BRICS Establishes A Development Bank
Patrick Bond, Co-Editor of BRICS: An Anti-Capitalist Critique, finds BRICS to be largely neoliberal and unequal, evident by the appointees to the bank board.
SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to the Bond Report on the Real News Network. I’m Sharmini Peries coming to you from Baltimore.
BRICS, the economic bloc made up of Brazil, Russia, India, China, South Africa, met in Ufa, Russia this week. One of its key objectives is to form a New Development Bank considered an alternative to the World Bank and the IMF. The bank will be located in Shanghai and chaired by Indian banker K V Kamath for the first six years. Then Brazil and Russia will take their respective turns. Each country is expected to contribute its lion’s share to the bank. The upper house of Russia just allocated $100 billion in foreign reserves for the bank. The pool is intended to protect national currencies from the volatility of global markets. The idea is that in the event of a financial emergency like that of Greece at the moment, the BRICS countries would no longer have to depend on the likes of a Troika.
But will the BRICS development bank be any different? Will this new formation be able to address the issues faced by struggling and ailing economies of China and Russia, India, Brazil, and South Africa? Here to discuss all of this with me is Patrick Bond. He is joining us from Durban, South Africa. He has recently edited a book on BRICS with Ana Garcia titled BRICS: An Anti-Capitalist Critique.
Patrick, thank you so much for joining us today.
PATRICK BOND, DIRECTOR, CENTER FOR CIVIL SOCIETY: Thank you very much. Great to be back with you, Sharmini.
PERIES: So Patrick, in the past two years the Russian economy has tanked. The stock market in China was in a freefall on the eve of this meeting. Are these large economies now looking to BRICS alliance to reinvigorate their economies?
BOND: Well, that would be a mistake. Because in fact, all the BRICS, especially now with China’s $3 trillion crash of the main stock markets from the peak just about three weeks ago to today, and the 20 percent crash over the last year of its property market, the sort of horrible potential of a hard landing that would send the world economy into a tailspin, that now is certainly possible. And certainly the Brazilian economy’s very, very weak at about 1 percent. South Africa will grow 1 percent or go into recession. India has not been as strong as past years. And the currencies of all of the BRICS is also under great threat. Because as the United States begins to move towards higher interest rates, that’ll take liquid capital out.
So I think the broader, macroeconomic perspective for BRICS as a potential backstop for world economic growth that we had seen the last 15, 20 years, that potentially is now over. That would be very sad, because certainly Europe’s in a deep depression and the U.S. economy’s not doing very well, either.
However, the merits of a slower growth might be more balancing, because we’ve seen such extraordinary, uneven development. Extreme differentiation, inequality, and ecological destruction. So whether the period ahead can be managed now is a question. Maybe the BRICS financial institutions will be part of that management.
PERIES: Which reminds me of, the main purpose of the meeting itself was to form a development bank. What of any significance came out of it?
BOND: Yes. Well, you’re right. The 2015 BRICS summit in Ufa had as its centerpiece the actual naming of the directors of the bank and more of the details, and promised that by April 2016 the BRICS New Development Bank, the NDB, will be up and running and making project loans.
That’s different than the other function, the continent reserve arrangement, CRA. The CRA, a strange name for what is in effect a short-term financial monetary emergency fund, $100 billion. That’s probably going to be important for at least one of the BRICS, South Africa, as we move into potential debt crisis. Our debt is 40 percent of GDP level, our foreign debt, and that is the same level in 1985, about 30 years ago where we suffered a default, and a run that even put enough pressure on the white minority government, the apartheid regime, that forced it to make concessions and nine years later to agree to democracy.
So these financial moments in a country’s political life can be important, as we’re certainly seeing with Greece. But the other four countries have enough reserves that I don’t think the continent reserve arrangement is going to be used anytime soon. It’s really a notional reserve. And if it were to take the currency that China is now spending on buying U.S. Treasury bills, that would be a terribly important step. However, all the indications are that China is continuing to buy T bills and maintains a record holding. That’s very unfortunate. It basically locks China into a buying relationship with the U.S. in terms of T bills, the Treasury bills, at which point the U.S. has enough debt that it can allow its consumers to borrow and then to buy Chinese goods. And that’s the sort of death grip of the world economy that locks in these extreme imbalances that we’ve been having.
