The BRICS and collective financial statecraft

Introduction: The BRICS as a ClubBRICS in the Aftermath of the Global Financial Crisis Strategic Incentives in Unipolarity and Common Aversions The BRICS and the Global Governance System

THE BRICS AND COLLECTIVE FINANCIAL STATECRAFT

The BRICS and

Collective Financial Statecraft

Cynthia Roberts,

Leslie Elliott Armijo,

and Saori N Katada

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Library of Congress Cataloging-in-Publication Data

Names: Roberts, Cynthia A (Professor of political science), author | Armijo, Leslie Elliott, author | Katada, Saori N., author.

Title: The BRICS and collective financial statecraft / Cynthia Roberts, Leslie Elliott Armijo and Saori

Subjects: LCSH: BRIC countries—Foreign economic relations | BRIC countries—Foreign relations | Balance of power.

Classification: LCC HC59.7 (ebook) | LCC HC59.7 R559 2018 (print) | DDC 337—dc23

LC record available at https://lccn.loc.gov/2017004727

Andrew, Kay, Zubin Prescott, and Chitra Marguerite

1 Introduction: The BRICS as a Club

BRICS in the Aftermath of the Global Financial Crisis

Strategic Incentives in Unipolarity and Common Aversions

The BRICS and the Global Governance System

Formal Institutions and Informal Powers: The Emergence of ClubsThe BRICS as a Club

Clubs with Power Asymmetries and Dominant Powers with OutsideOptions

Plan of the Book

2 Global Power Shift: The BRICS, Building Capabilities for Influence

Conceptualizing Power

Measuring the Shift in Economic Capabilities

A New, Multipolar World?

The Global Financial and Monetary Capabilities of the BRICSRedback Rising

Conclusion

3 BRICS Collective Financial Statecraft: Four Cases

Defining Collective Financial Statecraft

Four Categories of Collective Financial Statecraft

Inside Reforms: The BRICS Quest for Greater Influence within theIMF and World Bank (Case 1)

Inside Reforms: Resist Manipulation of Financial Market Power forU.S./Western Political Aims (Case 2)

Outside Options: Create Parallel Financial Institutions Controlled bythe BRICS (Case 3)

Outside Options: Diminish Dollar Dominance and Build the FinancialMarket Power of the RMB (Case 4)

Future Directions and Cooperative Opportunities Not Taken

Conclusion: Mostly Successful BRICS Collective Financial Statecraft

4 Motives for BRICS Collaboration: Views from the Five Capitals

5 Conclusion: Whither the BRICS?

BRICS and World Order: Too Much Pessimism Is Unwarranted

Growth: The Essential Need to Return to the BRICS’ Roots

The Tension Between Formal and Informal Rules

Summing up: The BRICS, Collective Financial Statecraft, and theMultipolar Future

NOTES

INDEX

List of Figures

2.1 Shares of World GDP (MER, %): BRICS, G7, EU, China, and UnitedStates

2.2 Combined GDP (PPP): BRICS, G7, China, and US, 2000–2020

2.3 Combined GDP (MER): BRICS, G7, China, and US, 2000–2020

2.4 GDP Growth: BRICS (% Change, Year on Year) 2000–2020

3.1 Ratio of IMF Quota Shares (%) to Share of World GDP (MER, %):BRICS, G7, and EU, 2005–2020

3.2 Ratio of IMF Quota Shares (%) to Share of World GDP (PPP, %):BRICS, G7, and EU, 2005–2020

3.3 GDP Blend and IMF Quota Shares: BRICS, G7, and EU, 2005–20203.4 GDP Blend and IMF Quota Shares: Individual BRICS, 2005–2020

3.5 Ratio of IMF Quota Shares (%) to Share of World GDP (MER, %):Individual BRICS, 2005–2020

3.6 Ratio of IMF Quota Shares (%) to Share of World GDP (PPP, %):Individual BRICS, 2005–2020

3.7 Voting Shares in AIIB

3.8 Nominal Exchange Rate Movements against U.S Dollar: BRICS, 2009–2015

5.1 BRICS Institutional Quality Index Versus Log GDP per Capita

List of Tables

1.1 Typology of BRICS Club Policies

2.1 Global Defense Rankings and Trends, 1993–2016

2.2 Stock Markets: G7 and BRICS

2.3 Structure and Performance of Domestic Finance: G5 and BRICS

2.4 Rankings of Domestic Financial Development: G5 and BRICS

2.5 Indicators of External Openness: G5 and BRICS

2.6 Transitions in Global Trade, Financial, and Monetary Capabilities: G5and BRICS

2.7 Rankings of G7 and BRICS Global Financial Centers

3.1 Conceptualizing International Financial Statecraft

3.2 Varieties of Collective Financial Statecraft: Types of Actions and Venues

A BOOK THAT spans four continents and three co-authors working in differentcities incurs a lot of debts to those who supported this project We thank thegovernment officials and other informed observers from the private andpublic sectors in the BRICS countries and in the United States who spoke to

us on background and wish to remain anonymous In addition, we aregrateful to the many economists and officials at international financialinstitutions and think tanks who devoted many hours to help us betterunderstand the intricacies of the issues explored in this study, includingKausik Basu, Jin Zhongxia, Aleksei Mozhin, Andreas Bauer, AndrewBaukol, Simeon Djankov, David Dollar, Indermit Gill, Sergei Guriev, BirgitHansl, Branko Milanovic, José Antonio Ocampo, Eswar Prasad, MarkusRodlauer, David Rosenblatt, and Sergei Shatalov North American andEurope-based academics whom we thank for their help in understandingBRICS financial statecraft and the international political economy includeGregory Chin, Benjamin J Cohen, Barbara Fritz, Eric Hershberg, AndrewHurrell, Jonathan Kirshner, Laura Carsten Maurenbach, Daniel McDowell,Laurissa Muehlich, Mihaela Papa, Daniel C Tirone, and Hongying Wang

We are also grateful to many officials in Russia, members of the RussianAcademy of Sciences, and other knowledgeable observers who weregenerous with their time and offered important insights, especiallyAmbassadors Vadim Lukov, Aleksandr Kramarenko, and Georgii Toloraia;Vladimir Mau, Andrei Kortunov, Leonid Grigoriev, Alexander Gabuev,Mikhail Golovnin, Igor Yurgens, Marina Larionova, Feodor Lukyanov,Robin Lewis, and Natalya Volchkova We also thank scholars from or based

in China, especially Ren Xiao, Wang Jisi, Wang Yong, and Zhu Feng; andthose from or based in Japan, including Hyoung-kyu Chey, Masahiro Kawai,Eisuke Sakakibara, Toshiya Tsugami, and Tatsuya Yoshizaki

Our indebtedness to Brazilians and Brazilianists who contributed theirvaluable time and critical insights encompasses Adriana E Abdenur, theWorney Amoedo family, Luis Antonio Balduino, Renato C Baumann, Luiz

Carlos Bresser-Pereira, Sean W Burges, Roland Clark, Carlos Cozendey,Sulamis Dain, Pedro Dallari, Markus Fraundorfer, David Fleischer, CamilaAmorim Jardim, David Kupfer, Antônio Carlos Lessa, José Alfredo de GraçaLima, María Antonieta del T Lins, Walter Ness, Edson de Oliveira Nunes,Amâncio J de Oliveira, Janina Onuki, Alberto Pfieffer, Armando CastelarPinheiro, Sybil Rhodes, Feliciano de Sá Guimarães, Laura Randall, the M.Raimunda dos Santos family, Bruno W C Saraiva, Miriam Saraiva, BenRoss Schneider, Lourdes Sola, Oliver Stuenkel, María Hermínia Tavares,Matthew Taylor, Vera Thorstensen, Tullo Vigevani, and Kurt vonMettenheim Indians and South Asianists who provided extremely usefulguidance include John Echeverri-Gent, Surupa Gupta, John Harriss, andAseema Sinha For invaluable assistance in understanding South Africa, wethank Audie Klotz and Janis van de Westhuizen.

