-fighting unit masquerading as a global policy coordination body.

Logically, therefore, once the immediate hump of the crisis was crossed, the G20’s utility seemed diminished. Some good examples are the US’ disregard for policy coordination preceding the taper tantrum, resulting in tough times for emerging economies—and the slow progress in reforming the shareholding of Bretton Woods institutions.

The director of Globality Inc., Rebecca Liao, writes in Foreign Affairs: “Instead of coordinating economic policy among the world’s wealthiest countries, it (G20) broadened its scope to include climate change, investment initiatives, and human rights. Since its members are largely unable to come to a meaningful consensus on this expanded range of issues, the G20 then became a think tank of sorts.”

India’s enthusiasm for multilateralism stemmed from the belief that the global economic governance system would take on board the concerns of emerging economies. That hope now looks dashed, with slow progress on most issues. Add to that India’s concerns on terrorism going unheeded on global multilateral platforms. Consequently, it is quite likely that India’s policy architecture might acquire a slight bias towards bilateralism, given Modi’s predilection for one-on-one engagement with world leaders. There are also some indications of the foreign policy needle shifting slightly towards politics.

This column was originally written as an Op-Ed for Mint newspaper and can be read here 

NDB: A Pivot To Financial Alternatives

The BRICS Bank wants to complement existing multilateral arrangements while simultaneously creating an alternative architecture; it can begin by tying up with existing Asian liquidity support systems and forging a non-dollar clearing system 

Introduction 

The global financial crisis (GFC) of 2008 exposed numerous faultlines in the international monetary system and in the global financial architecture (GFA). In addition, globally trusted benchmarks, such as Libor and Brent, were found susceptible to manipulation and distortion. Also, the global financial system was subjected to unilateral geopolitical objectives, like the U.S.-imposed economic sanctions against Iran. 

Consequently, in 2008, the G20, an existing multilateral grouping, was transformed and upgraded—from an annual meeting of finance ministers and central bankers to a leaders’ summit—to handle the GFA’s infirmities[1]. However, the G20 has achieved only partial success, with no noticeable progress on either reducing global imbalances or on addressing the GFA’s weaknesses, as was promised in 2009. 

As a result, untrammelled portfolio capital flows from developed economies to emerging markets—considered dangerous, volatile, and unregulated—have now driven many emerging nations to seek regional initiatives. 

BRICS is such an initiative, though it is distinctive from other similar groupings—its member countries are not geographically contiguous. Another unique feature is the low intensity of trade and investment among each other, [2] even though economics was a primary motive for these countries forging a common platform. The other compulsion was to seek an alternative to the dominant GFA and the concomitant governance structure in various multilateral development banks. 

The formation of BRICS and its leaders’ intentions were initially met with scepticism. However, these leaders have delivered on some of their promises—BRICS nations formally launched the New Development Bank (NDB) and the Contingency Reserve Arrangement (CRA) at the Fortaleza Summit in 2014, [3] fulfilling a long-held promise. 

The NDB and the CRA are delivery platforms for development finance and emergency liquidity support, respectively. Both are designed to provide an alternative to the multilateral governance orthodoxy prevalent at the International Monetary Fund (IMF) and World Bank. All BRICS leaders (as well as newly-appointed NDB president K.V. Kamath) have emphasised that the NDB does not purport to replace the existing multilateral institutions, but will complement them, while offering an alternative financing model for sustainable development. 

The first steps to intensify economic relations have already been taken. The NDB has signed, in Ufa, Russia, a memorandum of understanding with five national development banks [4] from each BRICS country; it also signed agreements, in Fortaleza, with five export credit guarantee companies. The agreements are expected to “…enhance trade and economic relations between member countries”. 

The individual pieces 

The agreement to set up NDB, signed by the five BRICS leaders, states the bank’s mission: “The Bank shall mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries, complementing the existing efforts of multilateral and regional financial institutions for global growth and development.” [5] 

This has three components: one, the NDB will finance infrastructure and sustainable development projects; two, the financing will be done in BRICS and “other emerging economies and developing countries;” three, the NDB will complement the efforts of existing multilateral institutions. 

