The BRICS spall, fall and (try to) reconstitute

Reposted from CADTM, July 11, 2022.

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ABSTRACT: World financial relations were shaken up in early 2022 with Russia’s invasion of Ukraine, and one window through which light was shed on evolving geopolitics was the shifting power relations within the Brazil-Russia-India-China-South Africa bloc. During the 2010s, the group was intended to generate Global-South solidarity against injustices carried out especially in the financial circuits of the world economy. The bloc soon launched two institutions: a New Development Bank and Contingent Reserve Arrangement. The former suspended Moscow’s borrowing rights (after 15 prior loans) in early 2022, consistent with Western financial trends. Ultimately this was not surprising, for instead of offering an alternative to the Bretton Woods twins, the bloc had, all along, served to amplify multilateral power relations that keep poorer countries oppressed, while littering societies and ecologies with destructive projects and debts, as consideration of the South African case reveals.

Early March 2022 provided a surprising reflection of the extent to which dominant Western norms of international finance could retain hegemony, even as the world’s North-South polarisation suddenly worsened. The Shanghai-based New Development Bank (NDB) was set up by five countries – Brazil, Russia, India, China and South Africa (BRICS) – at a 2014 Brazilian conference of presidents. The NDB was aimed to provide an alternative (or better put, an accompaniment) institution to the World Bank, which since Russia’s 2014 Crimea occupation had boycotted any further financing to Russia due to a Western veto. Russia had gone to the NDB for $4.86 billion in loans, including one very shady $300 million credit – ZapSibNefteKhim polyolefin complex – that aided the son-in-law of the country’s apparent leader for life since 2000, Vladimir Putin (Bloom 2018).

Yet a week after Putin’s invasion of Ukraine, a surprising announcement was made by the NDB: in effect, Moscow (with its original 20 percent voting share) was now a pariah country, unsuitable for new borrowing. This decision was taken simultaneously with the board of the Asian Infrastructure Investment Bank (run by China), in which Russia was also a founding member. Perhaps it was the sense of Moscow’s impending default on its foreign debt of at least $150 billion (as had happened in 1998 under Boris Yeltsin’s degenerate leadership and also back in 1917 after the Bolshevik revolution) – at a time major emerging economies (especially Argentina, Pakistan and Sri Lanka) struggled to repay foreign debt. Maybe there was a desire in Shanghai not to annoy the New York credit rating agencies, which had until then given the NDB a highly-favourable AA+ investment-grade, but had just downgraded Russia to the lowest-possible level. Perhaps there was even some form of geopolitical conditionality in play. Regardless of the motivations, NDB officials retracted the principle of intra-BRICS solidarity and instead "put new transactions in Russia on hold. NDB will continue to conduct business in full conformity with the highest compliance standards as an international institution" (NDB 2022a).

For the main Multilateral Development Banks (MDBs), how did such "compliance standards" emerge? Indeed, for the rest of the South – including recent low-income NDB member countries Bangladesh, Egypt and Uruguay (plus high-income United Arab Emirates) which joined the institution in 2021 – what are the implications for what might be termed a "sub-imperialist" financial-system assimilation strategy, at a time imperialist financial powers can still impose rules that, in the case of Russia in March 2022, included the stranding of vast financial assets of around $260 billion, which along with banking transfer system boycotts created rumours of default)?

Putin’s invasion was not only a war crime against the Ukrainian people, but also utterly self-destructive. He quickly attracted Western asset freezes including approximately $300 billion in immediate Russian foreign reserves that Putin’s central bank had carelessly left in international banks, and within a month, an additional $100 billion worth of pro-Putin oligarchs’ property. Nearly all Russian banks were removed from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment system. There were massive trade disruptions – including reroutings of oil and mineral exports through China – along with disinvestment by large swathes of Western multinational corporations (including South Africa’s own largest firm, Prosus, which had in 2018 moved its financial headquarters to Amsterdam and which wrote off 4 percent of its assets in the Russian tech industry).