Roberts thanks President Jennifer Raab and Dean Andrew Polsky for traveland research support, in part through the Hunter College President’s Fundand the Presidential Fund for Faculty Advancement, and her political sciencecolleagues, especially Ken Erickson and Walter Volkomer Roberts is alsograteful to Columbia University for providing an invaluable intellectual andresearch environment, particularly the Saltzman Institute for War and PeaceStudies and its director, Richard Betts, and Business Manager IngridGerstmann, as well as the librarians at the Columbia Business School Shealso thanks the leaders of the Harriman Institute, Alexander Cooley, TimFrye, and Kimberly Marten, and many other Columbia colleagues, especiallyJack Snyder, for their encouragement and support

Armijo thanks the Instituto de Relações Internacionais, Universidade deSão Paulo, Brazil, where she was a visiting professor in 2015 whileconducting research for this book, and her stimulating colleagues andstudents at the School for International Studies at Simon Fraser University.Katada appreciates the School of International Relations and Center forInternational Studies of University of Southern California, as well as theEast-West Center in Washington, DC, for their generous funding and support

of her research Our heartfelt thanks go to our hardworking researchassistants over the course of two years: Brandon Cheung, Logan Childers,Xinru Ma, Samuel D Miller, Andrew Sherlock, Mingmin Yang, and XinlinZhao

We also thank the organizers and attendees at conferences or seminarswhere portions of this book were presented, including the International

Studies Association (Baltimore, February 2017; New Orleans, February2015), the Universidad del CEMA (Buenos Aires, April 2015), the LatinAmerican Studies Association (San Juan, Puerto Rico, May 2015), theInstituto de Relações Internacionais, Universidade de São Paulo (São Paulo,June 2015), the Gaidar Forum, Russian Presidential Academy of NationalEconomy and Public Administration (Moscow, January 2016); and theHarriman Institute Conference on “Future Scenarios for Russia and theWest,” at Columbia University (New York, November 2016).

We also are deeply grateful to David McBride at Oxford University Pressfor his unflagging support

Grateful acknowledgment is made to the Academy of Political Science andWiley for permission to use portions of Chapter 3 that were first published inSaori N Katada, Cynthia Roberts, and Leslie Elliott Armijo, “The Varieties

of Collective Financial Statecraft: The BRICS and China,” Political Science

Quarterly, 132 (Fall 2017) Our thanks also go to the anonymous reviewers

for both Oxford University Press and PSQ, whose constructive suggestionshelped stimulate improvements in our work

Finally, we thank our families, who tolerate the competing demands ofacademic and family life We dedicate this book to our children—our risingstars in a changing world

Responsibility for the views expressed in this book is our own

Acronyms List

AIIB Asian Infrastructure Investment Bank

ALBA Bolivarian Alternative for the Americas

ANC African National Congress (South Africa)

APEC Asia-Pacific Economic Cooperation

BCBS Basel Committee on Banking Supervision

BIC Brazil, India, and China

BJP Bharatia Janata Party (India)

BNDES National Economic and Social Development Bank (Brazil)

BRICs Brazil, Russia, India, and China

BRICS Brazil, Russia, India, China, and South Africa

CAF Development Bank of Latin America (Corporación Andina de

Fomento)

CEO chief executive officer

CIBM China Interbank Bond Market

CHIPS Clearing House Interbank Payments System

CIPS Cross-border Interbank Payment System

CMI Chiang Mai Initiative

CMIM Chiang Mai Initiative Multilaterization

CNPC China National Petroleum Corporation

CRA Contingent Reserve Arrangement

DRC Development Research Center of the State Council

ECLAC United Nations Economic Commission on Latin America and the

Caribbean

EDRB European Bank for Reconstruction and Development

ED executive director

EEU Eurasian Economic Union

EMDCs Emerging market and developing countries

FDI Foreign direct investment

FOCAC Forum on China-Africa Cooperation

FSB Financial Stability Board

GATT General Agreement on Tariffs and Trade

GDP gross domestic product

GFCI Global Financial Centers’ Index

GKOs Gosudarstvennye Kratkosrochnye Obiazatel’stva

GVC global value chain

IAFS India-Africa Forum Summit

IBRD International Bank for Reconstruction and DevelopmentIBSA India-Brazil-South Africa Dialogue Forum

ICICI Industrial Credit and Investment Corporation of IndiaIDA International Development Association

IFC International Finance Corporation

IFI international financial institution

IMF International Monetary Fund

INC Indian National Congress

JCB Japan Credit Bureau

LIBOR London Interbank Offered Rates

M&A mergers and acquisitions

MDB multilateral development bank

MER market exchange rate

Mercosur Common Market of the South

MGI McKinsey Global Institute

MSCI Morgan Stanley Capital International

NAB New Arrangements to Borrow

NATO North Atlantic Treaty Organization

NDA New Democratic Alliance (India)

NEPAD New Partnership for African Development

NGO nongovernmental organization

NIC National Intelligence Council (United States)

NIEO New International Economic Order

NPT Non-Proliferation Treaty

NSA National Security Agency (United States)

OBOR One Belt, One Road

OFDI outbound foreign direct investment

ODI Overseas Development Institute

OECD Organisation for Economic Co-operation and DevelopmentPBOC People’s Bank of China

PPP purchasing power parity

PRC People’s Republic of China

PT Workers’ Party (Brazil)

QFII Qualified Foreign Institutional Investors

RBI Reserve Bank of India

RESh Russian Economic School

RQFII Renminbi-Qualified Institutional Investors

SOE state-owned enterprise

S&P Standard & Poor’s

SAFE State Administration of Foreign Exchange

SAIIA South African Institute of International Affairs

SCO Shanghai Cooperation Organization

SDR Special Drawing Rights

SDRM Sovereign Debt Restructuring Mechanism

SWF sovereign wealth fund

SWIFT Society for Worldwide Interbank Financial TelecommunicationTFP total factor productivity

TPP Trans-Pacific Partnership

UNASUR Union of South American Nations

UNGA United Nations General AssemblyUNSC United Nations Security CouncilUPA United Progressive Alliance (India)WDI World Development Indicators

