Future of the BRICS

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One of the lesser-known side effects of the threatened roll back of asset purchases by the Federal Reserve is fear of a credit crisis in emerging economies. Massive asset purchases have helped keep interest rates low for developing countries as well as the major creditor countries of the world. 

The creditor countries - U.S., UK, Germany, Japan - also fund and control the International Monetary Fund and the World Bank, the largest international lending institutions. However, both the IMF and the World Bank engage in highly "conditional" lending-amounting, to many, as significant interference in the internal politics and affairs of the borrowing nations.

That interference has led to coups, civil wars, militarization, widespread repression and social upheaval in the past. The Western dominated banks favor constraints that prohibit governments from enacting or preserving national legislation providing public goods like health care, infrastructure, collective bargaining rights, environmental restrictions, democratic institutions, and schools, without first passing a "means test" - also known as the you-can't-do-anything-until-after-we-get-paid test. 

Further, development efforts at the IMF and World Bank have been plagued for years with the "Washington Consensus" theory of international development that was and remains an ideological sewer product of the Reagan-Thatcher, free-market fundamentalism and worship of private property, era. The doctrine has been a miserable failure, by any objective standard. Most credit for alleviating world poverty must go to China, which has had a consistent theory of mixed public and private development aimed at strategic objectives. 

Nonetheless, the Washington Consensus worked pretty well in a narrow sense. It owed its fame to the shameless intellectual scaffolding erected over the rape of public assets in the former Soviet Union following its collapse. The theory perfectly suited the Reagan-Thatcher led worldwide assault on socialism, social democracy, and - of course - democracy too. The "consensus" fit perfectly with an Anglo-American imperial model where everyone else must come begging for credit. We also learn from Piketty, that the privatization movement, harmonizes with removing all public interference to a return to levels of returns on capital that the super rich enjoyed on the eve of World War I; before the former plutocrats plunged the world and a hundred million lives into fire for 30 years; before they had to yield some power and wealth to democratic forces.

As emerging economies in Russia, China, India, Brazil and South Africa - known as the BRICS - have become wealthier there has been growing interest in consolidating a new tier and center of development funding that better reflects the special interests, requirements, opportunities and obstacles that new and recent entrants in Asia, Africa and Latin America must confront in the globalized commercial world.

Barely noticed in the US press, but reported in the Economic Times, leaders of the BRICS group of emerging powers on Tuesday created a Shanghai-based development bank and a reserve fund to finance infrastructure projects and head off future economic crises. The funds are seen as counterweights to Western-led financial institutions. 

"These initiatives show that, despite our diversity, our countries are committed to a solid and productive association," Brazilian President Dilma Rousseff said at a summit in the northeastern seaside city of Fortaleza. Russian President Vladimir Putin also hailed the agreements as "a very powerful way to prevent new economic difficulties." The New Development Bank aims to rival the Washington-based World Bank while the reserve is seen as a "mini-IMF."

It is too early to tell for sure if this effort is sustainable given the very diverse political economies and histories of the emerging nations. For example, President Rousseff is quoted saying: "The IMF urgently needs to review its distribution of voting power in order to reflect the unquestionable weight of emerging countries," This echoes calls by BRICS leaders who have long pressed for reform of the International Monetary Fund to give developing countries more voting rights. Is the new bank a real move toward a new development center, or simply a bid for the IMF and World Bank to liberalize their governance? 

However the more formal stature of the new bank and reserve funds gives the multi-tier, multi-center thesis more credibility than at anytime since the end of the cold war. The development bank will have initial capital of $50 billion that could rise to $100 billion, funded equally by each nation. To ease worries of any nation getting more power than the other, BRICS leaders agreed to put the bank's headquarters in Shanghai. The first president will be Indian while the first board chair will hail from Brazil.

Further, according to the summit declaration, an Africa Regional Center will be based in South Africa and will help emerging and developing nations mobilize resources for infrastructure and sustainable development projects.

The Contingent Reserve Arrangement will have $100 billion at its disposal to immediately head off potential economic volatility linked to the United States exiting its stimulus policy. China is expected to make the biggest contribution, $41 billion, followed by $18 billion each from Brazil, India and Russia and $5 billion from South Africa.

Assessing the BRICS summit depends in part on one's fundamental sense of world economic development trends. There is certainly much evidence to support a changing distribution of world wealth, economic productive power, and resources. And the balance of evidence in this writers view points strongly away from the older imperial, or bipolar, world towards a multi-centered, multi-tendency international environment. Recognizing multi-tendency means recognizing more diplomacy and more democracy and more cooperation as a more sustainable framework, than an imperial one relying on a superpower and the superpower's ability to impose alliances. The former seems both suitable and necessary for more democratic and inclusive evolution of a global governance network. As economies-including both capital and human resources-become both richer, and more intertwined, it is difficult to see greater international peace and stability without abandoning an imperial approach, and viewing emerging nations' struggle for seats at the global table as a positive force.

Here is to BRIC success in promoting emerging nations development and becoming more responsive to crisis impact and remediation!

Photo: BRICS leaders in Brazil CC BY 3.0. Presidential Press and Information Office.

 

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