At the time of writing (May 2022), Russia was expected to lose around 8 percent of its 2022 GDP. And price inflation was also amplified there and nearly everywhere else, especially for energy and agricultural products in part thanks to Western sanctions on Russia and to Putin’s countervailing pressure in the form of a blockade on grain exports from Ukraine. Yet in subsequent months, the crisis was never mentioned in official NDB publications, and in mid-May 2022, the second five-year plan (2022-26) was approved without public comment on Russia, highlighting merely NDB aspirations to raise overall loan approvals at roughly the same rate as the earlier period (roughly $5 billion annually), for

clean energy and energy efficiency, transport infrastructure, water and sanitation, environmental protection, social infrastructure, digital infrastructure. Projects that are climate-smart, disaster-resilient, technology-integrated and inclusive will be prioritised by NDB for financing. Over the 2022–2026 strategy cycle, the Bank intends to deploy USD 30 billion from its balance sheet through loans, equity investments, and other tailored instruments. This will bring NDB’s cumulative project approvals to around USD 60 billion by the end of the second strategy cycle (NDB 2022b).

NDB President Marcos Troyjo – formerly Brazil’s deputy economic minister and prior to that an unremarkable Columbia University sociologist running its BRICLab – had been chosen on the standard rotational leadership basis by Jair Bolsonaro’s government in 2021. There was no observable change in the institution’s overall approach, aside from the suspension of Russian activities (at a time, discussed below, the Brasilia government chose to side with the West in condemning the invasion in a United Nations General Assembly vote). Unlike his national leader, who operated initially in a Sinophobic manner similar to Donald Trump, Troyjo (2017) typically called for "business-friendly ecosystems, well-established and transparent market rules and steadfast connections to transnational economic networks."

Before exploring such schizophrenic kinds of NDB conditionality – against founding member Russia one day, but favouring all manner of rogues on other days – using South Africa as a detailed case site, it is important to ask a prior question: namely, should the two main MDBs’ original mandates and divisions of labour – established in 1944 and amplified over subsequent decades – not have been followed by both the NDB and the BRICS’ still-born attempt at an IMF-style Contingent Reserve Arrangement?

Keynes’ worry: "You two brats shall grow up politicians"

The potential for enlightened economic elites to rebuild a viable global financial system out of the wreckage of global depression and war was first identified in 1944, at the point the Bretton Woods Institutions were conceived in New Hampshire’s Mount Washington Hotel (Toussaint 2006). The moment brought optimism to a leading negotiator – John Maynard Keynes – who had visions of trade, credit and currencies being linked through a coherent overall approach stressing national sovereignty, one that would stabilise a world economy whose prior bouts of financial speculation and depression contributed to two world wars. His biographer Robert Skidelsky (2003, 837) could justly claim,

The Bretton Woods Agreement was partly his invention, Britain’s acceptance of it largely the result of his untiring advocacy. The International Monetary Fund (IMF) and World Bank – the ‘twins’ he christened at Savannah a month before he died – are still with us, though other elements of that Agreement, notably fixed exchange rates and capital controls, are gone.

The twins’ birth and christening occurred in March 1946 at follow-up conference in Georgia’s main port city, Savannah. In his keynote speech there, Keynes had compared them to Princess Aurora in the ballet Sleeping Beauty (which he had just seen performed in London). As Skidelsky interpreted, the "gifts" Aurora would receive from "godmothers [the assembled delegates] were to be Universalism, Courage and Wisdom. Having playfully embroidered this theme, Keynes expressed the hope that there was," in Keynes’ (1946, 216-17) own words,

no malicious fairy, no Carabosse, whom he [the U.S. conference organiser] has overlooked and forgotten to ask to the party. For if so, the curses which that bad fairy will pronounce will, I feel sure, run as follows: "You two brats shall grow up politicians; your every thought and act should have an arrière-pensée; everything you determine shall not be for its own sake or on its own merits but because of something else." If this should happen, then the best that could befall – and that is how it might turn out – would be for the children to fall into an eternal slumber, never to waken or be heard of again in the courts and markets of Mankind. Keynes, John Maynard (1946), Collected Works, v.26.

Skidelsky (2003, 830) reminds that leading U.S. negotiator Frederick Vinson believed the sharp edge of the metaphor was aimed at him: "I don’t mind being called malicious, but I do mind being called a fairy." It was, indeed, the malicious character of Washington’s team that led not only to Keynes’ own death shortly thereafter, apparently because of his immense frustration over losing several crucial negotiating points at Savannah. Keynes was so upset – "I went to Savannah to meet the world and all I met was a tyrant" – that he suffered a massive heart attack on the train to Washington, and then again a few weeks later, this time fatal, at his home in England (Skidelsky 2003, 832).