WTO World Trade Organization

THE BRICS AND COLLECTIVE FINANCIAL STATECRAFT

THE BRICS AS A CLUB

THE EXTRAORDINARY INCREASE in the economic capabilities and political reach

of emerging powers over the past three decades has propelled risingmultipolarity in the interstate system The most influential of these risingpowers—Brazil, Russia, India, and China—formed a multilateral club known

as the BRICs This exclusive club began when the countries’ ministers met at

Russia’s invitation on the sidelines of a U.N General Assembly session inSeptember 2006, and then in May 2008 at a formal quadripartite foreignministers meeting.1 The relatively fast ascent (or resurgence, in the case ofRussia) of the BRICs made them the natural challengers of the global systemdominated by the major incumbent powers constituting the Group of 7 (G7),with the United States as the hegemon.2 In November 2008, as the world wasreeling from the global financial crisis, the BRICs’ finance ministers alsostarted consultations on the sidelines of meetings of the newly reconstitutedGroup of 20 (G20) finance ministers and leaders BRICS leaderssubsequently upgraded their collaboration via a formal summit as their heads

of state met for the first time in Yekaterinburg, Russia, in June 2009

Jim O’Neill, then chief economist at the New York investment bankGoldman Sachs, coined the BRICs acronym in 2001 to refer to a hot newinvestment fund showcasing the bank’s projection that the combined grossdomestic product (GDP) of these four large, fast-growing economies wouldexceed that of the advanced G7 countries by the middle of the century, atimeline soon pushed forward to the 2020s.3 In a fantastic feat of jujitsu, theKremlin appropriated the idea of the BRICs from Goldman and reinvented it

as a diplomatic club for the four countries to coordinate their shared interests

in reforming global governance institutions and gaining greater internationalinfluence Boosting the prestige of both the investment fund and the new

political club, the BRICs went on to become what the Financial Times called

“a near ubiquitous financial term, shaping how a generation of investors,financiers, and policymakers view the emerging markets.”4

The world’s interest in the BRICs continued In the mid-2000s, O’Neill(with Robert Hormats)5 supported the inclusion of China in an overhaul ofglobal governance institutions such as the G7 and the G20 O’Neill

frequently suggested that these large, non-Western governments needed to beintegrated into the top international policymakers, as they were starting tosurpass many G7 economies, whose leaders still behaved as though theydominated the world.6

Nonetheless, the new BRICs club, almost from the outset, encounteredbewildered skepticism, even derision, from Western observers, includingboth officials and academics Each of the member-states had its detractors,while the collective group was also frequently dismissed as an unworkablegimmick Most experts predicted the BRICS’ rapid demise, especially giventhe heterogeneous characteristics of the group, which unites two authoritarianregimes and three democracies (following South Africa’s incorporation inDecember 2010, when it became known as BRICS), three commodityexporters and two purchasers of raw materials, and at least one country,Brazil, with no historic ties to any of the others The group also becameincreasingly lopsided, as China’s economic growth dwarfed the others and itrose in 2010 to become the second-largest economy in the world In 2016,India began growing faster than China; but even if India’s very rapid growthcontinues, it will take a few more decades before New Delhi can expect torival the current world leaders, even in the most optimistic scenarios

Despite these differences and doubts, however, the BRICS did not fold.What attracted these disparate countries to form a new diplomatic club, andwhat explains their sustained enthusiasm for expanding the scope of jointBRICS activities? Does the ongoing global power shift signify the waning ofunipolarity and the “rise of the rest”7 in a new multipolar structure thatparticularly benefits the BRICS, or is this mostly a China story? Do theBRICS possess sufficient material means and political commitment toachieve their stated objectives? Given its predominance within the BRICSclub, why is China interested in cooperating with the other members if it canaffect the global system just as well by acting unilaterally? Why do the otherfour BRICS choose to go along with China? These are key questionsaddressed in this volume

BRICS IN THE AFTERMATH OF THE GLOBAL FINANCIAL CRISIS

The coincidence of the longer-term and structural shift in global economicpower with the world financial crisis of 2008–2009 signaled newopportunities for the BRICS During the crisis, the BRICs governments were

quick to voice widespread dissatisfaction with the colossal mismanagementand poor regulation that characterized not only the U.S subprime mortgagemarkets, but also Western capitalist institutions considered as globalstandards, such as Moody’s credit ratings and the supposedly neutral LondonInterbank Offered Rate (LIBOR) benchmark international interest rate.8BRICS leaders such as then Chinese Premier Wen Jiaobao accused Americanpolicymakers of causing the global financial crisis and warned the UnitedStates to “maintain its good credit, honor its promises and guaranteethe safety of China’s assets.” In March 2009, concerned about its massivedollar holdings, the governor of the People’s Bank of China (PBOC), ZhouXiaochuan, expressed his concern over the dollar-centered monetary systemand proposed a multicurrency reserve regime based on the Special DrawingRights (SDRs)—while also taking careful steps toward internationalizing theChinese currency, the renminbi (RMB) This move was in keeping with whatBRICs elites considered the ongoing shift to a multipolar world.9 According

to Wang Jisi, one of China’s most prominent academic and policy advisers,since 2008, “the feeling in China [is that] the PRC [People’s Republic ofChina] has ascended to be a first-class global power [while] the UnitedStates, despite ongoing great strength, is heading for decline.”10 Meanwhile,

“emerging powers like India, Brazil, Russia, and South Africa areincreasingly challenging Western dominance and are working more closelywith each other and with China in doing so.”11 Brazilian President LuizInácio Lula da Silva likewise called for emerging economies to participate inbuilding a “new global financial architecture.”12

Amid such tumultuous proposals for change, in June 2009, Russia hostedthe first BRICs leaders summit Russian President Dmitri Medvedev insisted,

“We should ensure that our states, where billions of people live take part

in shaping the new rules of the game.”13 There was a collective sense ofglobal economic power shifting in their direction, dissatisfaction with thelack of serious efforts toward global governance reform, and calls for a morerepresentative world, with power decentralized from the U.S.-centric globalsystem In this system, in which the Bretton Woods institutions aredominated by the United States and some of its Western partners, the BRICscountries’ calls for redistributive change had run into a brick wall ofinstitutional rigidity.14 The BRICS members, at that point, preferred a

“voice” to an “exit” option.15 Yet, although they wanted to be included

among the directors and rule-makers, the incumbent major Western powersquestioned their loyalty to existing global governance institutions, whicheventually raised the prospect that the BRICS might experiment withcompeting institutional outlets Successive communiqués at eight annualsummits (2009–2016) have called for diversifying global reserves away fromthe dollar and shaming Western governments by noting that “internationalgovernance structures designed within a different power configuration showincreasingly evident signs of losing legitimacy and effectiveness.”16

Increasingly, the BRICS have acted jointly in international politics, to theconsternation of many, especially policymakers in the West Instead ofsymbolic “BRICS made without straw,” the group has deepened and widenedits cooperation, through time and despite leadership turnovers, for the last tenyears The BRICS expanded their club, admitting South Africa in late 2010 atthe instigation of China They invested in building new institutions, notablythe BRICS Development Bank (now the New Development Bank, or NDB),

a Contingent Reserve Arrangement (CRA), and the Chinese-initiated AsianInfrastructure Investment Bank (AIIB), in which the other BRICs are amongthe top shareholders They successfully pushed the leading internationalfinancial institutions to implement stalled reforms that give the BRICSincreased voting shares and decision-making influence broadlycommensurate with their greater weight in the world economy Despitepressure from Washington, the BRICS also hung together in the face ofRussia’s armed intervention against Ukraine and annexation of Crimea,opposing the Western economic sanctions that followed, and they havestayed together as China has acted more assertively, particularly in the Southand East China Seas And they have survived the synchronous economicslowdown in four of their five economies.17 Improbably, so far the group hasproven that the centripetal forces holding the BRICS in orbit are strongerthan their differences and rivalries

Perhaps the most striking feature of BRICS collaboration has been theirability to hang together in exercising “financial statecraft,” which this studydefines as the use of financial and monetary policies by sovereigngovernments for the purpose of achieving larger foreign policy goals Whilemost discussions of financial statecraft have focused exclusively onsanctions, typically employed by the United States and other G7 countriesagainst lesser powers, other policies—from exchange rate choices, tolobbying for reforms in global financial governance to utilizing the countries’

financial capabilities to induce or pressure other governments—also illustratethe possibilities In the early 21st century, the BRICS countries havecooperated to promote reforms of the Bretton Woods institutions, encourageinternationalization of China’s currency, the yuan or RMB, and build parallelinternational financial institutions They also have stood together inopposition to financial sanctions by the major Western incumbent powers.They have not always achieved their stated foreign policy goals, yet theyhave been more successful in crafting and carrying out common positions infinancial statecraft than one might have expected.