Each of these components encapsulates BRICS’s philosophy and strategy. It is important to note that, apart from infrastructure projects, there is an emphasis on financing sustainable development—and on this front western financial institutions and civil society in emerging economies diverge widely in terms of approaches and ideologies. Perhaps the NDB will provide a different approach to financing sustainable development. 

The CRA agreement—expected to provide liquidity support to BRICS members during balance of payments crises, a service that even the IMF provides—echoes similar sentiments: “…this contingent reserve arrangement shall contribute to strengthening the global financial safety net and complement existing international monetary and financial arrangements.” [6] 

Interestingly, both agreements contain phrases that subscribe to furthering the global cooperation framework while simultaneously trying to create alternative arrangements. 

What are the potential new frameworks and how they can be strengthened further? 

First leg: a monetary union 

Challenging the governance framework will require creating an alternative to the existing international monetary system, including the reserve currency mechanism. BRICS summit communiques also mention this. The Durban Declaration of March 2013 states: “We support the reform and improvement of the international monetary system, with a broadbased international reserve currency system providing stability and certainty. We welcome the discussion about the role of the SDR [special drawing rights] in the existing international monetary system including the composition of SDR's basket of currencies.” [7] 

It might be worth examining whether the concept of an Asian monetary union or a single Asian currency are options that can be revived. This currency, if it materialises, could rank alongside the dollar and euro as a globally significant unit, given the underlying trade volume. Many scholarly discussions have toyed with the idea of currency internationalisation and what it will mean for BRICS in general and for all emerging economies in particular. In reality, an Asian currency union is still some distance away, but some building blocks have already been put in place. 

There is, for example, a move to form an ASEAN Economic Community (AEC) which, according to the ASEAN’s website, will have the following characteristics: a single market and production base, a highly competitive economic region, a region of equitable economic development, and a region fully integrated into the global economy. [8] According to audit and consulting firm KPMG: “The AEC project could lead to an even more effective integration into the global value chains. And this will continue to make ASEAN a strategic economic region that is expected to exceed the global growth average for the foreseeable future.” [9] 

The AEC was a reaction to the 1997-98 financial crisis. The crisis also prompted some additional structural changes. ASEAN+3 [10] implemented a liquidity support mechanism, the Chiang Mai Initiative Multilateralisation (CMIM) and, in the process of multilateralising the arrangement, it created the ASEAN+3 Macro-economic Research Office (AMRO). These two initiatives are discussed later in this paper. 

Two other initiatives were added as a fallout of 1997-98: the Asian Bond Markets initiative (ABMI), supported by the Asian Development Bank, which also now includes a Credit Guarantee and Investment Facility (CGIF). The ABMI was born at a 2003 meeting of ASEAN+3 finance ministers, primarily to avoid the 1997-98 currency and maturity mismatches from short-term foreign currency borrowings. [11] The CGIF was established in November 2010 to provide credit guarantees for local currency denominated bonds issued by investment grade companies in ASEAN+3 countries. [12] 

The Asian crisis also prompted the Japanese government’s Research Institute of Economy, Trade and Industry [13] to moot an Asian currency union. Since then, much has been written and debated about the proposal, though little progress was made. 

The U.S. and Europe had opposed the idea when it was first proposed. Numerous other hurdles—such as the lack of an institutional framework (for example, an external independent central bank like the European Central Bank, which might require member countries to cede control of their monetary and fiscal powers)—have delayed implementation of the currency union. 

A political consensus is also missing. Plus, while the currency union model encompasses ASEAN+6 (ASEAN+3 along with India, Australia and New Zealand), all the other institutions or mechanisms—CMIM, AMRO, ABMI, CGIF, or even plans for AEC—are still stuck at ASEAN+3. Therefore, the integration of Asia’s economic community is still partial, and not representative of the region’s economic flows. 

