Commentary / World

Geopolitics trumps economics

by Ramesh Thakur

The BRICS (Brazil, Russia, China, India and South Africa) have just concluded their sixth annual meeting in Brazil. The major deliverable was economic in form and content, but its major significance is primarily geopolitical.

Last October, President Dilma Rousseff was to be the first Brazilian leader to attend a White House state dinner in two decades. Instead, angered by revelations that her phone calls and email had been intercepted by the National Security Agency (NSA), she became the first leader to cancel a state dinner hosted by a U.S. president, lambasting U.S. surveillance as a violation of international law and a “totally unacceptable” infringement of Brazil’s sovereignty.

Russia’s President Vladimir Putin is routinely demonized these days by American political leaders and media commentators. India’s Prime Minister Narendra Modi was on the U.S. visa denial list for nine years (2005-14). It takes skill to position oneself offside simultaneously with three of the most important leaders from the emerging powers.

Russia is being subjected to sanctions for its annexation of Crimea — which was Russian for several centuries and was voluntarily “gifted” to the Ukraine by Soviet leader Nikita Khrushchev — despite the concrete threats to its Russian-speaking majority population and to Russia’s core national security interests, despite a referendum whose margins of results may be questioned but not the overall outcome, and despite not one fatality resulting from the operation.

In the Ukrainian crisis, provocations from Europe, the West and Kiev, and humanitarian atrocities by the latter, are generally ignored. And the countries censuring Russia and imposing sanctions on it are those responsible for the Iraq war in 2003 — whose legal and security justification was far more tenuous, whose theater was geographically distant and whose humanitarian and geopolitical consequences were far more horrific and destabilizing.

Last December in the U.S., a junior Indian diplomat was arrested and strip-searched over labor laws and wage disputes in a deliberate subordination of international conventions to domestic U.S. law, when U.S. diplomats posted abroad have been muscularly shielded from domestic laws even when they have killed host nationals. In the case of China its citizens have been charged with cyber-espionage after the public revelations of the industrial-scale surveillance activities of the NSA around the world and within the U.S. Espionage by the U.S. has even resulted in the expulsion of two Americans from Germany, as solid a U.S. ally as any in the world. Beijing is told to solve its maritime disputes in accordance with the U.N. Convention on the Law of the Sea — to which Washington is not party.

The hubris and arrogance of the U.S.-led West is so breathtaking as to be scarcely believable. It’s as though they have simply lost the capacity, and/or are indifferent, to see how others see them. They just don’t care.

That same insensitivity toward others’ voices, values and interests lies behind the creation, consolidation and evolution of BRICS. The grouping was a shorthand proxy to describe the shift in market power and geopolitical clout from the Group of Seven (Canada, France, Germany, Italy, Japan, United Kingdom and U.S.) toward the large and populous emerging market economies.

BRICS is important because it clubs together the big emerging markets whose economic growth will outstrip and anchor the rest of the world, and because of the diversity and spread of continents, political systems, values and economic models. They make up two-fifths of world population, one-fifth of world GDP, one-seventh of world trade and two-thirds of world growth.

By 2025 the Group of Eight — the world’s eight biggest economies — is likely to be, in order, the United States, China, India, Japan, Germany, U.K., France and Russia.

At the 2013 Durban summit, South Africa’s Finance Minister Pravin Gordhan remarked that the “roots of the World Bank and the IMF still lie” in the post-1945 equations. Before the first Russia summit in 2009, Brazil’s President Lula da Silva wrote of “broken paradigms and failing multilateral institutions.” The system that privileges Western powers and their biases is trapped in the old paradigm and out of sync with the new realities. The deficiencies eroded the legitimacy and credibility of the international financial institutions and fostered mistrust between the North and South.

At the 2012 Delhi summit, BRICS advanced from simply an expression of frustrated entitlement to sketching the outlines of an alternative configuration of global governance. They underlined the urgency of enhancing “the voice and representation of emerging market and developing countries” in the Bretton Woods institutions in order to “better reflect economic weights.” The criticisms of the voting formula, funding priorities and executive directorship of the International Monetary Fund and World Bank reflected both frustrations at how they are run and growing self-confidence in their own roles as responsible stakeholder-managers of the system of global economic governance.

The five thus warned they meant to use their demographic and economic clout to challenge and change the way the world is governed through formal multilateral machinery and informal groupings. Yet BRICS is also of uncertain unity, coherence and staying power because of a lack of unifying values, principles, goals and interests among its members. Critics dismissed the BRICS for lacking the necessary cement to bind them together.

A critical test of whether BRICS could make the transition from a critic of the West-led system of global economic governance to creating and managing an alternative system of, by and for developing countries was whether the idea of a BRICS development bank, floated for study at the Delhi summit, was successfully implemented.

At Fortaleza on July 15-16, four issues were up for discussion about the proposed bank: name, location, presidency and shareholding. All four were settled by consensus. It will be called the BRICS New Development Bank and headquartered in Shanghai. The inaugural president will come from India.

To avoid the problems of the IMF and World Bank, shareholding will be equal. The bank is to be capitalized initially at $50 billion (and subsequently at double that amount), with each country contributing $10 billion over the next seven to eight years. It will prioritize loans for developing countries to finance infrastructure projects, industrialization and productive, inclusive and environmentally sustainable development.

In addition there will be an emergency reserve pool, called the Contingency Reserve Arrangement, also with a $100 billion capital. China will provide $41 billion, Brazil, India and Russia $18 billion each, and South Africa the remaining $5 billion. Its purpose will be to help developing countries avoid short-term liquidity pressure, strengthen the global financial safety net, complement existing international arrangements, and foster more cooperation among the five BRICS members. Developing countries will be able to draw on the reserve if they face balance of payments crises or if their currency is under pressure.

Global governance just got a lot more interesting.

Ramesh Thakur is a professor at the Crawford School of Public Policy, Australian National University