Ten years on, this is an appropriate time to take stock of the puzzlingdevelopments of BRICS collective financial statecraft, analyze moresystematically how and why the BRICS manage to collaborate, and offersome insights into the theoretical implications of BRICS cooperation.Following this introductory section, this chapter discusses three interrelatedelements of BRICS collective financial statecraft First, the puzzle of BRICScooperation is closely associated with debates about the rise of China and

“the rest” and the implications for the existing international order of powershifts that challenge incumbents’ influence in global governanceinstitutions.18 The BRICS engage in individual and collective strategies tochallenge the domination of the United States as the hegemon and principalrule-maker in the contemporary international system Their motivation insupport of collective action is strengthened by their common aversions to thepreponderant U.S and Western positions in the global financial system and ingovernance institutions, as well as the incumbent powers’ use of statecraft,including unilateral economic and financial sanctions Second, within globalgovernance institutions where the costs and benefits of collective action areallocated and distributed as part of power relationships,19 BRICSgovernments emulate mechanisms used by the status quo powers—notablytheir ability to coordinate as a club—to help them best organize to increasetheir voice, gain greater autonomy, and create opportunities to influenceothers Third, this book shows that the BRICS have evolved a dual strategythat recognizes the benefits of reforming incumbent Bretton Woodsinstitutions from within, while simultaneously developing outside options tocreate parallel institutions to promote their collective interests Here, China’semergence as a major power presents the BRICS, on the one hand, withgreater bargaining power and international opportunities than the other fourpossess, either individually or collectively, in the area of financial statecraft

On the other hand, China’s rising economic and financial power introducesthe unavoidable domination of China’s preferences that may come toovershadow the others This relationship raises questions about the credibilityand durability of China’s commitment to collective purposes and the extent towhich the other BRICS can harness China’s strengths to their advantagewhile containing the risks of exploitation.

STRATEGIC INCENTIVES IN UNIPOLARITY AND COMMON AVERSIONS

The BRICS emerged in the unipolar era, after the collapse of the SovietUnion in the early 1990s, when the United States possessed unparalleledstructural power in the modern international system by virtue of its immensecapabilities, from the dominance of the dollar to global military reach.20American leaders embraced the “triumph of liberalism” and the unipolarsystem after the collapse of the Soviet Union, where a stronger, more stablestructure than regional hegemony in the Western world was expected tocoalesce around U.S dominance.21 Although the U.S.-led liberal order offersmany advantages to emerging economies, these countries are aware ofWashington’s strategy to maintain its superior position by actively deterringpeer competitors and coopting potential opponents Such unipolar powerincentives have encouraged the BRICS to support a return to multipolarity.Yet each still recognizes the United States as the world’s superpower, and allhave been disincentivized by unipolarity to form an alliance to balanceagainst the United States

The absence of “hard” (i.e., military) balancing against the United Statesthus flows from the similar strategic incentives that the BRICS countries face.Shared values in human rights or democracy of some BRICS members didnot make them behave differently from other members with less commonground with the United States In this context, as Robert Keohane and BethSimmons find, “states pursue their values in world politics but do sostrategically to maximize benefits to themselves … .”22 The BRICS’incentives to support collective action come from the same logic as ErikVoeten finds in the active collaboration among states lacking many commoninterests “other than a common aversion of Western hegemony and theprinciples associated with that.” Such states may constitute a “counter-hegemonic bloc” to offset the dominance of the United States.23

Voeten’s conclusion emerges from his observation that countries with

different values and political regime types cooperate in global governanceinstitutions, such as the United Nations, World Trade Organization (WTO),and G20 For example, the U.N Security Council (UNSC) achievedconsensus on more than 93 percent of resolutions adopted between 2000 andDecember 15, 2013—an increase from 88.9 percent in the 1990s, when theUNSC was very active after the end of the Cold War This high level ofconsensus reflects a decrease in China’s abstentions and a concentration ofnonconsensus resolutions on divisions pertaining to the Middle East (e.g.,resolutions on Syria or the 2003 Iraq war) and the Balkans.24 A morerigorous examination of UNSC voting patterns reveals a pattern that does notuniformly reflect the democracy/nondemocracy cleavage Although LatinAmerica hews closer to the West in voting patterns, Russia and the formerSoviet republics are positioned between the Western and the non-Westernworlds, similar to Turkey and South Korea The non-Western group includesnot only the remaining communist states (China, North Korea, Vietnam,Laos, and Cuba), but also Afghanistan, India, and Pakistan, among others.25These findings reinforce other work that shows the relevance of commonaversions for giving the original four BRICs a sense of purpose.26Common aversions are conceptualized as situations in which actors seek to avoid a

particular outcome Typically, the actors do not necessarily prefer the sameoutcome, but they agree that there is at least one or more results that they allwant to avoid Coordination may help them collaborate when they confrontcommon aversions.27 Communiqués from the BRICS’ early meetings andinterviews with Russian officials involved in the process suggest thatcommon aversions were among the first impulses to consult and coordinate

on important international governance issues.28

Their common aversions are strengthened by the fact that all the BRICStoday are sovereignty hawks, although the intensity of this preference variesamong the five.29 The BRICS’ shared aversion to U.S hegemonic practicesand Western double standards ranges widely across many policy arenas, fromthe unilateral use of force and financial sanctions to using informal leverage,bending or skirting the formal rules of international institutions, orguaranteeing themselves unfair exceptions and privileges For example,emerging powers share an antipathy to the proclivity by Western countries tosupport intervention in the name of humanitarian missions in the post–ColdWar period Even the BRICS democracies, which support human rights and

humanitarian intervention under constrained circumstances, are wary of aprinciple that can be used as a pretext to meddle in their domestic affairs Theauthoritarian BRICS warn that “backwardness invites bullies,” and of the risk

of the West instigating “color revolutions” to overthrow established regimes

in their neighborhoods or against themselves.30

Although they all benefit from the current international economic order,each of the BRICS is a major power within its own geographic region andhas a strong desire to become the dominant regional power Such preferencesincentivize them to share a wariness of “infringements on their autonomy andprecedents that limit their freedom to set their own policy agendas.”31However, regional powers are inherently constrained under conditions ofinternational unipolarity, given the American stance that “the world is theunipole’s neighborhood.”32 Competition between the United States and risingregional powers involves distributional conflict,33 and the natural preference

of regional actors is to operate independent of American power and purpose.Hence, regionalism provides a “space for a variety of counter-hegemonicprojects.”34 Among the prominent examples in the case of BRICS areRussia’s and especially China’s promotion of their currencies as regionalsubstitutes for the U.S dollar in cross-border trade and bilateral swapagreements