Just 35 years after Savannah, came the death of his global system, one in which state sovereignty and especially exchange controls had prevailed, with a stable global currency avoiding the pitfalls of the gold standard. Keynes had vainly hoped to include in that system a way to punish exuberant exporters through a trade-surplus tax, via a global currency back-up arrangement. Vinson’s team soundly rejected these ideas, and Keynes lost the support of a key Commonwealth member, South Africa (Parsons 1983). After all, since gold and the dollar were to be pegged at $35/ounce, the creditors of the world economy were those who had concentrated most of the existing known gold in two underground sites: the U.S. depository of Fort Knox and Johannesburg’s mines.

And then, as if to personify Keynes’ warning that the system might indeed produce brats lacking in wisdom, U.S. President Richard Nixon’s Treasury Secretary John Connally (a crude Texan) maliciously explained to other leading finance ministers in 1971 why the dollar’s peg would be abandoned: "The dollar is our currency, but it’s your problem." It was, for the Bretton Woods System’s currency-peg termination represented an unprecedented $80 billion default by the United States (i.e., its obligation to pay an ounce of gold for every $35 that other countries wanted to cash in). And Connally left no uncertainty as to why the peg was destroyed: "My view is that the foreigners are out to screw us, and therefore, it’s our job to screw them first" (Rowan 1993).

As institutions, the Bank and IMF did not suffer the same fate – eternal slumber – as the broader contextual deal, because they soon served U.S. financiers’ interests as bailout mechanisms. From 1944-71, they were not especially important institutions in the global macroeconomy, and while their notion of ‘reconstruction and development’ left much to be desired (Bond 2003, Escobar 2011), the Bretton Woods Institutions were re-empowered during the 1980s. By then unencumbered by fixed exchange rates and soon compelling member countries to throw off exchange controls, the twin brats dogmatically imposed a new ideology: what became known as the neoliberal "Washington Consensus." Shortly after it was formally piloted in Pinochet’s Chile, the IMF imposed its central tenets on even Britain, in the course of a 1976 emergency loan.

The Bretton Woods twins were not only the "two brats" Keynes warned of, but their new role as "politicians" included conditionality regimes applied not for their own sake "but because of something else": hypocritical support for Western-imperialist financing interests. This was especially evident when it came to poor countries repaying debt to foreign banks in the early 1980s, after U.S. Federal Reserve Chair Paul Volcker raised interest rates to unpayable levels so as to support the revival of the dollar. Onerous loan conditionalities followed in nearly all cases, especially in the weakest countries, in Africa, according to John Weeks (2010):

The dominant force influencing the economic policies of sub-Saharan countries in the 1990s and 2000s was the IMF, with the World Bank playing a secondary and complementary role. Over twenty years, 1990-2009, the governments of 46 Sub-Saharan African countries sought to manage their economies under IMF programmes during almost half the country years (417 of 920).

The Washington Consensus boils down to the so-called "ten commandments" promoted by John Williamson (2004): fiscal discipline, public expenditure reorientation, more reliance upon value added taxes and lower marginal income tax rates, higher interest rates, a lower currency valuation, liberalised trade and foreign investment, privatisation, deregulation and stronger property rights. An attempt to introduce a post-Washington Consensus by then World Bank Chief Economist Joseph Stiglitz (1998) failed to stick and he was fired shortly thereafter. Although neoliberal ideology was discredited by the 2007-09 world financial meltdown and then went into (another temporary) retreat in some Global North settings due to Covid-19, which required dramatic fiscal and monetary loosening, it prevails elsewhere. In most poorer and even middle-income countries, austerity was imposed from 2021 onwards, with well-worn Washington Consensus ideological conditions attached to World Bank and IMF pandemic lending (Bretton Woods Observer 2021).

One source of countervailing pressure to the ten commandments is the classic "IMF Riot," a mode of disorganised, chaotic, reactive protest which began in Latin America and Africa during the 1980s but which did at least contribute to ousting dictatorships and insensitive governments from power for several decades, including the 2010s in Africa (Bond 2020). The IMF appeared not to care, because when "dictators left debt to democrats," in most regions of the world the power relations were so adverse that the democrats were then compelled to impose neoliberalism on their own natural constituencies.

Only with the highly-delimited Multilateral Debt Relief Initiative of 2005 (also based on Washington Consensus prerequisites) was there even partial Global North write-down of unpayable liabilities (Bond 2006). Long-standing complaints from organisations like the Jubilee South and pro-democracy movements about ‘odious debt’ taken out by prior dictators and still owed to MDBs and the IMF were ignored.

