The BRICS nations

BRICS plan new $50bn bank to rival World Bank and IMF

The ‘big five’ of the developing world, the BRICS nations, have agreed to create their own version of the World Bank at their fifth annual summit, which kicked off Tuesday in sunny Durban, South Africa.

RT,

26 March, 2013

The five BRICS states agreed to establish the BRICS Development Bank, South African Finance Minister Pravin Gordhan said on Tuesday.

The move is linked to the developing world’s disillusionment with the status quo of world financial institutions. The World Bank and IMF continue to favor US and European presidents over BRICS nations, and in 2010, the US failed to ratify a 2010 agreement which would allow more IMF funds to be allocated to developing nations.

"Not long ago we discussed the formation of a developmental bank... Today we are ready to launch it," South African President Jacob Zuma said on Monday.

The ‘big five’- Brazil, Russia, India, China, and its newest addition, South Africa, come together for the annual conference this year in Durban, South Africa in hopes of establishing a new development bank which will fund infrastructure and development projects in the five member states, and will pool foreign currencies to fend off any impending financial crisis.

The BRICS have called for a reconstruction of the World Bank and IMF, which were created in 1944, and want to put forth their own ‘Bretton Woods’ accord. And they are serious.

"Brics is not a talk show. It is a serious grouping," Zuma told reporters at the presidential guest house in Pretoria.

The new bank will cater to developing world interests and will symbolize a great economic and political union.

“There’s a shift in power from the traditional to the emerging world. There is a lot of geo-political concern about this shift in the western world,” Martyn Davies, chief executive officer of Johannesburg-based Frontier Advisory, told Bloomberg.

“A future BRICS Investment Bank is seen as a mechanism that would help realize where money should go, agree development strategies and coordinate investment," explained Georgy Toloraya, the executive director of Russia’s national committee for BRICS studies to SA News.

In its nebulous stage, the new BRICS bank is unanimously supported by all five member states. In Durban, problems will arise on how to govern, fund, and operate the grand venture.

“When you set up a bank like this it’s not just a question of opening the doors. There are some issues about where it is going to be located, what the capital contributions are going to be, the rules of deploying that investment. These are the sort of details that are in various stages of discussion and negotiation,” said South African Trade Minister Rob Davies, in a statement.

The leaders may not reach a specific agreement in Durban this week, as each country has its own stipulations on its creation. Russia, for example, wants to cap each side’s initial contribution to $10 billion, according to Mikhail Margelov, part of President Putin’s team in South Africa.

Emergency Currency Fund

Pooling currency to deflect a future crisis is also a high priority topic set for the conference.

Once a loose political affiliation, the BRICS bloc is now a serious economic contender in the world economy, representing 40% of the world’s population, and accounting for one fifth of global GDP.

Between the five countries, the bloc holds foreign-currency reserves of $4.4 trillion, and needs an institution to safeguard this amassing wealth. The reserve will also protect members from short-term liquidity volatility and balance-of-payment problems.

Presently, it is proposed the member states contribute an equal share to the fund, but there is still dispute over whether to involve IMF management. India has voiced support for IMF involvement, but other BRICS countries may resist.

“A reserve pool, I think, is still some way off, ” said Davies.

In October, Brazilian Finance Minister Guido Mantega suggested the pool be modeled after the Chiang Mai Initiative, which provides a financial safety blanket to south east Asian countries.

Trade within the group swelled to $282 billion last year and could very well reach $500 billion by 2015, according to Brazilian government data.

Currency swap

Meanwhile, ahead of the official opening of the summit Finance ministers Lou Jiwei of China and Guido Mantega of Brazil signed a multi-billion currency swap agreement between their countries as the BRICS group works to lessen trade dependence on the US dollar and the euro.

Brazil's Mantega said the agreement involves using local currencies for up to $30 billion of trade with China, nearly half its annual $75 billion trade with Beijing.

"Our memorandum is a kind of umbrella agreement in the context of a closer relationship with China in the finance, economic, commercial and border areas," Guido Mantega said.

As the financial crisis continues to rage across the eurozone and the developed countries show little signs of growth, the World Bank says that global economic growth is increasingly dependent on the BRICS countries, which account for 27% of global purchasing power and 45% of the world's workforce.

Many Firsts

The conference is a benchmark of many firsts. It is the first time the conference has been held on South African soil.

For China, it is President Xi’s first visit to South Africa, where China is a leading trading partner and investor. In 2012, the trade between the two countries was 201bln ZAR ($21bln), according to the South African Revenue Service.

June 18, 2012. Delegation leaders from countries participating in the emerging economies association BRICS: Brazil's President Dilma Rusef, Russian President Vladimir Putin, Indian Prime Minister Manmohan Singh, Chinese President Hu Jintao and South African President Jacob Zuma (from left) at a photograph session during a meeting at the hotel "One and Only Palmilia" in Los Cabos, Mexico.(RIA Novosti / Aleksey Nikolskyi)

The conference is also President Vladimir Putin’s first international visit in 2013.

For South Africa, which makes up just 2.5% of total gross domestic product in BRICS, the summit is a way to showcase its role as an investment gateway to Africa. South Africa is the newest and smallest member of the BRIC bloc. It has the 28th highest ranked GDP in the world: China is 2nd, Brazil 6th, Russia 9th and India 10th.

Brazil, Russia, India, China and South Africa: BRICS go over the Wall

Pepe Escobar

Global Research,

27 March, 2013

Reports on the premature death of the BRICS (Brazil, Russia, India, China and South Africa) have been greatly exaggerated. Western corporate media is flooded with such nonsense, perpetrated in this particular case by the head of Morgan Stanley Investment Management.