Common aversions also reflect the powerful incentive for all BRICS states

in the area of financial statecraft, where they converge on a preference forautonomy and protecting national policy discretion from U.S financialleverage and structural power as exercised through the InternationalMonetary Fund (IMF) or by controlling access to the global bankingsystem.35 All the BRICS share a common aversion to the use of sanctions, aseach has been targeted by them at various times There are echoes of AlbertHirschman, who warned that “the power to interrupt commercial or financialrelations with any country is the root cause of the influence or powerposition which a country acquires in other countries,”36 in some of thespeeches of BRICS leaders (see Chapter 3) Likewise, BRICS governmentsstrongly object to conditionality for IMF programs that goes beyondeconomic fundamentals into normative and political requirements Further,the BRICS have accumulated large foreign reserves at significant cost inorder to give themselves some buffer against both financial coercion and theperils of hot money in globalized markets

This book explores two cases of common aversions that helped motivatethe BRICS to stay together As discussed in Chapter 3, a common aversion tothe use of economic sanctions helps explain the BRICS’ convergence aroundRussia in 2014, despite discomfort with Moscow’s actions in Ukraine To theBRICS and other targets of sanctions, the motivation is not merely or evenprincipally resentment over the high-handed assertions of internationaljustice, where the United States assumes the role of judge and jury Of greaterconcern are the exorbitant privileges the United States reaps from being theworld’s financial hegemon, willing and able to engage in coercive financialstatecraft to cut off lesser financial actors who need access to both U.S.capital markets and dollars to make international transactions Countries mayavoid some types of political exploitation by the United States in such “hold

up problems” by joining international institutions with legal protections, such

as the WTO,37 but they cannot easily escape from using the dollar and U.S.financial markets.38 Similarly objectionable is the double standard withwhich the United States and other G7 countries through the IMF seek toregulate the financial and economic policies of emerging economies whileprotecting standards or creating exemptions beneficial to themselves.39

These common aversions against U.S self-interested behavior haveencouraged stepped-up consultations and actions among the BRICS fordiversifying away from the dollar and U.S capital markets, includingincreasing the role of the RMB as an international reserve currency andcollective efforts to shift more to trade in local currencies Obviously, the factthat avoidance of the dollar can be costly demonstrates that coordination toavoid a common aversion does not necessarily specify a particularequilibrium outcome The logic of BRICS coordination games usuallyinvolves a different ordering of preferences For example, despite pressingfor a larger role for the ruble in its region after the plunge in oil prices in

2014, Russia benefited from earning valuable dollars from resource exports,such as oil sales priced in dollars when production costs and the Russianbudget were in devalued rubles In sum, common aversions providenecessary focal points for BRICS collaboration

THE BRICS AND THE GLOBAL GOVERNANCE SYSTEM

However, aversions alone are not sufficient to explain the expansion anddeepening of BRICS cooperation over the past decade or the range of goals

of BRICS collective efforts Existing research is divided over the next brick

in the conceptual wall—whether the BRICS in the global governance system

are best conceptualized as (a) joiners, who for the most part bury their

distributional disputes and resentments over voice and positions to the service

of the potentially greater gains that they reap from rising in the incumbent

order; (b) spoilers, hard-core revisionists who want to overturn the incumbent

institutions and replace them with new ones that better serve their (and

particularly China’s) interests; or (c) shirkers, who despite the diffusion of

power are not full-blown dissatisfied challengers and thus prefer to free-ride,accepting the current hegemony until a new negotiated order fitfullyevolves.40

The liberal institutionalist perspective provides one influential view on thedynamics of how the international system accommodates rising actors It

maintains that China and other increasingly important powers are joiners that

gradually will be drawn to integrate into the existing liberal order from whichthey benefit According to G John Ikenberry, China and other rising powerswill be sufficiently satisfied with and integrate into the well-institutionalizedAmerican order because it is “more open, more consensual and rule-basedthan past hegemonic orders,” is “easier to join and harder to overturn,” bindsthe hegemon, offers “tangible material benefits” that are widely sharedthrough an open trading system, and creates opportunities for voice whileaccommodating rising powers by redistributing authority roles.41 Similarly,David Lake suggests that states comply with subjective international ordersbecause of the dual roles of authority and legitimacy in hierarchicalrelationships.42

The integration of systemically important states into the liberalinternational order also fits with theories grounded in hegemonic stability andthe Bretton Woods regime as essential providers of public goods.43 Americanleadership has helped produce the triumph of market-based democracies,progressive openness to trade, and dramatic increases in living standardssince World War II The United States as a liberal hegemon promotescooperation by providing the market of last resort; offering stable long-termlending, including lending in crises; ensuring a deep, liquid, and open capitalmarket that buttresses the world’s dominant reserve currency as a safe haven;and helping to coordinate macroeconomic policies.44 The hegemonaccomplishes such goals by mitigating distributional conflict and

enforcement problems while accepting formal rules that reduce incentives toexploit weaker partners.45

One can find some evidence of a preference for such a global systemamong the BRICS, as demonstrated by China’s “peaceful rise” strategy46 andthe BRICS’ collective financial statecraft decision to contribute billions ofdollars to the IMF during the recent global financial crisis The IMF wouldbetter safeguard their capital than bilateral loans, but as important for theserising powers was the signal that they are “responsible stakeholders,”47worthy of greater voting power and leadership positions According toChinese Foreign Minister Wang Yi, China seeks “to play a bigger role in theexisting international order and system” but is “not building a rivalsystem.”48

The historical record shows that the United States actively facilitated

conditions for the emerging powers to behave as joiners, but only in

economic multilateral institutions and international markets, not in U.S.alliances, and not in ways that displaced American preponderance.49 Chinawas an early beneficiary of the American strategy at the time of theestablishment of the Bretton Woods institutions, winning the fourth-largestquota and number of voting shares in the IMF and World Bank, aboveFrance, Brazil, and India, all of which had lobbied to be among the majorplayers As discussed in Chapter 4, from the 1940s, in preparation for theBretton Woods Conference, through the Cold War, and especially after thenormalization of relations in the 1970s under President Richard Nixon andChairman Mao Zedong, China urgently appealed for permission to participate

in the IMF and World Bank, gain a high quota level, and sit at the top tables.Following a careful process administered by the IMF, the United Stateseventually set the terms to unseat Taiwan and give China 3.63 percent ofvoting power, as well as a quota allocation, which China promptly attempted

to increase.50 China also gained an executive director (ED) position on theboard when it regained its seat in 1980 More recently, the United States hasworked informally to support giving China more senior roles and positions inthe IMF and World Bank, even while Congress delayed implementation ofthe agreed package of reforms of voting shares It is important to note thatChina had begun pressing for strong reforms of the governance structures ofthe World Bank and IMF in 2005, a year before Moscow initiated the BRICsconsultations.51

A second example of the U.S strategy to facilitate joiners centers on

Russia in the early 1990s, when it was reeling from economic crisis after thecollapse of the Soviet Union Although the United States and its G7 partnerswere unwilling to fire a big financial bazooka in support of Russia’sattempted reforms,52 Washington allowed the IMF technical staff, thenguesstimating Russian figures, to arrive at an artificially high quota share inthe IMF on the basis of a generous and inflated assessment of Russia’seconomic size This was done in order to keep Moscow under the BrettonWoods tent and broadly in the Western orbit Russia also lobbied hard for,and was granted, a constituency-free ED position in 1992, despite itsrelatively small economy, and was invited to join the G7 political club (albeitnot the G7 finance ministers’ group) These boosts functioned as additionalside-payments to reflect Russia’s prominence as a democratizing formersuperpower.53 Western governments sought to contain the Russian politicalbacklash against American support for Russia’s political and economictransformation