MDB neoliberalism moves South

Anger at the resulting injustices – and at the loss of state sovereignty represented by the Washington Consensus and associated conditionalities – brewed among Global South borrowers from the 1980s. Finally in 2013 at a Durban heads-of-state conference, the BRICS grouping proposed what were supposedly alternative institutions: the NDB and an IMF-like Contingent Reserve Arrangement (CRA). They would have an identical division of labour, with the NDB lending for projects and the CRA financing balance-of-payments support. In mid-2014, these were brought to fruition in Fortaleza, Brazil. Meanwhile, a larger China-backed Asian Infrastructure Investment Bank was founded in 2015 with membership by the other BRICS aside from India, which was increasingly drawn into border disputes with China (Bond and Garcia 2015).

Because the new institutions’ backers were initially considered potential threats to the global economic hegemon, the United States, questions typically emerge about whether the BRICS’ version of the World Bank and IMF are genuinely different. Given that reform strategies aimed at the Bank and IMF – including campaigns against anti-social and ecologically-destructive loan conditionality – have been tested from the 1980s, and given that only a few mild-mannered reforms were assimilated within the institutions, there were hopes the new South-based multilateral lenders would be radically different. In reality, they instead facilitated, relegitimised and recapitalised global financial maldevelopment.

This was ironic, because not only did a prior (1950s-70s) Latin American generation of progressive bureaucrats promote a genuinely different approach – one critical of North-South economic power relations – but the BRICS could have simply followed Keynes’ visions for the IMF and International Bank for Reconstruction and Development (the main component of the World Bank Group). These had emerged during a time when previously-dominant global private banks were in retreat. Following the 1929-33 world financial crash that had resulted from their exploitative, crisis-prone character, new regulations on the powerful U.S. banks emerged, such as the Glass-Steagall Act, which split stock market investments from lending to avoid conflicts of interest, and a ban on banking across state (provincial) lines, so as to ground the institutions in geographically tight zones of business. The subsequent era of ‘financial repression’ meant far fewer 1929-type speculative bubbles and banking collapses (as witnessed in 1929-33) were experienced, until deregulation began in the 1980s and financial volatility reemerged with intensifying speed and depth.

After 1944, World Bank and IMF financing strategies reflected a fierce post-War ideological battle between ‘modernisationists’ based at the U.S. State Department (led by W.W. Rostow) and ‘dependistas’ at the UN Economic Commission on Latin America (led by Raul Prebisch). Reflecting the need to accommodate new middle-income borrowers such as Colombia (from 1948) and apartheid South Africa (from 1951), leading World Bank officials identified opportunities for financing local state-owned enterprises’ mega-projects. The portfolio even evolved into making credits available to meet basic needs (albeit not in South Africa), from the 1970s. In such cases, however, currency mismatch was an obvious downside insofar as (increasingly expensive) hard currency loans made little sense for projects that needed mainly local labour and materials, with few imports. Then, as the Volcker Shock hit poor countries from the 1980s and catalysed the Third World Debt Crisis, the Bank’s general budgetary support entailed macro-economic conditionality alongside the IMF’s (Bond 2003).

Institutionally, the IMF was given balance-of-payments emergency loan functions, and regularly raised capitalization grant funding from its member states. As the Bretton Woods System was breaking down, the IMF also began issuing Special Drawing Rights, i.e., what central bankers were later to term Quantitative Easing. In contrast, while the World Bank is also capitalised by members, it raises funds mostly from the financial markets, and then lends onward using a sliding scale: poor countries repay at a low rate, and wealthier borrowers pay close to market rate.

However, the former countries’ currencies typically fall much faster against the IMF basket of hard currencies, so the real (after-inflation) effective interest rate is often far higher for poor countries, which in turn makes repayment harder. The point of a hard-currency loan is to have access to imported goods and services, or to repay foreign investors’ profit and dividend outflows, yet far too many currency mismatches occur, ignoring Keynes’ early concern to link currency inflows and outflows with respect to the resulting assets and liabilities.

To the NDB’s credit, this warning was offered by a South African vice president, Leslie Maasdorp (2020), about inappropriate currency alignment, although if taken seriously, his Bank and all MDBs would be faced with much lower levels of lending opportunities:

Given the Covid-19 crisis in the world we’re in today, it reinforces the need to ensure that there’s debt sustainability when a country – or a state-owned enterprise – has debt in a hard currency like US dollars or Euros. As their currency depreciates their cost increases. In other words, their overall indebtedness increases as they have to pay back more in their local currency and also as you know, [in] many infrastructure loans… the revenues are generated typically in local currency so you always have this foreign exchange mismatch which borrower countries have grappled with over the years.

