Ten days ago, news about President of Argentina, Cristina Kirchner, asking the former President of Brazil Luis Lula da Silva, during his visit to Argentina, to help her country join the BRICS was relatively unnoticed in the Serbian media.
Originally apperared at IN4S, translated by Stevo Marjanović
The reason for her request is that primarily in some countries of South America there are attempts to return to the same neo-liberal policies which have already led them to complete collapse. Kirchner appealed to Latin American countries to get closer to each other and, together, to confront such threats, as the only way possible to overcome them, given the strength of the greatest enemy – the United States.
As Argentinean “La Nacion” wrote, Kirchner is convinced that, with time, other countries will join BRICS. She said: “I would like to add the letter “A” to this group of countries. So the group can be called BRICSA.”
This is not the first time the question of enlargement of the BRICS or membership of Argentina has been raised.
BRICS strength
As a reminder, BRICS is an acronym, the English one that refers to an economic alliance of five countries: Brazil, Russia, India, China and South Africa. It is also the economic concept which, since 2001, refers to what is most important: the increasing development of economic potential of these countries independent from the IMF.
Noting first the political and economic recovery of Russia, which began in the last decade, then China’s economic boom, and then the extraordinary potential of the economies of India, Brazil and South Africa, an analyst for global corporations financial research “Goldman Sachs” Jim O’Neill introduced the acronym to the world of global finance, media and the public.
The first meeting of officials from these countries was held in summer of 2008 in Russia, in Yekaterinburg. Then it was called a summit of BRIC member states.
By 2011, the group was composed of Brazil, Russia, India and China, and since April 13 of that year, South Africa.
BRICS power is best seen in the fact that Brazil, Russia, India, China and South Africa together provide 29% of world gross product (over 16 billion dollars). On the other hand, in the IMF, only 11 percent of the votes belong to BRICS countries.
During the last 10 years, BRICS countries increased their GDP by over 400 percent while the economies of developed countries during that period were increased only by 60 percent.
BRICS is the largest market in the world because it consists of 2.9 billion people (40% of the population of the planet).
The volume of trade within the BRICS doubled over the past 5 years and exceeds 300 billion dollars.
At the BRICS summit held in Brazil in 2014 a number of important decisions were passed, including the decision on the establishment of the New Development Bank (operationalization of the agreement from 2013 on the creation of new financial institutions) and a common Monetary Fund for the stability of the currency (stabilization fund CAR) which countries could use to balance issues, which will also be the counterpart of the IMF and the World Bank.
These two institutions are created exactly 70 years after the creation of the World Bank and IMF in Bretton Woods, where the postwar world financial system we have today was created, and which, obviously does not meet the needs of most countries in the world.
As previously announced at the Summit by Russian President Vladimir Putin, these projects will ensure the independence of the BRICS countries from the financial policy of the Western countries. The initial capital of the development bank is 100 billion dollars, with which it will become one of the largest multilateral development institutions in the world.
Under the agreement, the New Development Bank will initially have 50 billion dollars in core capital, where each member will pay 10 billion, thus maintaining equality in this institution. In addition to direct payment, Member States shall lay down 40 billion dollars in guarantees. The Bank will remain open for other members, but the share of BRICS will not be able to get below 55 percent.
Probably more important than the establishment of the development bank is the establishment of a fund (for protection from the dollar) worth 100 billion dollars, out of which the members receive assistance in the event of balance of payment difficulties and external insolvency.
Why is this important? In 2013, it was the developing countries that felt most acutely the danger of a global financial system based on the US dollar as a reserve currency managed by the US Federal Reserve.
Namely, struggling with its own economic crisis, reducing printing of dollars, the United States then, in fact, withdrew billions from developing countries back to America, causing the depreciation of local currencies, the growth of interest and financial turmoil in many countries.
Because of this absolutely one-sided, selfish behavior of American monetary authorities, leaders of BRICS have opted for a fund that would bridge such instability triggered by withdrawal of foreign capital.
So it was agreed that China would pay into the fund 41 billion dollars, Russia, India and Brazil 18 billion and South Africa 5 billion dollars.
Also, it should be noted that BRICS established these two financial institutions because developing countries have for years requested reforms from IMF and World Bank in order to gain more voting rights.