Unlike past historical periods, mutually beneficial cooperation has beenpossible, as John Ruggie argues, because it emanates not solely from theprevailing distribution of power, but rather rests on a foundation ofinstitutions and rules conceived as a “fusion of power and legitimate socialpurpose.”54 A new distribution of power, in this view, may involve newinstruments but still could “reflect shared purposes,”55 such asmultilateralism and openness, rather than aiming for the utopian goal of a

“harmony of interests.” Similarly, besides the “distribution of power and thehierarchy of prestige,” Robert Gilpin specifies “a set of rights and rules” asbeing essential for global governance.56 The benefits of such rules andmultilateral cooperation could even be maintained “after hegemony.”57Within the basic rules structure, as Ruggie suggests, new powerful actors,such as the BRICS, can promote new instruments, including the NDB andAIIB Hence, despite the diffusion of international power, a benign, rules-based system has an appeal even to modernizing, authoritarian countries such

as China and Russia, for providing stability and serving their interest ineconomic investment and growth In this context, China is characterized as a

“reform-minded status quo state” which “accepts the existing rules”58 and

“isn’t interested in changing the international order but rather in maximizingand leveraging its growing interests to shape the existing order to further its

interests.”59 Similarly, according to the director of the Russian InternationalAffairs Council, “There is currently no consistent, comprehensive, and fullydetailed alternative to the liberal world order.”60

The joiner thesis is most strongly countered by hard-core realists who

contend that rising powers will eventually be driven to challenge status quo

powers as spoilers and may even provoke the historical pattern of wrenching

power transitions.61 Even moderate realists recognize that shifts in thedistribution of power diminish the attractiveness and soft power of incumbentinstitutions given the capacities of emerging powers such as China allowthem to act without the United States as competitors to the World Bank andIMF.62 Other observers suggest that the BRICS have nothing positive to offerglobal governance, in that they essentially behave as free riders and as

shirkers, with the likely result a G-Zero world where there is greater

fragmentation and little productive cooperation to solve internationalproblems.63

This book finds all three of these images—of joiners, spoilers, or shirkers

—to be only partial representations or unpersuasive While the BRICS, as a

group, certainly are revisionists, and thus not straightforward joiners, they are neither spoilers nor currently shirkers Earlier concerns about free-riding

appear less compelling since the considerable cooperation of the BRICs inthe G20 and IMF to ameliorate the global financial crisis of 2008–2009 andother policy changes on currency valuation and combating climate change.Moreover, the diffusion of power that results in shifts in certain capabilitiesdoes not inevitably lead to violent power transitions, which are improbable inthe nuclear era.64 BRICS acting individually have sought greater regionalautonomy (and in some instances, spheres of influence), while still avoidingmajor frontal challenges to the United States The risks from such actions arenotable but manageable, as demonstrated by Russia’s intervention inUkraine65 and China’s assertiveness in the East and South China Seas At thesame time, the benefits of BRICS collaboration have so far trumped intra-BRICS regional rivalries (notably between China and India) as domestic andgeopolitical impulses are tamped down BRICS collaboration on securityissues is muted, primarily focused on counterterrorism, leaving defensematters to other forums that involve subsets of the members, such as theShanghai Cooperation Organization (SCO)

However, integrating and keeping rising powers in the incumbent order

faces three challenges that can still derail the process First, emerging powersstart to question the legitimacy of the existing order, given a plethora ofdouble standards and their perception of a system where incumbents,particularly the hegemon, regularly use institutional levers not solely inpursuit of collective goods but also to advance their geopolitical andeconomic objectives, sometimes bypassing agreed rules.66 Both the UnitedStates and Japan, for example, have used their influence in the IMF andAsian Development Bank (ADB) over loan conditions and the size ofpackages to win favor with developing countries.67 The United States alsoregularly prevents its systemically significant allies, Japan and the EuropeanUnion, from acting as equal partners despite attempts, mostly by Japan, toassert its leadership in Asia (for example, in a failed attempt to create anAsian Monetary Fund to help countries hit by the liquidity crisis in 1997).68The same motivation informed Washington’s failed attempt to quash theAIIB (see Chapter 3) “Rightly or wrongly, the U.S has been accused” ofacting “less like a benevolent hegemon” as it pursues its narrow politicalagenda, from the Trans-Pacific Partnership (TPP) and data surveillance to “itsfinancial extraterritorial reach.”69 Second, given the demand from allparticipants for stability and utility, the system gets frayed when it can nolonger reliably deliver accommodative policies, coordination, and effectivemarket infrastructure The global financial crisis raised serious doubts amongemerging powers about the incumbent powers’ commitment to regulate thefinancial system effectively, and the dollar has become a source of concern,although the lack of good alternatives contributes to its persistentdominance.70

Third, the rising powers may become increasingly dissatisfied with theburden of having to succeed under the incumbents’ rules As RandallSchweller and David Priess argue, the dominant “dissatisfied power believes

it is outperforming its competitors despite the shackles placed on it,” andthat it would rise even faster under its own rules.71 In the BRICS case, theincumbents’ rules have largely tolerated the BRICS countries’ varieties ofcapitalism, including in their state-directed and crony capitalist forms, despitethe negative consequences for the advanced economies However, if theTrump administration (2017–) pursues extreme economic nationalistpositions on currency adjustments and trade protectionism, the BRICS,particularly China, may reconsider their position on tolerating the existing

All three factors encourage China and the BRICS to attempt todelegitimize American preponderance—but without undermining theincumbent order—while the group increases its bargaining power and Chinaprepares a new foundation of parallel governance arrangements.72 Asexplored throughout this book, rising powers are pursuing “rise from within”strategies and “inside reforms” of the IMF and other global governanceorganizations, while simultaneously pursuing “outside options” by buildingparallel institutions Neither China and Russia—the most likely hard-corerevisionist members of the BRICS—nor any of the other BRIC members has

adopted a strategy of revolutionary overthrow as spoilers or full-blown

shirking in international economic and financial institutions.73 The BRICScountries are motivated to adopt a dual strategy in financial statecraft becausethey remain dissatisfied with progress in the first track, ambitious to achievethe influence that they believe is commensurate with their rising internationalpositions, and concerned about their vulnerabilities to U.S and Westerninstitutional and market failures, as well as the deliberate use by the West of

coercion in financial and economic statecraft But how can the BRICS

mobilize and best employ their potential bargaining power to advance theirinterests?

