A NEW PERIPHERAL ELEMENT OF THE BRICS STRUCTURE

V. V. KLISHIN

Candidate of Economic Sciences

Russian Standard Bank JSC

V. V. PAVLOV

Doctor of Economics

Institute of Africa, Russian Academy of Sciences

Keywords: BRICS, Asian Infrastructure Investment Bank, BRICS New Development Bank

Collective regional and sub-regional development banks controlled by the BRICS countries (Brazil, Russia, India, China, South Africa) form the most important peripheral links of the new global economic and financial structure of the world economy. In the long run, the real role of these BRICS institutions will obviously increase even more. They are increasingly directly contributing to a more effective implementation of the state economic policy of the participating countries in the field of increasing their own industrial potential, developing the private sector, finding new foreign markets for goods, including non-traditional exports, and using more modern technologies in them.

The current stage of development of the world economy is characterized by the deepening processes of globalization in its various forms. ^One of the dominant trends is the direct involvement of the national economies of many developing countries with economies in transition in the processes of financial globalization1. Among them, the leading positions are occupied by the countries of the Asia-Pacific region (APR). Years of sustained rapid growth in the economies of the Asia-Pacific developing countries have led to a significant increase in the role of these countries in the global economy. However, until recently, these developments were not adequately reflected in the World Bank Group's (WB) supranational collective development banks*.

The formation of the current BRICS institutional structure, essentially in the form of a quadrilateral star centered on the People's Republic of China, has led to the gradual development of peripheral elements in the form of sub-regional development banks. The main shareholders of their capital are individual BRICS countries. So, in the Eurasian Development Bank (EDB) of the Customs Union states, they became Russia and Kazakhstan, which were joined by some other CIS countries. A major shareholder of the Asian Infrastructure Investment Bank (AIIB) - China (see below).

REGIONAL AND SUB-REGIONAL DEVELOPMENT BANKS

The role of regional and sub-regional development banks, which functionally act not only and not so much as key institutional financial intermediaries in relations in regional credit markets between individual countries and their groups, is objectively increasing. As active actors in the global economy, they directly interact with the national governments of the participating countries, with multinational corporations and leading international financial organizations and funds.

Regional development banks directly finance large-scale long-term investments in capital-intensive projects for the development of the real sector of the economy and its solid infrastructure (transport, energy, water resources management, communications, waste processing). Their role in the global economy is particularly important when, for various reasons, financial, technical, currency, investment and other similar projects cannot be financed by local commercial banks.

* The WB Group includes: the International Bank for Reconstruction and Development( IBRD), the International Development Association (MAP), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Center for Settlement of Investment Disputes (ICSID). author's note).

banks of the participating countries (both private and public).

The role of regional development banks is significantly enhanced, as they can successfully co-finance large investment projects together with leading international institutions, development banks and funds (including the WB Group institutions, powerful credit institutions in Germany, France, the USA, China and a number of other countries). The practice of such co-financing is also based on the fact that industrial countries seek to simultaneously encourage and insure the export of their capital and goods to developing countries in Asia, Africa and Latin America, including public investment capital. At the same time, they promote the creation of regional development banks and expand their participation in them.

This participation in the subscribed share capital of the bank may also serve some other purposes. Regional member countries strive to attract regular financing from these banks, including preferential financing, for the implementation of national investment programs and collective cross-border projects.

Already in the 1960s, the formation of a network of regional collective development banks in Asia, Africa, and Latin America was facilitated by the desire of most countries in these regions to develop cooperative ties, intraregional cooperation, and deepen economic and financial integration in order to collectively solve the problems of developing their national economies and fighting poverty and misery.

Of course, the priorities of the regionalism policy implemented by the industrial states also played a role. In accordance with their interests, this policy resulted in the economic and later political unification of developing countries in separate regions that are under the permanent influence of industrial countries, including former metropolitan areas.