Even if launched in the near future, it is unlikely that all BRICS members will be in a position to, or agree to, adopt a common Asian currency. There are three other choices: 

One, BRICS countries launch their own currency, which would be used exclusively by the five members. But this is not without its attendant problems. A common BRICS currency will also require the setting up of an institutional framework like the Asian currency union. This is unlikely to be favoured soon. In addition, the spectre of Eurozone’s current economic travails is likely to be a big deterrent. 

The second option, widely favoured, is to expand the scope of IMF’s Special Drawing Rights (SDR) and make it representative of the world’s changing trade and economic imperatives. But the IMF’s recent review to include the Chinese renminbi—in addition to the dollar, euro, yen, and pound sterling—once again ended in status quo, with a decision postponed to September 2016. [14] Unless the IMF decides to review its eligibility criteria for including other currencies, the objective of reforming the SDR mechanism and using it as an alternative international reserve currency will remain elusive. 

The interim answer may, therefore, lie in trading and settling in local currencies. [15] ABMI and CGIF have already created the infrastructure for the launch, subscription, and trading of local currency bonds. The infrastructure for settlement of local currencies also exists, though it might need some resuscitating: the Asian Clearing Union (ACU), which saw diminished volumes after economic sanctions were imposed on Iran, could be the right vehicle. Some academics, such as monetary theorist Ashima Goyal, also favour the idea of reviving regional payments systems like the ACU, which can then provide a counterbalance to the dollar. [16] 

The NDB may explore the option of creating an infrastructure for settlement of local currency trading beyond the current ACU members, or provide a thought leadership role in expanding the ACU mechanism to a larger catchment area, even though its current mandate does not explicitly mention it. But there are clauses in the agreement that also implicitly allow the NDB to interact with other regional institutions. 

In any case, the NDB agreement empowers the institution to also lend in local currency: “The Bank in its operations may provide financing in the local currency of the country in which the operation takes place, provided that adequate policies are put in place to avoid significant currency mismatch.” [17] Combined with the Delhi Summit decision to start invoicing intra-BRICS trade in local currencies, there is a potential for dovetailing this effort with the work already done by the ACU. 

The NDB then should later explore methods of integrating its local currency settlement framework, bond issuance platform and credit guarantee programme with non-BRICS ASEAN+6, as well as with other similar platforms in Africa and South America, such as the South African Development Community (involving South Africa, Lesotho, Namibia and Swaziland). 

This might help create some momentum in non-dollar and non-euro trade, which will lead to lower transaction costs. This is critical for increasing global trade and investment volumes. 

Second leg: strengthening the safety net 

The second leg of a future NDB-based governance structure involves the liquidity support mechanisms, CRA and CMIM. Both owe their birth to similar needs and analogous concerns raised by East Asian countries and BRICS nations. In sum, both are similar in intent and design. There is another similarity: an inability to sever the umbilical cord with the IMF. In that sense, the CRA continues with the ASEAN trend of using plurilateral monetary arrangements to complement, and not supplant, the IMF. 

Both the arrangements allow countries to borrow only a small percentage without entering into an arrangement with the IMF. [18] In CMIM and CRA, only 30% can be borrowed from the pool without reference to the IMF. The CMIM is believed to be working towards increasing this to 40%. Over time, this has to obviously grow further till the IMF-linked portion becomes insignificant. 

The reasons for the IMF linkage have not been explained. There are conjectures though: that a liquidity crisis in any country is likely to be triggered by structural problems and not speculative forces, which would then require structural adjustments that the IMF is best qualified to provide. Another view is that the CMIM does not have the capacity to differentiate between a liquidity and a solvency problem. [19] 

There is another probability: the CMIM as well as CRA not only lack the fundamental capability to assess structural flaws in an economy, but both might also be diffident about dictating a structural adjustment programme to another sovereign. The two arrangements are plurilateral groupings and lack the political or moral authority to impose conditions, especially after criticising the IMF for frequently undermining sovereignty. The IMF, on the other hand, is still seen as an independent multilateral organisation despite the lack of shareholding reforms in the institution. 

