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).
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 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 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’s ‘Central Bank Governor of the Year’, regularly braggedof learning from the US Federal Reserve’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 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 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.
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.