An example of such an association is the CFA franc currency area, which includes both the West African and Central African zones. On the basis of the former, the West African Economic and Monetary Union (UEMOA) was established, and on the basis of the latter, the Economic Community of Central African Countries (ECOCAS)² was established.

Differences in the activities of regional development banks are determined by the level of economic development of the regional member countries. However, these banks have similar goals of their credit and loan policies, as well as the composition and structure of their authorized and subscribed capital. Approximately one - third of their shareholders are industrialised countries. As a result, they own a significant share of the subscribed share capital of such banks, and industrial States have a constant impact on their credit and investment policies. For example, the United States is free to block any decision of the Inter-American Development Bank (IaDB). The Asian Development Bank (ADB) is heavily influenced by two major donor countries, the United States and Japan.

AIIB: CHINA'S PRIORITY ROLE

Signing of the Memorandum of Understanding on the Establishment of the Asian Infrastructure Investment Bank (AIIB)in October 2014³, and in June 2015. The agreement on the establishment of AIIB ⁴ marked a new shift in the structure of multilateral development institutions in the Asia-Pacific region. China will play a decisive role in this bank.

There are 57 AIIB member states: in addition to China, 36 regional countries5, as well as 21 non-regional countries (most of them are members of the European Union). It is noteworthy that the United States was not among the founders of the bank.

The bank's authorized capital will amount to $100 billion, about a quarter of which will be contributed directly by China, and the rest - by other participating countries in an amount proportional to their GDP. At the same time, the share of Asian countries in the total should not exceed 75%, while participants from other regions of the world account for 25% of the capital. The bank's headquarters will be permanently located in Beijing.

As a result, China becomes one of the leading powers6, like the United States, Japan, and Russia, which controls the credit and loan policies and investment activities of certain regional development banks. Moreover, as it is sometimes written in various analytical materials, the" Chinese " AIIB is becoming an essential element of the peripheral structure of the BRICS.

It is worth noting that Russia will become the AIIB's third largest shareholder after China and India. According to Prime Minister Dmitry Medvedev, "Russia's participation in this project will allow the bank to attract funds to carry out investment projects in our country, primarily in the Far East and Eastern Siberia, and, of course, will contribute to strengthening relations with the countries of the Asia-Pacific region" ⁷.

For the first time, the idea of creating the AIIB as a collective regional financial institution that regularly finances infrastructure projects was put on the agenda by China back in October 2013. During the visit to the Asia-Pacific Economic Cooperation (APEC) Summit in Indonesia, the Chairman of the-

Chinese President Xi Jinping announced his intention to create AIIB ⁸.

It was assumed that it would regularly finance infrastructure projects, primarily in solid infrastructure sectors, and develop the real sector of the region's economy, which corresponds to the basic needs of the regional participating countries. First of all, it is aimed at deepening the sub - regional integration of China and the countries of the Association of Southeast Asian Nations (ASEAN) by financing investment in transport, telecommunications and energy, including collective and cross-border projects in the region.

In the future, the idea received more real support from a number of countries in the region - both monetary and financial, as well as technical and organizational. As a result, India and, most importantly, Brunei, Kuwait and Oman, which are rich in natural resources and financial assets, were attracted to a significant share in the AIIB. It is expected that the AIIB will be able to compete in some areas with the active Asian Development Bank (ADB), while the bulk of the funds raised by the AIIB will then be allocated to borrowing countries by China, or-with its approval and consent - in the form of targeted loans to finance regional infrastructure investment projects, mainly commercial ones.

We are talking about the fact that the AIIB will obviously concentrate its credit and loan operations and especially long-term investment activities in highly profitable (in AIIB terminology - commercial, or purely commercial) investment projects, objects with a fairly fast payback period (5-10 years by the standards of development banks).

One of the promising projects of the AIIB at the first stage of its regular activity may be long-term investment financing for the construction of New Silk Road facilities within the framework of the global cross-border TRACECA project (Europe - Caucasus - Asia transport corridor), which will directly connect the provinces of Western China with the Central Asian countries-Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, and through them to later-with European countries ⁹.