Reality spells otherwise. The BRICS meet in Durban, South Africa, this Tuesday to, among other steps, create their own credit rating agency, sidelining the dictatorship – or at least “biased agendas”, in New Delhi’s diplomatic take – of the Moody’s/Standard & Poor’s variety. They will also further advance the idea of the BRICS Development Bank, with a seed capital of US$50 billion (only structural details need to be finalized), helping infrastructure and sustainable development projects.

Crucially, the US and the European Union won’t have stakes in this Bank of the South – a concrete alternative, pushed especially by India and Brazil, to the Western-dominated World Bank and the Bretton Woods system.

As former Indian finance minister Jaswant Singh has observed, such a development bank could, for instance, channel Beijing’s know-how to help finance India’s massive infrastructure needs.

The huge political and economic differences among BRICS members are self-evident. But as they evolve as a group, the point is not whether they should be protecting the global economy from the now non-stop crisis of advanced casino capitalism.

The point is that, beyond measures to facilitate mutual trade, their actions are indeed becoming increasingly political – as the BRICS not only deploy their economic clout but also take concrete steps leading towards a multipolar world. Brazil is particularly active in this regard.

Inevitably, the usual Atlanticist, Washington consensus fanatics – myopically – can see nothing else besides the BRICS “demanding more recognition from Western powers”.

Of course there are problems. Brazil, China and India’s growth slowed down. As China, for instance, became Brazil’s top trading partner – ahead of the US – whole sectors of Brazilian industry have suffered from the competition of cheap Chinese manufacturing.

But some long-term prospects are inevitable. BRICS will eventually become more forceful at the International Monetary Fund. Crucially, BRICS will be trading in their own currencies, including a globally convertible yuan, further away from the US dollar and the petrodollar.

That Chinese slowdown

It was Goldman Sachs’ Jim O’Neill who coined the term BRIC (no South Africa then) in 2001. It’s enlightening to check what he thinks about it now.

O’Neill points out that China, even growing by a “mere” 7.7% in 2012, “created the equivalent of another Greek economy every 11-and-a-half weeks”. China’s slowdown was “structural and cyclical” – a “planned downturn” to control overheating and inflation.

The BRICS push is part of an irresistible global trend. Most of it is decoded here, in a new United Nations Development Programme report. The bottom line; the North is being overtaken in the economic race by the global South at a dizzying speed.

According to the report, “for the first time in 150 years, the combined output of the developing world’s three leading economies – Brazil, China and India – is about equal to the combined GDP of the long-standing industrial powers of the North”.

The obvious conclusion is that, “the rise of the South is radically reshaping the world of the 21st century, with developing nations driving economic growth, lifting hundreds of millions of people from poverty, and propelling billions more into a new global middle class.”

And bang in the middle of this process, we find an Eurasian epic; the development of the Russia-China strategic relationship.

It’s always about Pipelineistan

Russian President Vladimir Putin is taking no prisoners; he wants to steer the BRICS towards “a full-scale strategic cooperation mechanism that will allow us to look for solutions to key issues of global politics together”.

This will imply a common BRICS foreign policy – and not only selective coordination on some themes. It will take time. It will be hard. Putin is very much aware of it.

What makes it even more fascinating is that Putin advanced his ideas during last week’s three-day visit to Moscow by new Chinese President Xi Jinping. He went out of his way to stress Russian-Chinese relations now are “the best in their centuries-long history”.

That’s not exactly what hegemonic Atlanticists want to hear – still eager to frame the relationship in Cold War terms.

Xi retributed in style; “We did not come to see you for nothing” – as is partially detailed here. And wait till China’s creative drive starts yielding dividends.

Inevitably, Pipelineistan is at the heart of the ultimate BRICS complementary relationship.

China’s need of Russia’s oil and gas is a matter of national security. Russia wants to sell more and more of it, diversifying away from the West; moreover, Russia would more than welcome Chinese investment in its Far East – the immense Trans-Baikal region.

And by the way, the “yellow peril” is not taking over Siberia – as the West would have it. There are only 300,000 Chinese living in Russia.

A direct consequence of the Putin-Xi summit is that from now on Beijing will pay in advance for Russian oil – in exchange for a share in a number of projects, for instance as in CNPC and Rosneft jointly exploring offshore blocks in the Barents Sea and other blocks onshore Russia.

Gazprom, for its part, clinched a long awaited gas deal with CNPC; 38 billion cubic meters a year delivered by the ESPO pipeline from Siberia starting in 2018. And by the end of 2013, a new Chinese contract with Gazprom will be finalized, involving gas supply for the next 30 years.

The geopolitical ramifications are immense; importing more gas from Russia helps Beijing to gradually escape its Malacca and Hormuz dilemma – not to mention industrialize the immense, highly populated and heavily dependent on agriculture interior provinces left behind in the economic boom.

That’s how Russian gas fits into the Chinese Communist Party’s master plan; configuring the internal provinces as a supply base for the increasingly wealthy, urban, based in the east coast, 400 million-strong Chinese middle class.

When Putin stressed that he does not see the BRICS as a “geopolitical competitor” to the West, it was the clincher; the official denial that confirms it’s true. Durban may be solidifying just the beginning of such a competition. It goes without saying that Western elites – even mired in stagnation and bankruptcy – won’t let any of their privileges go without a fierce fight.

Pepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2007) and Red Zone Blues: a snapshot of Baghdad during the surge. His new book, just out, is Obama does Globalistan (Nimble Books, 2009).

He may be reached at pepeasia@yahoo.com