Neither are there reforms, nor are there rights. Thus China, for example, which is now the second largest economy in the world, has fewer votes in the IMF than the US (which has veto power), Japan, France and Great Britain. In the Development Bank of BRICS nobody has the right of veto. Just for comparison.
The BRICS countries closely monitor the global geopolitical scene and react very rationally in a timely fashion. Thus, at the mention of the possibility that Greece could exit the euro zone, which gave grounds for speculation that it could “bow” to some other associations, such as the BRICS, whose members have a significant amount of free financial resources, news arrived that Greece was offered to join the BRICS countries.
As officials in Greece were, in May this year, in a meeting with partners in the euro zone in Brussels, trying to reach a deal with creditors that would allow the release of the remaining tranche of 7.2 billion euros to Athens, Greece was invited to become a member of the new Development Bank of BRICS.
Why does Argentina want to join BRICS?
First of all because it sees in BRICS perhaps the only chance for liberation from the constraints of the international (western) financial market, whose requirements are dictated by the World Bank and the International Monetary Fund, as it will, in all probability, be able to count on help in the form of loans from the BRICS Development Bank.
In this direction the BRICS leaders held a meeting with leaders of Latin American countries, Argentina, Chile, Colombia, Ecuador and Venezuela after the last agreement. For assistance they could count on exactly Argentina, stuck in a sovereign debt crisis for the last decade, and currently leading the battle against “vulture funds” that have not agreed to a rescheduling of debt and are now demanding payment of bonds worth 1.3 billion dollars in full, following the decision of the Supreme Court of the United States that they are entitled to it. Precisely because of that, the President of Argentina for the first time expressed the desire of her country to be the sixth member of the group during last year’s BRICS summit.
Welcoming the “aspiration of the leadership of Argentina to get closer to our association” Russian President Vladimir Putin explained why “so far there are no plans to expand BRICS”, but stressed that “this issue can become relevant in the coming period.”
The reasons for non-proliferation of BRICS Putin explained like this: “You should first organize the mechanisms of cooperation within associations that already exist. Otherwise, an increasing number of countries see the prospective of development of BRICS. So its phased expansion will probably continue to become a issue. ”
Putin then pointed out that there is already a possible strategic partnership of BRICS with Argentina on the occasion of international political and financial-economic issues. Otherwise, Argentina is one of the leading trading partners with Russia in Latin America. For the past ten years the volume of bilateral trade between the two countries has increased three and a half times.
BRICS – hope for developing countries, whether for Serbia?
The funds from the Development Bank of BRICS will be used for low-cost loans for construction, mostly infrastructure, but also for agriculture and industry. Many developing countries are hoping that advances of the loan will not be limited only to members but that others will be able to borrow part of the capital.
While these loans may not be any cheaper than loans from the World Bank or the IMF, we all hope there will not be the unscrupulous conditioning, so characteristic of these predatory institutions, which often affect not only the economic but also the political sovereignty of countries, which literally make fools of themselves by taking such loans.
Until the advent of the BRICS Development Bank, we had on the one hand the World Bank, which granted very cheap loans, but with rigorous conditions and procedures which many developing countries cannot meet. On the other hand, there’s the IMF whose assistance, as we can unfortunately see in Serbia, is conditional on governmental policies – mostly cuts in public spending, which first hurt wages, pensions and socials, which often threatens the survival of not only the most democratically elected governments in countries that have adopted the “help” of the IMF, but also the countries themselves.
The hopes of small developing countries such as Argentina, and even Serbia, which is no longer a developing country but a country in overall regression, rest on the fact that there will at least be countries at a similar level of development which will understand them better than the developed countries that govern the IMF and the World Bank.
This is because all five BRICS countries had creepy shared experience with the neoliberal economic concept – first in the implementation of neoliberal policies, then the economic collapse of the state, and then the rejection of that same policy.
Serbia is so obviously becoming a collapsed state, it is necessary and useful only to leave those neoliberal policies. This means increased cooperation with BRICS countries, as is recognized by Argentina.
That explains the headline caricature. Sadly, Serbia hasn’t asked to become the sixth member of the BRICS, but – Argentina has, and for the second time.