Is BRICS a True Alternative?

10 July 2015 by Patrick Bond


The $100 billion BRICS New Development Bank aimed at providing capital to the developing world isn’t a sufficient alternative argues Patrick Bond.

The main point of the BRICS summit this week was host Vladimir Putin’s demonstration of economic autonomy, given how much Western sanctions and low oil prices keep biting Russia. In part this sense of autonomy comes from nominal progress made on the bloc’s two new financial institutions.

But how serious are these new banks? More than 60% of Greeks voting in Sunday’s referendum used old-fashioned democracy to fight neoliberal bankers’ dictates – thus raising hopes across Southern Europe and amongst victims of ‘Odious Debt’ everywhere – and the Chinese stock market has crashed 25% from peak levels a few weeks ago. Change is urgently needed yet the BRICS’ finance bureaucrats make it clear they won’t deviate from orthodoxy.

Ongoing financial turbulence should offer a gap for the $100 billion BRICS Contingent Reserve Arrangement (CRA), which is anticipated to open its doors next month. However, it carries not only a strange name that even many insider experts often get wrong, but is dollar-denominated and structurally hard-wired to support the International Monetary Fund IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
(IMF).

To illustrate, according to CRA rules agreed at last year’s BRICS Fortaleza summit, after 30% of a country’s quota is borrowed – based on double the amount of its own contributions (China at $41 billion, and Brazil, Russia and India at $18 billion each, and South Africa at $5 billion) – then the borrower must go to the IMF for a standby agreement.

For South Africa this could prove painful in the period ahead, if a begging-bowl trip to the IMF is required after borrowing just $3 billion from the CRA to repay the country’s soaring foreign debt. After inheriting $25 billion in apartheid Odious Debt in 1994, Nelson Mandela’s government worked diligently to repay. But over the past decade, outflows of profits, dividends and interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. soared as the largest Johannesburg-based firms (Anglo American, DeBeers, etc) shifted their financial headquarters to London.

The foreign debt ballooned to its present $145 billion, the same level compared to the size of the economy that was hit thirty years ago when PW Botha’s apartheid regime declared a default. To repay short-term debt in a crisis would soon exhaust the $3 billion Pretoria is permitted to immediately access from the CRA, and then the IMF will march in.

Sadly, even with Greece’s new mandate, there appears no hope for bucking the IMF and European bankers on debt repayment by finding a new bail-out partner in Russia this week. Early rumours that Moscow would invite Athens to join the BRICS New Development Bank (NDB) proved cruelly deceptive.

Once launched next year, the NDB could well fund specific projects in other non-BRICS countries, even Greece if profits there ensure repayment – such as its controversial Chinese port privatization. However, these are likely to be the sorts of pro-corporate infrastructure deals that even the World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

finds increasingly difficult to support due to sustained protest against community displacement and climate change, e.g. land grabs, mega-dams and coal-fired power plants.

At the ‘BRICS-Civil’ conference in Moscow last week, the Delhi-based Vasudha Foundation’s Srinivas Krishnaswamy told the BRICS Post that the NDB should be considered “in the light of a new World Bank Energy Strategy which restricted funding of coal projects for developing economies. This was opposed by India, South Africa and other countries dependent on coal to satisfy their energy requirement.

” The BRICS banks will thus ‘complement’ the Bretton Woods Institutions, thanks to a self-mandate dating to early 2014. As Brazil’s neoliberal finance ministry reminded last week, the CRA “will contribute to promoting international financial stability, as it will complement the current global network of financial protection. It will also reinforce the world’s economic and financial agents’ trust.”

Karl Marx prefaced Das Kapital with a concern that “Individuals are dealt with here only in so far as they are the personifications of economic categories, the bearers of particular class-relations and interest.” Biographies sometimes perform a useful exercise, if we want to understand why an institution in the making will not in any way ‘threaten ’ the hegemony of Washington’s financial agents.

Relegitimization of world financial imperialism is explicitly reflected in Pretoria’s two new appointees to leadership within the NDB:

- NDB vice president Leslie Maasdorp was the main privatiser of South Africa’s state assets and also worked in the local leadership of Bank of America and Barclays – both charged in recent weeks with currency manipulation worth billions of dollars.

- NDB board director Tito Mboweni, who in 2001 was Euromoney’sCentral Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx
Governor of the Year’, regularly bragged of learning from the US Federal Reserve FED
Federal Reserve
Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

FED – decentralized central bank : http://www.federalreserve.gov/
’s notorious free-marketeer and financial-liberaliser, Alan Greenspan. From 1999-2009, Mboweni was the most conservative central banker in modern SA history. He not only loosened exchange controls dozens of times, but as a result then had to push interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
to painful highs while local bank profits soared.

The two South Africans deployed to the NDB have long enjoyed leadership and key advisory roles at the Johannesburg office of Goldman Sachs, the New York investment bank partly responsible for the 2007-09 global financial meltdown thanks to rampantly illegal lending practices. Its managers first got bail-outs and then faced multi-billion dollar fines but were spared criminal prosecution thanks to carefully cultivated revolving-door relationships in Washington, Pretoria and many other capitals. Goldman’s lead strategist Jim O’Neill even coined the ‘BRIC’ meme in 2001 to argue that imperialism in the form of the G7 should incorporate the emerging powers.

Mboweni had a central role in the IMF’s 1993 financing deal, one of South Africa’s historic capitulations to neoliberalism. As Mboweni explained in a 2004 speech, he knew that “the apartheid government was trying to lock us into an IMF structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/
programme via the back door, thereby tying the hands of the future democratic government… We did not sell out!”

He did indeed: the $850 million loan came with severe economic policy and even personnel conditions attached. Former ANC Minister of Intelligence Ronnie Kasrils in 2013 termed this, “the fatal turning point. I will call it our Faustian moment when we became entrapped – some today crying out that we ‘sold our people down the river’.

” Ironically, just at the time Durban hosted the BRICS summit in early 2013, Mboweni used a speech to regional business elites to attack the NDB as “very costly. I would rather take that money and build the Coega Petro SA oil refinery here in Port Elizabeth.” (Mboweni also chairs a local oil company.)

A genuine alternative to imperialist finance would be based upon

- the sort of default on unpayable, unjustifiable debt that Argentina managed to accomplish in 2002;
- the exchange controls that countries like Malaysia (in 1998) and Venezuela (in 2003) imposed on their elites (as did Greece last week);
- new regional currency arrangements such Ecuador’s proposed sucre; and
- socially- and ecologically-conscious financing strategies such as were once proposed and seed-funded by the late Venezuelan leader Hugo Chavez.

Given NDB and CRA positioning and personnel, it is foolish and perhaps dangerous to invest hope in the BRICS’ alternative.

Source : http://www.telesurtv.net/english/opinion/Is-BRICS-a-True-Alternative-20150709-0022.html




Patrick Bond’s new book, co-edited with Brazilian political economist Ana Garcia, is BRICS: An anti-capitalist critique, published this month by Pluto, Haymarket, Aakar and Jacana.

Patrick Bond

is professor at the University of the Western Cape School of Government in Cape Town, and co-editor of BRICS and Resistance in Africa (published by Zed Books, 2019).

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