FORMAL INSTITUTIONS AND INFORMAL POWERS: THE EMERGENCE OF CLUBS

For many decades, formal institutions such as the WTO and the IMF havehoused informal steering groups that have helped ensure that the major globalgovernance organizations surmount standard collective action problemsconcerning information, commitment, coordination, and implementationissues Such groups—or so-called clubs—are also concerned withdistributional conflicts in which their stake in promoting public goods oftenmorphs into the pursuit of private national or collective gains, withsignificant implications for other participants in these large institutions

Clubs in the international governance arena share many features of thetypes of organizations defined by James Buchanan and other economists By

a “club,” economists mean a voluntary group whose members derive mutualbenefits by sharing a good or characteristic The shared goods, or club goods,fall between private and public goods They generate goods or outcomes,such as valued activities or social arrangements, which are excludable

benefits: nonmembers may not share in these goods.74 The composition of aclub’s membership may be either homogeneous or mixed,75 althoughmembership is usually defined in exclusive terms Exclusivity may bedetermined by the group’s objectives rather than the characteristics of itsmembers.76 Thus, clubs may be composed of a heterogeneous population,contrary to some political science arguments conceptualizing clubs as usuallyconsisting of homogeneous members.77 Yet clubs are usually nonrivalrous;members perceive a net benefit from membership.78 Moreover, participantsare likely to agree on the optimal club size at which payoffs peak.79

In the WTO, for instance, incumbent powers have found ways to useinformal powers and mechanisms, such as back-room (“Green Room”)agenda-setting through premier clubs like the G7, to steer institutions towardpreferred outcomes that benefit their countries Richard Steinberg argues thatthe established major powers routinely engage in forms of “organizedhypocrisy” to establish formal rules that bind other participants, while theythemselves resort to informal, behind-closed-doors bargaining usinginformation advantages to work out a bargaining core that is then presented

as a near fait accomplis to the institution’s larger membership.80

Consequently, incumbent countries can lock in a favorable distribution ofbenefits through constrained international bargaining and restrict the ability

of weaker powers to improve their positions and change existing policies.Thus, the daily operations of institutions will tend to generate outcomes thatreplicate the status quo.81 This is the epitome of structural power, where thepreponderant actors formalize their preferences into legal regimes and in sodoing constrain or close off other weaker actors’ choices.82 Lloyd Gruberaptly calls this process “ruling the world.”83 Former President Barack Obamaprovides evidence for this argument, noting that “it was America that largelybuilt a system of international institutions that carried us through the ColdWar … Instead of constraining our power, these institutions magnified it.”84How have emerging powers replicated this club mechanism, and can theyavoid becoming irrelevant “talking shops”? Although club theory does notspecify a particular distribution of power among members, the assumption ofrelative equality is not required Clubs may feature asymmetrical powerrelationships and even “club within the club” dynamics when one or moremembers possess greater power resources or membership in other possiblymore exclusive groups States may engage in what political scientists term

“forum shopping” to gain clout to push their positions and prevent opposingcoalitions from winning.85 This chapter returns to these characteristics next,

in the context of China’s position within the BRICS and its structuralsimilarity to the U.S dominance within the G7

Two governance-related concepts of clubs are relevant to understandingBRICS collaboration The first focuses on how major internationalinstitutions operate more effectively when they employ the club model Thesecond examines ways that the leading powers have refined theiroperationalization of the club model to work in concert and benefitthemselves

The first aspect of the club model, introduced by Robert Keohane andJoseph Nye, shows its benefits as an effective institutional mechanism Withrespect to public goods, Keohane and Nye argue that the club model ofgovernance regimes paradoxically helps to “overcome deadlock thataccompanies the diffusion of power”86 and achieve more effective outcomesbecause it involves transgovernmental networks of specialized elite playersoperating in nontransparent back rooms These networks of senior officialscan break logjams and forge bargains conducive to their priorities, while alsolaying the foundations for collective action The early decades of the BrettonWoods governance regimes provide particularly apt evidence:

Cabinet ministers or the equivalent, working in the same issue-area, initially from a relatively small number of relatively rich countries, got together to make rules Trade ministers dominated [the General Agreement on Tariffs and Trade (GATT)]; finance ministers ran the IMF; defense and foreign ministers met at [the North Atlantic Treaty Organization (NATO)]; central bankers at the Bank for International Settlements (BIS) They negotiated in secret, then reported their agreements to national legislatures and publics Until recently, they were largely unchallenged.87

Subsequently, the major powers pioneered and increasingly substituted asecond variant of club model politics that used smaller steering groups topreset favorable outcomes in international institutions and regimes Theseapex groups of five or seven or ten major powers have regularized theinformal mechanisms necessary to ensure that the interests of dominantpowers are advanced and protected in international regimes.88

At the same time, Keohane and Nye acknowledge that a major factorweakening the club system of trade politics—which also applies to otherBretton Woods regimes—are demands by developing countries for greaterparticipation at the high tables of policymaking Their leaders are

“ambivalent about the regimes, suspicious about the implications of rich

country leadership, and resentful of the existence of club rules, made by therich, that they did not help to establish.”89 There were numerous attempts byemerging or developing countries to reform the global economic governancesystem ranging from the New International Economic Order (NIEO) throughthe UN Conference on Trade and Development (UNCTAD) in the 1970s90 toJapan’s challenge to the Washington consensus from the late 1980s throughthe Asian financial crisis.91 None of them, however, succeeded in drasticallytransforming the basic thrust of the international governance structure.

The shift in international power evident in the first decades of the first century exacerbated these tensions between incumbent Western powersand the large emerging and developing economies.92 As their economic heftand growth rates surged, rising powers challenged financial governanceinstitutions such as the IMF and World Bank, which in principle allocatevoting and quota shares broadly by economic size Yet despite the fact thatsome BRICS economies have grown more than ten times since the BrettonWoods institutions were created and contribute to global growth at higherrates than most advanced industrial economies, and that all the originalBRICs have risen into the top ranks of the world’s economies, they have had

twenty-to settle for a global institutional architecture that represents an earlierdistribution of economic power Such sizable gaps revealed the extent towhich such institutions have been resistant to change, particularly byincumbent members of the G7, who have blocked a redistribution of rolesand influence.93 In practice, the distribution of voting and quota shares reflect

a host of other obscure formal rules, such as the formulas to measure votingpower, as well as informal practices that help protect the incumbent powers’dominant positions and often discriminate against emerging economies, such

as those of the BRICS

The second aspect of club theory, which focuses on the narroweroperationalization of the club model, better explains how groups of leadingpowers have emerged and function In his definitive study of club modelpolitics, Daniel Drezner explains why the incumbent powers created and seek

to preserve the G7 As the premier club in which incumbent powers canbypass the formal rules of international institutions, the G7 ensures that

“decisions are made by powerful states behind closed doors” and helpscontrol their implementation.94 Drezner shows how the process of creatingand enforcing global financial regulation, like trade, conforms to a club

standards model where the G7 states first achieve a concert in private andthen work to have international financial institutions (such as the IMF) serve

as enforcers.95

Because the benefits of financial regulatory coordination were higher andadjustment costs lower for the advanced powers compared to emergingeconomies, it was easier to reach a consensus Other scholars underscore thepoint that clubs like the G7 have broad framing and agenda-setting powers;advantageous positions with respect to information and expertise, whichboost their power of endorsement; and veto power, in that they can blockother initiatives by not supporting them.96 However, in some cases, such asmacroeconomic policy coordination, the G7 was often deadlocked, as theUnited States and other members each tried to pass the adjustment costs ofpolicy coordination on to the others.97

The G7 (sometimes in slightly smaller or larger groups of the Westernleading powers) has met regularly for decades, either at the level of leaders’summits or, more frequently, in transgovernmental networks of officials fromfinance ministries, central banks, and other ministries For example, meeting

as the G6 in 1974, the group agreed on a new regime of floating exchangerates and changes in the IMF’s articles of agreement after the collapse of theBretton Woods fixed exchange rate system in 1971.98