Not only Maasdorp but also the founding NDB President, KV Kamath, regularly cited the desire to lend in local currencies, e.g. when he argued on Russia Today (2017), "The effective costs of borrowing in hard currencies, for any of us developing countries, appears low. It appears to be 2 to 2.5 percent. But when you add the exchange loss, the weakening of the currency over time, you end up paying 12, 13, 14 percent. So that’s your true cost."

But to illustrate how such good advice is easily forgotten, consider the South African case. Beginning in 2016, the first 11 loans to the national government in Pretoria or its parastatal agencies, worth $5.33 billion, were denominated as six loans in local currency worth $1.55 billion (29 percent), and five in U.S. dollars’ worth $3.78 billion (71 percent). The vast majority of financing in the latter category (e.g. $2 billion in 2020-21 Covid-19 support that included a minimalistic $23/month social grant for eight million unemployed people) could have been denominated in local currency, because the expenditures envisaged entailed no import costs, and hence a lower currency-depreciation vulnerability. This was a serious concern because South Africa’s foreign debt as a share of output had soared from a low of 15 percent in 2005, to more than 50 percent fifteen years later.

In spite of a few NDB loans made in local currencies (29 percent in South Africa’s case), the vast bulk of its lending follows the World Bank model: issuing debts in hard currencies, in order to repay its own creditors – in the international bond markets – also in hard currencies. This means both World Bank and NDB actions are profoundly shaped by credit rating agencies S&P, Moody’s and Fitch (Bond and Brown 2020). Given the ratings agencies’ extreme ideology of fiscal discipline and their exceptionally dubious professional track records – e.g., in their investment-grade ratings of the huge U.S. financial institutions Lehman Brothers and AIG just before both collapsed in mid-2008 – this approach to fundraising can be profoundly counterproductive.

So as to protect its AAA credit rating, in the midst of the Covid-19 crisis in 2020, the World Bank refused its crisis-hit borrowers debt cancellation, preferring instead mere deferment of payments. The Bank’s middle-income borrowers, meanwhile, suffered an average ‘Ba2’ credit rating, but rarely fell behind on payments prior to Covid-19. So Moody’s Investors Service (2020) was impressed with "only 0.2 percent of total outstanding development assets qualifying as non-performing over the past three fiscal years." The Bank’s callable capital was then a comfortable 1.14 times the amount of the Bank’s total outstanding debt and it had just issued $54 billion in medium- and long-term securities in 2019, borrowing at the world’s cheapest rates (Bond and Brown 2020).

The NDB’s identical approach to financing left Maasdorp (2020) acknowledging the rating agencies’ influence, in spite of the institution’s capital base having been donated by states:

I think we recognised in 2015 when we started here, as we studied the business model of the multilateral banks in general, we recognised how central and critical a very high credit rating is to the effective functioning of the institution. So we really sought to create a triple-A institution from scratch. And how do you do that? You mirror and create a balance sheet that looks like a triple-A institution.

Mirroring MDB conditionality, with distortions

The most obvious case of aspirant mirroring was in the CRA’s design. The Fortaleza agreement reflected an ensconced mentality associated with IMF-think, since central bankers controlled the process. Hence, if a member country desired an emergency loan from the CRA’s notional $100 billion fund, they would get only get 30 percent of their quota and then would require an IMF austerity programme, and only then would the CRA’s next 70 percent be available, thus leveraging up the main institution responsible for imposing the Washington Consensus. The CRA was in fact never brought out of the closet, even when South Africa’s rulers believed they had to go to the IMF in mid-2020 for a $4.3 billion Covid-19 support loan replete with homegrown austerity promises.

Likewise, the BRICS NDB has followed crucial aspects of the World Bank model, e.g. with its limited paid-in capital, so it will become increasingly reliant upon capital markets to raise funds. Like the Bank, the directors’ and staff professional training are largely in neoliberal economics, banking and financial management. To illustrate, two initial lead South African appointments to the NDB were Vice President Maasdorp, who had once been the lead privatiser of South African state assets, following which he became an employee of two major Western banks’ Johannesburg branches; and Tito Mboweni as its first non-executive Director, at a time he was international advisor to Goldman Sachs. Mboweni was previously celebrated as Euromoney Central Banker of the Year in 2001 and 2008; in both years, the local currency collapsed by 30 percent in spite of extremely high local interest rates. There are undoubtedly staff at both the World Bank and NDB concerned about poverty and sustainability, and who are opposed to mindless privatisation, systemic corruption and illicit financial flows – but there appear to be many more ideologically committed to neoliberalism (Bond 2020).