A number of Russian projects will also qualify for AIIB funding, along with funding from the Eurasian Development Bank and the BRICS New Development Bank. Among them, according to the Minister of the Russian Federation for the Development of the Far East A. Galushka, investment projects of transport corridors from the northeast of China to the south of Primorye, the construction of bridges across the Amur River10.

AIIB'S ROLE IN STRENGTHENING THE RENMINBI'S STATUS

One of China's objectives in establishing the AIIB was to strengthen the yuan's status as the base currency for international payments and settlements by expanding the AIIB's lending and investment operations in the national Chinese currency. It is assumed that the AIIB, as a regional and now increasingly functional international financial institution, will regularly issue Eurobonds in yuan, which, in turn, will objectively contribute to further strengthening the position of the Chinese currency as the world's reserve currency, settlement and means of payment.

Already at the end of 2014, the System of Trade and Corporate financing based on the issue, issue and placement of Eurobonds denominated in yuan began to function steadily and, as practice shows, very effectively. The main managing bank in this system, which provides investment financing for borrowers, will be, first of all, the Chinese bank ICBC (Industrial and Commercial Bank of China Limited, Beijing).

In 2012-2014, the PRC significantly accelerated the deployment of the China International Payment System (CIPS), designed to enable cross-border payments in yuan. The implementation of this system took place in October 2015. CIPS is a full-fledged alternative to the SWIFT international interbank payment system and the CHIPS system (Clearing House Interbank Payments System, New York), which serves up to 95% of payments in US dollars.

The inclusion of the renminbi in the SDR (Special Drawing Rights) basket, an international payment instrument issued by the International Monetary Fund (IMF), in December 2015 is a kind of recognition of the success achieved by the Chinese authorities in reforming the monetary and financial systems. Thus, the yuan joined the list of world reserve currencies of the IMF, which along with it includes the US dollar, euro, pound sterling and yen.

In this regard, it is very likely that in the future the AIIB will provide borrowing countries with loans denominated, including in yuan, which they will then be able to freely use, primarily in solid infrastructure industries, to purchase fixed capital assets in China. However, it should not be forgotten that the repayment of all related loans will also be made in yuan, which in the long term will increase the external (international) turnover of the yuan (outside of China).

Some Western economists rightly see this as a serious risk for borrowers if the net profits accumulated by borrowers-debtors to pay loans in yuan from implemented investment projects are denominated in other, in particular, non-convertible closed national currencies of the borrowing countries.

For example, a similar situation was observed in the period from 1985 to 1995 with the countries-borrowers of the ADB, in which mutual settlements and payments of the ADB and the countries-borrowers (debtors) were carried out on loan accounts of borrowers only in Japanese yen. During this period, the sharp one-time appreciation of the yen against the US dollar from 260 to 84 yen, and, consequently, the appreciation of the yen against the national currencies of borrowing countries, ultimately had a very negative impact on their economies.¹¹

Since the exchange rate of the yuan against the euro and the US dollar is largely determined by China's domestic financial policy, in the long run, its growing actual level can be very effectively used as an additional tool for direct economic and, most importantly, political pressure of China on the AIIB member countries.

OPPONENTS AND OBSERVERS OF THE AIIB ESTABLISHMENT

Given this important circumstance, as well as a number of other factors, the United States strongly opposed the establishment of the AIIB. They fully justified the firm refusal to participate in the bank of their most dependent and therefore most loyal sub-regional allies, including countries that did not sign the initial memorandum on the establishment of the AIIB, including Japan, Australia, South Korea, and Indonesia.

The latter, meanwhile, announced that it is ready to act as one of the primary founders of the AIIB and signed a Memorandum of Preparation for the creation of this development bank on November 26, 2014, becoming the 22nd country to announce its intention to participate in this investment project.