However, both CMIM and CRA also have an equal chance of failure given their inherent structural flaws. The CMIM has already faltered once—in the aftermath of the 2008 GFC —even though it has been in existence since 2000. South Korea approached the U.S. and Japan, instead of tapping the CMIM, for liquidity swaps post-2008. The problem was a proliferation of bilateral swap lines; that has now been replaced with a multilateral structure, under which all the different swap lines are governed by a single agreement. In cognisance, CRA has started off by pooling its funds. But the efficacy of both will be tested during the next global crisis; and, given the general unpredictability of financial upheavals, the two arrangements will have to be prepared for all eventualities. 

There is, thus, an urgent need to make both CMIM and CRA relevant and battle-ready. This can be achieved if some kind of bridging arrangement is drawn up between both the schemes—an agreement that allows members to access both pools in a crisis. At a later stage, this arrangement can be extended to other new members as well. 

The first reason for the bridging arrangement is the insufficient size of the IMF-delinked funds. In a payments crisis, the non IMF-linked amount will not be adequate to achieve stabilisation. This defeats the purpose of the framework. It is probably early days to judge the CRA’s efficacy on the basis of the initial funds; it is likely that there is a tacit agreement to induct more members later, like the NDB, and enhance the pool. The agreement with CMIM should then form the first stage of that proposed expansion. 

China is a common member in both CMIM and CRA. India is a part of ASEAN+6, the logical extension path for CMIM, which started off with ASEAN and was later extended to ASEAN+3. Pooled together, the CMIM and CRA combine will have $340 billion ($240 billion plus $100 billion), making it a formidable alternative to other existing multilateral arrangements. 

There is another reason for the CRA to seek combined pooling: the CMIM has already created a regional macro-economic surveillance unit, AMRO. Its purpose, according to AMRO’S website, is “…to monitor and analyse regional economies and to contribute to early detection of risks, swift implementation of remedial actions and effective decision-making of the CMIM.” AMRO can become a credible surveillance unit, and deliver independent macro-economic surveillance and analysis, only if its membership expands, leading to deeper diversity and capacity. [20] Therefore, expanding with the CRA makes eminent sense since the structure is already in place. 

The pooling of resources will, of course, not be easy; there will be numerous political obstacles. Even assuming some kind of linkage is achieved, associated headaches could arise. Friction is bound to grow between what is a regional grouping (ASEAN+3) and the growing role of BRICS as the sole representative of emerging economies and the visible face of an alternative governance architecture. However, if the BRICS leadership has so far managed to overcome its own inherent incompatibility through consensus and discussions, it should also be able to manage contradictions with the CMIM. Also, as mentioned above, China is a common member; it can play a vital role in bringing the two together. 

In conclusion, there are no set formulae or established norms. The NDB will have to debate and discuss internally—as well as cooperate, coordinate, and consult with civil society—for building an alternate financial architecture, even if it has to be done within the confines of the existing framework. This is its mandate, this is what the developing countries require from the NDB. 

References

[1] G20 Information Centre, G20 Research Group, Munk School of Global Affairs, University of Toronto, http://www.g20.utoronto.ca/g20whatisit.html

[2] Singhal, Rajrishi, How Culture and Education Can Bind BRICS, Gateway House, 7 July 2015, http://www.gatewayhouse.in/brics-needs-new-binding-factors/

[3] BRICS Information Centre, Treaty for the Establishment of a BRICS Contingent Reserve Arrangement, 15 July 2014, Fortaleza, Brazil, http://brics.utoronto.ca/docs/140715-treaty.html

[4], Banco Nacional de Desenvolvimento Econômico e Social, Bank for Development and Foreign Economic Affairs, Export-Import Bank of India, China Development Bank Corporation, http://www.brics.utoronto.ca/docs/150709-NDB-memorandum-en.pdf