Both the World Bank and NDB have not only environmental but also social safeguards or frameworks, at least on paper. The NDB postures that its Compliance Officer takes such safeguards into consideration, and that it has ‘zero tolerance’ for corruption, but there is enormous South African evidence to the contrary, in the Bank’s first 11 loans where in each case there were problems with the loan, the borrower or both (Bond 2021a). As argued by various NGO watchdogs – e.g. the Bank Information Centre, the Bretton Woods Project, Oxfam, Inclusive Development International, BRICS Feminist Watch and the brics-from-below network – many project-affected communities do periodically engage both the World Bank and NDB for reforms, but with unsatisfactory results. Occasionally they win limited reparations for harm and meagre project changes, but never have shifted the lenders towards the required rethink of megaprojects, climate-destructive activities and both institutions’ mal-developmental philosophy.

For the NDB, mirroring the World Bank’s balance sheet is also evident in terms of concrete socio-economic, cultural, political and ecological factors. One feature that ensures many loans are corrupted, is that procurement processes favour firms from the main shareholders’ countries, often with close connections to local ruling parties. A South African case is illustrative. On the one hand, the NDB failed to follow the Bank in establishing an "Integrity Vice Presidency" (which after 2007 became increasingly powerful) so as to blacklist firms guilty of corruption from tendering. On the other hand, cynics will argue that the World Bank’s approach to corruption is as profoundly flawed as that experienced within the BRICS.

This was reflected in the World Bank’s 2010 loan (its largest-ever) for $3.75 billion to the South African electricity supplier Eskom for the ‘Medupi’ 4800 MegaWatt coal-fired power plant, close to the Botswana border. By 2009 the Bank well knew – as a result of civil society campaigning and media coverage – that Eskom was already bedevilled by a bribery-type relationship between Medupi’s main beneficiary construction firm, Tokyo-based Hitachi, and the country’s ruling party, the African National Congress (ANC). The U.S. government’s successful Foreign Corrupt Practices Act prosecution of Hitachi for bribing the ANC in 2015 led to a $19 million fine, which was paid to Washington (not South African victims).

But tellingly, it did not result in any action by the holder of the World Bank’s "Integrity Vice Presidency," who at the time was controversial South African former prosecutor Leonard McCarthy, a man who departed his homeland in 2008 after being accused of such extreme political meddling that it tainted the state’s 783-charge corruption case against Jacob Zuma. McCarthy deigned to take any action on the extensive corruption associated with the massive Medupi loan, even though it was requested by South Africa’s main opposition party (Bond 2021a). Civil society groups had warned Bank president Robert Zoellick not to lend for this project in part due to corruption, but also due to pending climate catastrophe and local pollution. But he was politically inclined to do so, and taxpayers and Eskom customers subsequently repaid the tainted loan, instead of the World Bank taking lender liability.

Nor did the World Bank’s Inspection Panel agree to intervene after communities and environmentalists offered well-documented critiques of Medupi’s local ecological and social damages, its massive cost-overruns and its ultimately failed design given that for much of its subsequent operations, it provides far below the anticipated output of 4800 MW (Bond 2014). The BRICS NDB nevertheless followed all these problems with its own loan to Eskom, to assist Medupi with potential SO2 scrubbers in 2019, even though in turn that minor environmental reform would accompany a major increase in South Africa’s CO2 emissions of an estimate 35 million tons annually (an additional 7 percent of the national total).

Ironically, Maasdorp (2020) subsequently committed to a revamped energy portfolio: "You’re going to see a much stronger and deeper focus on climate finance and on sustainability going forward and in our capital markets activity. We certainly intend to be much more active under our sustainable finance policy framework in terms of the issuance of green social sustainable and even blue [ocean-related] bonds into the future." Initial consultants to the BRICS on the NDB, former World Bank Chief Economists Nicholas Stern and Stiglitz (2011), suggested the same agenda. Stern (2013), however, admitted that for him, a personal objective in promoting the BRICS NDB is that "If you have a development bank that is part of a [major business] deal then it makes it more difficult for governments to be unreliable."