This fact shows that the establishment of a new pan-Asian "Chinese" development bank is steadily supported by a country whose economy is consistently ranked among the ten largest economies in the world in terms of GDP at PPP. On the other hand, it shows that Indonesia's long-term macroeconomic development strategy coincides, which is aimed at expanding the volume of construction of solid infrastructure facilities in the country and deepening mutual economic cooperation, first of all, directly with the countries of its sub-region.

Opponents of the concept of establishing a "Chinese" AIIB highlight a number of main disadvantages of creating an AIIB. First of all, this is an attempt to compete with existing development banks instead of increasing investment in their operations, additional spending on the management staff of the new bank. According to the authors, this argument is not significant, since, as will be shown later, the total financial capacity of existing institutions is clearly insufficient to finance the needs of ^the region12.

Another argument of the AIIB's opponents is the inevitable strengthening of China's real geopolitical influence on all countries of the sub - region that receive the bank's loans. Another argument of critics is the bank's lack of methods and mechanisms for sufficiently effective management, conducting transparent tenders for supplies within the framework of funded projects, and environmental expertise in comparison with other sustainable collective development banks (IBRD, AzDB, etc.) ¹³. According to the authors, this factor is also not critical, since membership in the bank of a considerable number of Western countries and prospects for its cooperation with other collective development banks are the key to the AIIB's compliance with international standards of development banks.

Despite the skeptical attitude of a number of states, the initiative to establish a new multilateral regional development bank independent of the West within the BRICS framework has found the necessary support among the overwhelming majority of countries in the region, as well as a number of other international development institutions. For example, the ADB, according to its President T. Nakao (Japan), is sympathetic to the establishment of the AIIB and is ready to participate in co-financing projects with it, given the growing need for the subregion to attract external financing resources for large-scale infrastructure projects. ¹⁴ The leaders of the International Monetary Fund (IMF) and the International Monetary Fund (IMF) also expressed interest in working closely with the AIIB. The World Bank ¹⁵.

PREREQUISITES FOR THE AIIB'S ACTIVITY INTENSIFICATION

At present, the inability of the existing credit institutions of the World Bank Group, and, most importantly, the ADB, to finance long-term modernization processes, primarily targeted progressive industrialization in the AIIB member countries, has become obvious.

The ADB, whose capitalization reached $153 billion ⁱⁿ 201416, is certainly fully controlled by the United States and Japan. Dol decisions-

The long-term financing of any major investment projects by this bank is largely taken, obviously, in the interests, first of all, of these two countries. The amount of loans issued annually by the ADB to the participating countries is not less than $20-25 billion. The IBRD's declared capital reached $252 billion in 2015. (including $15 billion) - paid-in capital)¹⁷, in practice, the bank provides in the form of its loans $15-25 billion. per year. In particular, the WB Group's total funding for all types of projects in South and East Asia and the Pacific regions totaled $²⁰ billion in 2015.18

According to the ADB's expert estimates, in order to ensure sustainable development, countries in the Asia-Pacific region need at least $8 trillion in foreign direct investment in solid infrastructure from ²⁰¹⁰ to 2020,19 It is clear that the share of funds allocated by effective multilateral development institutions in the sub-region is now only a very small part of the total needs of Asian countries for important infrastructure investments ²⁰.

The provision of loans by these now stable institutions and development funds depends entirely on the final distribution of their voting shares - in the vast majority of international collective development banks, they belong to the industrialized countries of the West. The head of the World Bank, as you know, has always been a representative of the United States, and the head of the ADB-a representative of Japan.

In the context of a sharp increase in the aggregate debt burden (both domestic and foreign) and stagnation of the Western economies in 2010-2015, the Government has been able to reduce the debt burden in Russia. They are far from seeking a radical increase in their direct investment in developing recipient countries in Asia, let alone Africa and Latin America.²¹

This factor was the main prerequisite for the establishment of a number of new multilateral development banks independent of the West. These include the AIIB, the BRICS New Development Bank (the agreement on its establishment was adopted at the July 2014 BRICS summit)²² and the Eurasian Development Bank (EDB) with its founders-the Russian Federation and Kazakhstan, as well as the participating countries-Armenia, Belarus, Tajikistan and the Kyrgyz Republic.

