As the 7th BRICS Summit comes to a close in Russia, Patrick Bond discusses the financial aspirations of imperialism in these countries. His book, BRICS: An Anti-Capitalist Critique is published next month.
‘The main point of the summit of leaders from Brazil, Russia, India, China and South Africa 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 finally launching the bloc’s two new financial institutions.
But can these new banks address the extraordinary challenges in world finance? For example, more than 60% of Greeks voting in last Sunday’s referendum opposed the neoliberal dictates of Brussels-Berlin-Washington, thus raising hopes across Southern Europe and amongst victims of ‘Odious Debt’ everywhere.
Meanwhile, bubbly Shanghai and Shenzhen stock markets were crashing by $3 trillion from peak levels in just 17 days, a world-historic meltdown, at a time Chinese housing prices were also down 20% over the prior year. Beijing’s emergency bail-out measures represent vast subsidies to financiers, just like those used in Washington, London, Brussels and Tokyo since 2007.
Change is urgently needed yet the BRICS’ finance bureaucrats – especially two leading appointees from South Africa – won’t deviate from orthodoxy. Ongoing financial turbulence should offer a gap for the $100 billion 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 next sign a neoliberal IMF agreement.
For South Africa this could prove painful in the period ahead, after Pretoria finds itself borrowing from the CRA to repay the country’s soaring foreign debt. 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.