Why the NDB operates in the shadow of the old MDBs: ‘sub-imperialism’

There is, here, a fundamental challenge in contextualising this critique of the NDB’s lending record. It is important not to have high expectations of the BRICS and its institutions, because although the terminal decline of a Western neo-liberal corporate order – with its neo-conservative geopolitical agenda – has long been evident, the BRICS are not a progressive replacement. The 2010s rise of both the BRICS and the subsequent rise of Far Right political forces – the British vote for Brexit (2016), the Trump era (2017-20), and earlier, the rise of far-right leadership in several middle-tier countries (notably India, the Philippines and Hungary and later Brazil) – suggested that in contrast to the long period of leadership by the US and its allies (1980s-2010s), power within and between states had begun to shift.

However, the idea that the BRICS would disrupt structural injustices imposed from the Global North was soon disabused, for instead of serving as an alternative to imperialism, in many respects the bloc became an amplifier (Bond and Garcia 2015), as was especially evident in their relations with poor countries in Africa (Van der Merwe, Bond and Dodd 2019). While the group’s three primary-product export economies – Russia, Brazil and South Africa – suffered from the peak and decline of the commodity super-cycle in 2015, and while Russia was subject to sanctions for annexing Crimea in 2014, neither they, China nor India challenged global power, until Russia’s 2022 invasion of Ukraine. At that stage, Brazil’s right-wing leader Bolsonaro feigned what he termed ‘solidarity’ with Putin, but soon reversed course and voted against Russia in a United Nations General Assembly poll of members calling for troop withdrawal from Ukraine. The governments of Xi Jinping, Narendra Modi and Cyril Ramaphosa abstained, while Xi appeared to approve of new sanctions-eliding trade routes and gas pipelines for Russian gas exports to China, with nothing said about methane’s role in the climate catastrophe.

Prior to this chaotic event, the BRICS could readily be understood as relatively fractious sub-imperialist powers, operating within the logic of global corporate capital and carving out their own regional power relations to suit their home-based capital (Garcia, Borges and Bond 2021a). As Ruy Mauro Marini (1965) first posited with respect to Brazil, such a function would include facilitating imperialism’s expansion through newly-relegitimised and better-financed multilateralism (e.g. the G20 after 2008), in which new ‘deputy sheriff’ countries (like the BRICS) could be assimilated. Most crudely, in 2003, U.S. President George W. Bush deputised South African President Thabo Mbeki as his so-called ‘point man’ in Africa, as not only did Mbeki’s ‘New Partnership for Africa’s Development’ gain praise for being ‘philosophically spot on’ by the U.S. State Department. In addition, Mbeki’s government sold arms to Bush and Tony Blair for use in the Iraq War (Bond 2006).

As David Harvey (2003, 185-6) pointed out, sub-imperial states and capital seek ‘spatio-temporal fixes’ (escape routes) for their "own surplus capital by defining territorial spheres of influence," but squarely within the imperialist order. Occasionally that meant the BRICS would attempt to break certain parts of the West’s grip on power, such as laudable efforts by Ramaphosa and Modi in 2020-22 within the World Trade Organisation to gain even a constrained, temporary Intellectual Property waiver on Covid-19 vaccines. That campaign was foiled (as of March 2022) by Brazil (due to Bolsonaro’s gaze northwards) and especially by Germany, Britain, France, Switzerland and Norway. Russian and Chinese trade officials were generally silent in this debate, given their own proprietary vaccine IP.

As for the financial circuits of capital, BRICS leaders have regularly articulated their dissatisfaction with the slow process of existing MDB reform, especially the informal provision that World Bank leadership is reserved for US citizens and IMF leadership for Europeans. Still, they only once offered alternative candidates – in 2012 when Zoellick failed to win Barack Obama’s reappointment. But in opposition to a U.S. candidate, South Africa promoted a Nigerian, Brazil promoted a Colombian and the other BRICS supported Kim’s appointment, thanks to horse-trading with the Obama administration, even though the candidate chosen – Jim Yong Kim – was objectively unqualified compared to the competitors. Notably, when Trump nominated as Kim’s 2019 replacement David Malpass – a neoliberal, climate-denialist, renowned China-basher and former Bear Stearns chief economist who predicted in 2007 that financial markets would not suffer turbulence (shortly before Bear Stearns went bankrupt) (Malpass 2007) – the BRICS acquiesced, failing to nominate an alternative.

