The BRICS group of nations, which represent more than a fifth of the global economy, talked up closer financial ties on the eve of a summit in Russia hosted by President Vladimir Putin.
BRICS finance ministers and central bankers, meeting Tuesday in Moscow, stepped up work on a development bank and finalized a $100 billion pool of foreign reserves to help one another out of liquidity binds. The leaders of Brazil, Russia, China, India and South Africa meet July 8-9 in the city of Ufa. They “believe the time is ripe to create their own financial institutions,” Kremlin foreign-policy aide Yuri Ushakov said.
The five nations gather at a time of global market stress, with China’s stock market suffering a rout and Greece’s future in the euro in the balance. Russia itself is enduring its first recession in six years as lower energy prices and sanctions over Ukraine choke the economy. As ties with its former Cold War foes languish at a 25-year low, Putin is tilting toward emerging nations to show Russia isn’t isolated.
“Russia is looking for new friends everywhere,” though its economic difficulties mean it hasn’t got a lot of resources to invest into ventures such as the BRICS bank, Liza Ermolenko, an analyst at London-based Capital Economics Ltd., said by phone. The summit is about showing “Russia still has friends and is still a major player in global politics.”
The ruble, the second-worst performer versus the dollar in the past year behind Ukraine’s hryvnia, was 0.6 percent weaker at 57.21 Tuesday in Moscow as oil prices slipped. While Economy Minister Alexei Ulyukayev said Greek fallout won’t directly affect Russia, he warned that the turmoil is stoking volatility on energy markets.
Market tremors, particularly from Greece, will be a topic for Putin as he holds one-on-one meetings with Chinese President Xi Jinping, Indian Prime Minister Narendra Modi, South African leader Jacob Zuma and Brazilian President Dilma Rousseff.
He’ll also host a joint session on July 9 of BRICS nations and members of the Shanghai Cooperation Organization -- a defense-focused bloc of China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan -- before holding talks with the leaders of Iran, Afghanistan, Mongolia and Pakistan.
China will contribute $41 billion to the reserves pool, while Brazil, India and Russia will commit $18 billion each and another $5 billion will be provided by South Africa. The facility is intended to help solve “short-term problems with liquidity and problems with the balance of payments,” according to Russian central bank Governor Elvira Nabiullina. There’s no need to use it in the short run, she said Tuesday.
The $17 trillion gross domestic product of the combined BRICS economies in 2014 was almost equal to the U.S.’s GDP. Some say that makes Russia’s bid to retool its economy away from the European Union, which last month extended trade and investment penalties against the government in Moscow, more logical.
“Russia is like a massive oil tanker, which is changing its course gradually to the east from the west,” Piotr Matys,a London-based foreign-exchange strategist at Rabobank, said by e-mail. While the EU economy remains sluggish, China and India are growing robustly and “one could argue that Russia seems to be in a much stronger club.”