Since 2005, the G7 also has experimented with attempts to cooptchallengers through outreach processes (e.g., the “G8+5” emergingeconomies) and “special relationships”; but these efforts were resented byemerging economies as second-best alternatives to being full members incore decision-making bodies Russia was the sole transitional power thatjoined the G7 (in 1997, when it became known as the G8), but its specialcircumstances precluded Moscow joining the G7 financial group,99 and itsG8 membership was suspended in 2014 over Western opposition to Russia’sarmed intervention in Ukraine and annexation of Crimea Moreover, theoutdated geopolitical logic of the incumbent powers’ outreach process stillleft China on the outside when Russia incongruously assumed the rotatingpresidency of the G8 in 2006 (and was ecstatic about its elevated insiderstatus) Displaying well-oiled diplomatic aplomb in the practice of doublestandards, the Russian government voiced approval of the G8,100 and just afew months after the June summit in St Petersburg invited three of the

“outreach” states to consult as dissatisfied BRICs on the sidelines of the

autumn U.N session in New York As the global financial crisis intensified,Brazil called for disbanding the G8, an idea that French President NicolasSarkozy suggested he would entertain when Paris presided over the group in

2011 The United States, Japan, and other members of the original G7 clubblocked this move, refashioning the G20 instead into a new apex club of thetwenty largest world economies while preserving the original G7/G8 group.THE BRICS AS A CLUB

Given that rising and incumbent great powers are socialized in internationalpolitics to emulate the successful strategies and instruments of theircompetitors,101 it is not surprising that nascent coalitions of emerging powerswere evident when the BRICs emerged on the diplomatic scene The mostimportant of these coalitions in terms of international impact emerged in theWTO during the Doha Round of negotiations, as first Brazil and India, andthen also China, “moved to the front line of rule-making” and looselycoordinated to increase their bargaining power.102 Brazil and India hadagitated for developing countries’ interests in multilateral trade since thecreation of the General Agreement on Tariffs and Trade (GATT) However,for the first time since the expansion of their share of world trade in the 1990sand 2000s, together with China, they faced the incumbent powers (grouped inthe traditional “Quad” of the United States, European Union, Canada, andJapan) as formidable challengers representing the developing world.103 In

2003, India, Brazil, and South Africa created the IBSA Dialogue Forum onSouth-South Cooperation (IBSA), jointly providing the vision and leadershipcore for the developing nations’ trade G20, whose principled resistance to theU.S “deep integration” agenda played an important role in the eventualfailure of the WTO Doha Round of trade liberalization negotiations Not onlywere these emerging powers coalescing in ways that demonstrated learningand adaptation, as expected by the competitive socialization process ininternational relations, they also were acquiring the necessary technical anddiplomatic skills to bolster their bargaining effectiveness.104

Also notable for the coevolution of the BRICS is that the informal BIC(Brazil, India, China) trade coalition, in its different configurations, did notuse its greater bargaining power to pursue solely distributive interests, butalso to varying degrees “a proactive agenda-moving one,” led by Brazil, tosupport the system.105 As a result, new and diverse groups mixing incumbent

and rising powers have replaced the old Quad.106 But seeking to restore theirleverage, the developed countries shifted to plurilateral trade agreements,such as the TPP during the Obama administration, and similar exclusionaryapproaches, including behind-the-border measures, seeking venues in whichthe United States would again possess greater leverage or bargaining power.Thus, it is now evident that both status quo and rising powers have rationalincentives to create clubs like “G groups” as a means to search for commonfocal points, develop unified positions, and clandestinely coordinate in theframing and pushing of policies that reflect their interests According to theRussian Deputy Foreign Minister and BRICS Sherpa Sergei Ryabkov, theBRICS is a club that operates on consensus, where “no one imposes anything

on anybody else.” At the same time, he stressed that “the more stable thisassociation, the more tasks we resolve jointly, the more authoritative will bethe BRICS international role.”107 Chinese Vice Minister of Finance ZhuGuangyao similarly observed in 2016 that “cooperation between the BRICSnations is expanding and deepening” and that “economic cooperation hasbeen built on a solid foundation, especially in the area of financialinfrastructure.”108

Recalling Russia’s prior experience in the G8, the director of policyplanning in the Russian foreign ministry who helped flesh out the initialBRICs agendas stressed the usefulness of transgovernmental networks asthen identified by his counterpart in the U.S State Department, Anne MarieSlaughter, to coordinate preferences on multiple issues in a globalizedworld.109 Then, thirty-four years after the G6 leaders’ summit in Rambouillet,France, the four original BRICs met in Yekaterinburg in 2009 to officiallyannounce their own new club and its objectives

The BRICS have increasingly adapted their informal club into a moreextensive set of relationships, and also have created new financial institutionsparalleling and supplementing some of their Bretton Woods counterparts Aswith other clubs, there are no public transcripts or accounts of the substantivemeetings that take place among the principals at the ministerial level, behindclosed doors, to forge common bargaining positions where deemed desirable.Nonetheless, it is possible to identify a number of cases in which the BRICSemployed collective financial statecraft to achieve particular objectives, aswell as some instances where they might have been expected to act but didnot, as elaborated in Chapter 3

One of their first moves, in 2009, was to coordinate stances among their

finance ministers, central bankers, and foreign ministers to craft a commonbargaining position where the BRICs would commit to provide additionalfunds to the IMF in the wake of the global financial crisis in return forsignificantly higher voting shares U.S Treasury Secretary Timothy Geithnerreportedly requested permission to attend a BRICs meeting of financeministers to discuss this proposal, which was a step in the direction of IMFvoting reform that the White House broadly supported, at the expense ofsome overrepresented (mostly European) countries Although the BRICs didnot achieve all their voting share targets, and it took until the end of 2015 forthe U.S Congress to approve the IMF reform package, they successfullyengaged collectively and gave the process a big shove Their bargainingposition also shrewdly included an insistence that their fresh contributions gointo a new financial vehicle denominated as SDRs, partly to move away fromthe dollar and to signal their unwillingness to fund long-term funding needsuntil they won their part of the bargain.110 A decade since the establishment

of the group, the record of BRICS’ collective endeavors in financial statecraftdiscussed in this book is not trivial, to the complete surprise of American andWestern officials: this club has legs

CLUBS WITH POWER ASYMMETRIES AND DOMINANT POWERS WITH OUTSIDE OPTIONS

A common characteristic of the BRICS and the G7 is that both feature askewed distribution of power among the members Although the properties ofclubs permit heterogeneity of members in characteristics and capabilities,clubs with hegemons are distinct in at least three ways from other clubswhere members possess roughly the same strength First, hegemons maycontribute relatively more to the provision of collective goods and promoteregime stability when the potential costs of disruption to them are greaterthan the perceived costs of maintaining the regime.111 Second, a high level ofpower asymmetries increases the possibility of inner clubs within the club forthe most powerful or committed members If remaining on the outside iscostly, the mere threat to form an inner club limits the weakest members fromgaining a veto over club policies or holding out for lowest-common-denominator outcomes Otherwise, unanimity in such asymmetrical clubswould likely lead to stagnation at the level preferred by the weakestmembers.112 A third scenario is when the preponderant member of the clubexercises or threatens to exercise its outside options—including a credible