The establishment of such multilateral institutions and development funds was a kind of response of the developing countries of Asia to the refusal of the industrialized countries of the West to gradually reform the existing international monetary and financial system (the Jamaica Monetary Agreement of 1976), so that it would take into account the current vital interests of the countries of this group in the world economy and a real increase in their status in the modern system of world economic relations.

According to Chinese President Xi Jinping ," the launch of the AIIB is of particular importance in terms of reforming and improving global economic governance. This is an adaptation to changes and developments in the structure of the world economy and a step towards moving the global economic governance system towards a more just, rational and efficient direction. " ²³

AIIB'S FORWARD-LOOKING ROLE

In order to deepen intraregional integration and sustainably develop core industries and infrastructure that meet the vital interests of the countries of the sub-region, the AIIB will need to regularly increase its subscription share capital and active operations as soon as possible, expand the scope and scope of its ongoing lending and investment operations at a high rate, and introduce an effective system for selecting and evaluating the cost-effectiveness of projects.

In the long run, the AIIB's ultimate impact on the development of the national economies of most countries in the sub-region, primarily their solid infrastructure sectors, may be even more significant than the impact of credit, loan and investment transactions of the ADB and WB Group credit institutions. Especially if these institutions do not radically revise their loan policy in relation to investment financing of the countries of the Asia-Pacific region, which consists in providing them with direct loans and loans on purely commercial market terms.

The AIIB's priority goal is long-term financing of major infrastructure projects. Since such investment projects in the solid infrastructure sectors usually require attracting concessional long-term financing at low subsidized preferential rates, it will be quite difficult for the bank to find resources to refinance its current investment portfolio. Therefore, the AIIB needs to work intensively with existing international institutions and development funds to ensure self-financing and expertise of major infrastructure investment projects.

* * *

Active work of the Chinese leadership with the direct participation of top state officials on the establishment of the AIIB, the previous experience of successful participation of the PRC in a number of regions-

It is clear that China's initiative has become a serious step towards the practical restructuring of the international monetary and financial system and the improvement of the established global credit and banking structure, especially in the Asian Development Bank and the African Development Bank, as well as in other international financial institutions.

Countries that in the recent past were referred to as third world countries, developing countries, or countries with economies in transition are now striving to become one of the world's leading economies. In particular, according to the IMF, China (1st place), India (3rd place), Russia (6th place) and Brazil (7th place)consistently appear in the top ten economies of the world in terms of GDP by PPP in 2014²⁴.

There is every reason to believe that these countries will continue to promote the development of their national economies and expand international and intraregional economic cooperation based on qualitatively new principles. That they will also use highly efficient monetary and financial instruments for investment and long-term financing of national economies, including collective regional development banks independent of Western countries, which unite countries on purely regional grounds and according to a number of other basic criteria for their mutual cooperation, industrial and financial cooperation.

For these reasons, the objective long-term process of forming peripheral segments of the BRICS institutional structure will continue. Moreover, in the future, the role of these segments (AIIB, EDB, etc.) in the global economy and the modern system of world economic relations will further increase.

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⁵ Australia, Azerbaijan, Bangladesh, Brunei, Cambodia, Georgia, India, Indonesia, Iran, Israel, Jordan, Kazakhstan, Republic of Korea, Kuwait, Kyrgyzstan, Laos, Malaysia, Maldives, Mongolia, Myanmar, Nepal, Oman, Pakistan, Philippines, Qatar, Russia, Saudi Arabia, Singapore, Sri LankaSri Lanka, Tajikistan, Thailand, Turkey, United Arab Emirates, Uzbekistan, Vietnam.