PERIES: Now, Patrick, you just edited a book with a number of your colleagues on the BRICS. And what are some of the pros and cons you saw coming forth?
BOND: Well, we’ve really heard from progressive analysts a mixed message. And there is a, especially third world-ist, if I may say, a sort of pro-South position that is welcoming the BRICS. And you see it on a number of the easings and some important writers have been welcoming BRICS as a potential alternative to the International Monetary Fund, the World Bank, and maybe a geopolitical power relationship.
However, our careful study shows a couple of things that I think the book, which is being published in the U.S. by Haymarket and Britain by Pluto, here in South Africa by Jacana, and in India by Aakar. The book, with about 25 key authors from many of the BRICS countries and international experts, does a couple of things.
One is to show that internally the BRICS are extremely uneven and the balance of forces largely favors neoliberal or market-oriented pro-corporate figures. And that is very much shown today by the new BRICS directors of the New Development Bank from South Africa, who are two of the most extreme neoliberals we’ve had in economic policy. The new vice president of the BRICS, Leslie Maasdors, previously in charge of the privatization of South Africa’s state assets and the former central bank governor is now a director of the New Development Bank, is named Tito Mboweni, and he’s really known as one of the most austerity-oriented governors that the central bank here’s ever had.
And that means the second part of what we’re arguing, which is that there’s a tendency to fit in rather than oppose the world financial elites. That is to say it’s not going to be against world finance, but accompanying world finance that the New Development Bank lends project loans. It will be picking up some of the worst loans that even the World Bank won’t do. Dirty energy loans, megadams, maybe land grabbing, especially here in Africa. That’s one concern.
And especially a concern, secondly, that the International Monetary Fund will be actually empowered by the contingent reserve arrangement. And the reason is that the CRA is set up that after you borrow 30 percent of what you can legitimately borrow from that CRA, 30 percent of your quota, before you get the next 70 percent you have to go to the IMF to get a standby agreement, a structural adjustment austerity policy.
So one of the great hopes we’ve had in this, Sharmini, is that the Greeks would say we don’t like the IMF, we’re going to default. We might exit the Euro so that we aren’t under the same sort of pressure from European Union and the European Central Bank to basically be part of a German bank-centric model. And then we’re going to borrow from a foreign power. Maybe Russia, there was some talk, and maybe China with all the money they have, and be able to keep afloat while we default and arrange a default. Much like Argentina did, and therefore not go into complete panic, crisis, bank closures and all the rest of it.
Now, that probably isn’t going to happen. That was our big hope, that the BRICS would be an alternative geopolitical arrangement. But I think it would be wishful thinking for progressive analysts, now that they know much more about the details of the BRICS New Development Bank, to actually argue that Greece has any hope there. Greece is going to have to take this very strong, courageous stand that’s so overdue to introduce its own currency and not hope that it can just borrow from the BRICS bank and therefore pay off the IMF. And the reason is that the BRICS bank will make project loans in April 2016, only. It’s not ready to do anything yet.
And that would mean the kinds of loans that, what would be bankable in Greece, something like port privatization of the Chinese. That’s strongly opposed by the dock workers in Greece, and I don’t think then there’s any scope for the contingent reserve arrangement to fund Greece, because you have to be a member of BRICS. And they really have limited membership to just the five main countries.
So all of those together, Sharmini, mean if you’re still arguing and hoping that the BRICS will be some kind of anti-imperialist answer, you should look more closely. Our sense, using Ruy Mauro Marini, the great Brazilian dependency theorist’s argument, is that instead of anti-imperialist we are looking at sub-imperialist relationships.
PERIES: Patrick Bond, thank you so much for your take on BRICS. And we look forward to having you back on and perhaps debating somebody that is pro-BRICS.
BOND: Thank you very much, [inaud.]
PERIES: And thank you for joining us on the Real News Network.
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