[5] BRICS Information Centre, Agreement on the New Development Bank, 15 July 2014, Fortaleza, Brazil, http://www.brics.utoronto.ca/docs/140715-bank.html

[6] BRICS Information Centre, Treaty for the Establishment of a BRICS Contingent Reserve Arrangement, 15 July 2014, Fortaleza, Brazil, http://brics.utoronto.ca/docs/140715-treaty.html

[7] BRICS Information Centre, BRICS and Africa: Partnership for Development, Integration and Industrialisation; eThekwini Declaration, 27 March 2013, Durban, South Africa, http://brics.utoronto.ca/docs/130327-statement.html

[8] Association of Southeast Asian Nations, ASEAN Economic Community, 7 August 2003, http://www.asean.org/communities/asean-economic-community

[9] Zhao, Abe and Vinod Kalloe, The ASEAN Economic Community 2015: On the road to real business impact KPMG Asia Pacific Tax Centre, , June 2014, https://www.kpmg.com/SG/en/IssuesAndInsights/ArticlesPublications/Documents/TaxItax-The-ASEAN-Economic-Community-2015.pdf

[10] Bangko Sentral ng Pilipinas, Chiang Mai Initiative Multilateralization, June 2015, http://www.bsp.gov.ph/downloads/publications/faqs/cmim.pdf 

[11] Ministry of Finance, government of Japan, Chairman’s Press Release on Asian Bond Markets Initiative, http://www.mof.go.jp/english/international_policy/convention/asean_plus_3/20030807_02 .htm

[12] Credit Guarantee and Investment Facility, Catalyzing more stable and efficient mobilization of Asian savings in the Region, http://www.cgif-abmi.org

[13] Research Institute of Economy, Trade & Industry, Asian Monetary Unit & AMU Deviation Indicators, http://www.rieti.go.jp/users/amu/en/

[14] International Monetary Fund, SDR Basket—Proposed Extension of the Valuation of the SDR, August 2015, http://www.imf.org/external/np/pp/eng/2015/080415.pdf

[15] Mathur, Akshay, Incubating A Non-Dollar Architecture, Gateway House, 18 July 2014, http://www.gatewayhouse.in/incubating-a-non-dollar-architecture/

[16] Goyal, Ashima, Payment systems to facilitate South Asian integration, WP-2015-021, July 2015, Indira Gandhi Institute of Development Research, Mumbai, http://www.igidr.ac.in/pdf/publication/WP-2015-021.pdf

[17] BRICS Information Centre, Annex, Art24, Provision of Currencies, Agreement on the New Development Bank, 15 July 2014, Fortaleza, Brazil, http://brics.utoronto.ca/docs/140715-bank.html

[18] Joyce, Joseph P, BRICS and the Bretton Woods Twins: Capital Ebbs and Flows, 29 July 2014, https://blogs.wellesley.edu/jjoyce/2014/07/29/the-brics-and-the-bretton-woodstwins/

[19] Cattaneo, Nicolette, Mayamiko Biziwick and David Fryer, The BRICS Contingency Reserve Arrangement and Its Position In The Emerging Global Financial Architecture, South African Institute of International Affairs, Policy Insights 10, Economic Diplomacy Programme, March 2015, http://www.saiia.org.za/doc_view/752-policy-insights-10-thebrics-contingent-reserve-arrangement-and-its-position-in-the-emerging-global-financialarchitecture

[20] Hill, Hal and Jayant Menon, Financial Safety Nets in Asia: Genesis, Evolution, Adequacy, and Way Forward, Working Papers in Trade & Development, No 2012/17, Arndt-Corden Department of Economics, Crawford School of Public Policy, Australian National University; September 2012, https://crawford.anu.edu.au/acde/publications/publish/papers/wp2012/wp_econ_2012_17 .pdf

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