^{Fituni L. L.} 6 Differentiation of developing countries and the new architecture of the world economy (Issues of theory) / / Asia and Africa Today. 2012. N 10. pp. 9-18. (Fituni L. L. 2012. Differentsiatsiya... / / Aziya i Afrika segodnya. N 10) (in Russian)

⁷ Medvedev D. A.: Russia will become one of the three largest shareholders of the AIIB. 16.11.2015 -http://tass.ru/ekonomika/2440757

⁸ An Asian Infrastructure bank. Only connect // The Economist. 04.10.2013 - http://www.economist.com/blogs/analects/2013/10/asian-infrastructure-bank-1

⁹ For more information, see: Gelbras V. G. Geoeconomic strategy of China. Experience of reconstruction / / Asia and Africa today. 2016, N 1. (Gelbras V.G. 2016. Geoekonomicheskaya strategiya Kitaya... // Aziya i Afrika segodnya. N 1) (in Russian)

¹⁰ Alexander Galushka: reducing expenses will not affect the creation of the TOP infrastructure / / TASS. 26.01.2016 - http://tass.ru/opinions/interviews/2613395

^{Катр van der J.} 11 New Asia bank part of China's agenda // South China Morning Post. Hong Kong, 25.10.2014. P. 1.

^{Steinbock D.} 12 Time for an Asian Infrastructure Investment Bank // China US Focus. 22.10.2014 -http://www.chinausfocus.com/finance-economy/time-for-an-asian-infrastructure-investment- bank/

¹³ Ibidem.

¹⁴ China's $50 Billion Asia Bank Snubs Japan, India // Bloomberg Business. 12.05.2014 - http://www.bloomberg.com/news/articles/2014 - 05 - 11/china-s-50-billion-asia-bank-snubs-japan-india-in-power-push

¹⁵ World Bank, IMF chiefs say willing to cooperate with AI1B // Xinhua. 16.04.2015 - http://news.xinhuanet.com/english/2015 - 04/17/c_134157903.htm

¹⁶ Asian Development Bank. Annual Report, 2014 -http://www.adb.org/sites/default/files/institutional-document/158032/adb-annual-report-2014 .pdf

¹⁷ International Bank for Reconstruction and Development. Management's Discussion & Analysis and Financial Statements. June 30, 2015. - http://siteresources.worldbank.org/EXTABOUTUS/Resources/29707 - 1280852909811/IBRD_Jun_15.pdf. P. 32.

¹⁸ World Bank. Годовой отчет 2015, с. 5 -https://openknowledge.worldbank.org/bitstream/handle/10986/22550/WBAnnualReport2015 RU.pdf

¹⁹ Infrastructure for Asian Connectivity / Asian Development Bank Institute and Asian Development Bank. Northampton, Massachusetts, USA, 2012.

²⁰ Why China is creating a new "World Bank" for Asia // The Economist. 11.11.2014 - http://www.economist.com/blogs/economist-explains/2014/11/economist-explains-6?zid=301 &ah=e8eb01e57f7c9b43a3c864613973b57f

^{Steinbock D.} 21 An Asian Infrastructure Investment Bank's Time May Have Come / Economy Watch, 2014 -http://retailbankwww.economywatch.com/features/An-Asian-Infrastructure-Investment-Bank s-Time-May-Have-Come.l0 - 22 - 14.html

²² For more information, see: Klishin B. B., Pavlov V. V. New BRICS Development Bank: problems of creation and prospects of activity // Asia and Africa today. 2015, N 9. (Klishin V.V., Pavlov V.V. 2015. Noviy bankrazvitiya BRICS... // Aziya i Afrika segodnya) (in Russian)

²³ Xi Jinping: AIIB launch - a step towards global governance reform / / RIA Novosti. 16.01.2016 - http://ria.ru/economy/20160116/1360437278.html#ixzz40BBxnPfA

²⁴ IMF. World Economic Outlook Database. 2015 -http://www.imf.org/

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