BRICS -PROMISING PROGRESS

The BRICS (Brazil,Russia,India,China ,South Africa) refers to the group of 5 large countries that are developing and have the maximum potential to tap into their market and make fortunes.

Initially it was BRIC having the world’s fastest economies, but then in December 2010 China invited South Africa to join the group and from then on it was BRICS.

The BRICS nations are not bounded through a common currency or a common supervisory body like the EUROZONE but have been formed of the sole view to develop the individual Nation’s economy, to promote economic harmony among its member states, to become new superpowers of the Economy in near future.

In the wake of the Economic crises in the USA and EUROPE, and the failure of Eurozone to contain the Financial Instability, motivated the BRICS to form a Bank that tries to form a strong backbone and to avert such a crisis for its member nations. It also purported to be an alternative in lending to the West -dominated World Bank and IMF. Although such a statement will seem to be ambitious until the policies yield the expected results, it is common for any Economical Body that is set up new to follow the Standard, existing framework of such organizations.

The BRICS Bank plan was formally signed at the 6^th BRICS Summit held at Fortaleza, On July 15^th by the member states and was named as New Development Bank, with a whooping capital of US$50 Billion, with each country contributing $10Billion, and the capital would be increased over time. The focus of this bank is on lending to infrastructure projects, that will walk the economy forward. The Bank is headquartered at Shanghai.

Still the BRICS Nations have a lot of problems that may hamper their collective effort for a growing economy, some of them are:

1. BRICS nations are still haunted by unsustainable development and too much reliance on a single sector, for example China on Infrastructure
2.  Political uncertainty among the powerful Nation of the Group, namely China and Russia, which do not have an exactly democratically elected Government
3.  The extent of Participation of South Africa is highly uncertain because of it being a bit economically inferior to other countries
4.  The Disputes among members may prevent neutral operation of the Bank, notably Territorial Disputes between India and China

If BRICS nation could address these problems, by policy framework backed by a strong capital,no wonder The New Development Bank will be an alternative to IMF and World Bank

China has very recently proposed a rating agency which is again an alternative to the Western Dominated Agencies like Standard & Poor's and Moody's, will write about it in the next article

EUROZONE CRISIS AND ITS PROPOSED MITIGATION

The European financial system is a complex system that has come into existence in the last quarter of the 20^th Century. Let us look back with a bit of history.

The European financial system had its roots attributed to the Eurozone. A consortium of eleven member states of European Union with an aim to develop the Economy of the member states of European Union  who all lacked economic robustness and to ensure Fiscal Stability among the developed nations of the European Union. The countries which want to adopt Euro as its currency it has to fulfill the Euro convergence Criteria.

Apart from clearly laying a road towards a common currency the Eurozone (member state 19 in number who have adopted the Euro as their sole currency), Eurozone also laid plans for a strong financial stability by establishing European Central Bank (ECB) that administer monetary policies, look over exchange rates and take care of whole stability just like any National Bank of a country would do.

The problems intensified with the financial crisis of 2007-2008.Member states of EU especially Greece was worst hit in this crisis. To mitigate this crisis and to stop the worsening crisis in the Eurozone, Watchdog organizations like Economic and Financial Committee of European Union(EFC) and the International Monetary Fund(IMF) conducted a Financial Sector Assessment Program(FSAP) to assess the fiscal and financial Stability of the EU. This was conducted from 27^th November to 13^th December in the Year 2013.

The major countries that were completely affected by the Eurozone crisis are 

1.Greece

2.Ireland

3.Portugal

4.Spain

5.Cyprus

The following were few reasons put forward by the Committee for Financial Turbulence in the European Union:

1. Major crisis is attributed to the policies of the EU and EMU and its poor handling of the Contagion of Financial Crisis when it started spreading between multiple nations of the European Union

2. Too much reliance on traditional bank based finance that led to tight lending measures, which slowed down the economic growth in the region

3. The absence of a clear framework for the central financial institution across borders, resulting in different nations adopting different frameworks.

4.Structural gaps in capital,labor and product markets are cause for concern as they continue to present obstacles to financing investments

The Mission also outlined important decisions to mitigate this crisis, of which the following are notable:

1. Raising private capital for Banks and strengthening them. Setting up of a Banking Union for the Eurozone, that will have a supranational outlook

2. Setting up of Single Supervisory Mechanism that will administer supervision in the Eurozone pertaining to different requirements of different economies in the region

3.Deployment of resources from non-tradable to tradable sectors,to improve capital and then creating jobs to improve labor structural gaps

Such a supranational framework and clear outlaying and demarcating of powers of SSM and BU from Eurozone powers will definitely lead to large improvement and ensure fiscal and financial stability across the regions, as noted by the mission