On July 9, the Brics economies – Brazil, Russia, India, China, South Africa – launch their own development bank, and if you believe the hype, it is the beginning of the end of the world as we know it. The move is supposed to signal the imminent dismantling of the western-dominated financial system, the International Monetary Fund and the World Bank.
Symbolically, yes. It demonstrates deadly serious intent towards institution-building just six years after four of the five Brics (South Africa was not a founding member) held their first summit. Together, the Brics account for roughly 25 per cent of global GDP and 40 per cent of the world’s population but just 11 per cent of the votes in the IMF. It makes sense to refashion the world economic order – if that is what they ultimately come to do.
Will they? There’s economics and then there’s politics. Consider the New Development Bank’s (NDB Brics) silence on a matter that should theoretically be tailor-made for its launch week as an alternative, non-western lender of last resort: Greece. The long-running drama over the Greek people’s growing penury and suffering and the enormous debt their country owes international creditors, came somewhat to a head 72 hours before today’s NDB Brics launch in the Russian city of Ufa. The Greek referendum result rejected the international creditors’ terms for debt-restructuring and continued financial assistance. Greece’s far-left Syriza government has repeatedly indicated it is in favour of trying something that is a little less like the traditional economic nostrums proffered by the western-dominated creditors. This is to say the so-called conditionalities imposed on borrower countries, which focus on trade liberalisation, domestic austerity and the privatisation of nationalised industries.
Yet all through this week, while Greek desperation mounted, the Brics finance ministers sat in Moscow at inaugural meetings of their new bank and said nothing … about Greece.
Other than Russia’s on-off promises earlier this year of “economic cooperation” with Athens and its vague, unauthorised commitment about inviting Greece to join NDB Brics, the club has remained silent about throwing a lifeline to the economic shipwreck in the Aegean Sea. The reasons make good economic and political sense. They are also why the Brics can’t – and won’t – substantially challenge the old world economic order any time soon.
First, a development bank will only ever be as good as the loans it gives. Its credit rating will depend on the soundness of the projects it supports and Greece’s situation – debt exceeding 175 per cent of GDP and no real sustainable plan to grow again – would make it a parlous loan for NDB Brics even if it had already been properly up and running.
Second, and more important, the emerging economies’ do-it-yourself job on international economic architecture does not really seem preset to a developing-world-versus-the-West dynamic. The symbolic alternative instruments of power are undoubtedly being put in place, but they are firmly based on national interests, not some brave idealism that enshrines glorious universal principles of growth and development.
Except for Russia, which is bitter about the sanctions imposed after its Ukrainian incursion and itching to take on – lunges, sideswipes, the lot – the European Union, the Brics don’t really want confrontation with the West. Brazil, mired in stagflation (low growth and inflation), is investing hope in trade deals and has stepped up efforts to negotiate a big one with the EU. India, right now, just wants to get along and get on. South Africa, whose economy is also in trouble, has no particular reason to pick fights with the EU, its biggest investor, or indeed with the US.
Beijing’s own line illustrates most of the Brics’ no-confrontation position perfectly. It may occasionally talk tough about US hegemony and the need to empower the developing world in a multipolar, egalitarian new order, but it remains aware of American centrality and, in economic terms, of the EU, which is China’s largest trading partner.
Economist Joseph Stiglitz, a cheerleader for the new Brics bank, has urged China to use its $3 trillion foreign exchange reserves to better “social” purpose than buying US Treasury bills because “(that’s) like putting meat in a refrigerator and then pulling out the plug … the real value of the money put in US Treasury bills is declining”. But there’s little sign the Chinese are driven by extravagant notions they can save the world. Pragmatic in the present and ambitious about the future, they are trying to throw multiple criss-crossing girdles around the globe to tighten their hold and heighten their importance but these fit into a long-term, big bold vision not a series of scrappy exchanges with the West in the short-term.
The Shanghai-headquartered new Brics bank and the Asia Infrastructure Investment Bank (AIIB) launched in Beijing just days ago, are part of this. As are the other Chinese initiatives – One Belt One Road, the New Silk Road and the Maritime Silk Road. But they are not a sign of spoiling for a fight with the West right now. If anything, they may cause problems within Brics itself as the New Silk Road is meant to snake through Russia’s traditional sphere of influence.
Wisely then, China has few illusions about the ricketiness of any platform that’s propped up by a fiercely competitive developing-world axis. Rickety, of course, because the Brics have little in common other than the acronym they were given because their economies were all growing strongly a decade ago. To sort out a development bank’s priorities requires more than a shared sense of ill-usage.
Perhaps in time the new Brics bank will become an international lender of high standing, graciously doling out money at peppercorn rates to countries that need it most. Perhaps, together with the AIIB, it will finance – without strings and lectures – the creation of a kinder, gentler world, something the IMF and World Bank have not managed in the 71 years since they were founded in the New Hampshire town of Bretton Woods. Maybe. But the smart money isn’t betting on it.