As for the Managing Director (MD) job at the IMF, the BRICS delegates offered no objection to Christine Lagarde’s 2011 appointment and mid-2016 reappointment, in spite of what was soon (by late 2016) successful corruption prosecution against her in the French courts due to her prior role as Finance Minister there, when facilitating a massive tax break for a contributor to her conservative political party. Her 2019 replacement was another European, Bulgarian economist Kristalina Georgieva, who was soon embroiled in a scandal due to her prior role as a top-ranking World Bank official promoting the appearance of relatively unfettered private-sector investment in China – but although it nearly led to her being fired in 2021, again there was no visible role from the BRICS (Bond 2021b).

The IMF has wielded enormous power during crises such as 2008-09 global financial meltdown, and Covid-19’s lockdown and resulting debt squeeze. But an unbroken record of ethical controversy surrounding leadership dates to Rodrigo Rato (IMF MD from 2004-07, who was jailed for corruption in Madrid in 2018-20) and then Dominique Strauss-Kahn (IMF MD from 2007-11, who resigned after being prosecuted first by the U.S. and then the French governments from 2011-15 for his long history of alleged sexual abuse). While BRICS-country bureaucrats are occasionally awarded second-tier leadership, none has come forward to challenge the discriminatory, irrational U.S./EU traditions.

One significant reason for the BRICS’ failure to break from IMF norms, according to Brazil’s firmly pro-BRICS 2007-15 IMF executive director, Paulo Nogueira Batista, was what can apparently be considered as China’s openly sub-imperialist assimilation into the institution. In his short, auto-critical book The BRICS and the Financing Mechanisms They Created, Batista (2021) describes how he – plus Indian and Russian IMF directors – "sometimes came up against the country’s excessive alignment to the positions of IMF management – positions that, more often than not, reflected those of the U.S. Treasury." Batista (2021) accuses Beijing of regularly seeking "side deals" such as "positions for Chinese nationals in the IMF’s senior administration or largely symbolic matters, such as the inclusion of the renminbi in the SDR basket. Americans and Europeans sensed this and exploited these divisions to weaken the BRICS." Even during the Trump era, Batista (2021) continued,

The Chinese were always under the temptation to strike an individual path, even at the cost of weakening the BRICS… China often seemed to harbour the hope that it could, given its unique size and importance, construct some sort of special relation with the United States and other Western powers, sacrificing to some extent, if needed, BRICS cooperation in the process.

Although Batista (2021) firmly fought against this tendency and claims "very significant" impacts of BRICS cooperation "in many matters that came for Board consideration" for the years until 2015, he mentions just three: capital flow management measures (i.e. slight tolerance of inward-oriented exchange controls), ownership quota reform and "New Arrangements to Borrow where the BRICS managed to obtain veto power." And yet on the quota formula, Batista would surely recognise the irony that in the IMF’s 2015 recapitalisation, China paid for an additional 37 percent share, Brazil 23 percent, India 11 percent and Russia 8 percent, yet this came at the expense of diminished shares owned by Venezuela (-41 percent), Nigeria (-26 percent) and even South Africa (-21 percent), as well as a similar new muffle on the ‘voices’ of many other Third World delegations. It was as if the BRIC directors at the IMF gained that extra coordinating strength only by holding themselves together as they stood on poorer countries’ heads, driving the latter ever lower, as one would expect from sub-imperialist positionality.

Moreover, in 2015 he left the IMF to take up an NDB vice presidency, and Batista (2021) concludes that from that point on, "BRICS coordination in the IMF seems to have died away… [and] in the World Bank had never been strong, even in the heyday of the BRICS, and remained lacklustre or nonexistent after that." But even as a member of the NDB executive, Batista (2021) was also dissatisfied with the bloc’s coherence, and he termed the BRICS’ two new financial institutions ‘disappointments,’ because

The monetary fund was held back by the conservatism of some of the central banks of the BRICS, notably of Brazil, that were somewhat frightened at the prospect of committing reserves to mutual support. The NDB was hampered partly by bad choices made by the countries for the first administration but perhaps chiefly by political developments that undermined the quality and strength of the BRICS process… in Brazil [with the rightward drift from 2016]… and increasing conflicts between China and India. The conflict between Russia and the West over Ukraine and Crimea also had negative spillovers for the BRICS, specifically for the multilateral development they created.

Given the BRICS’ failure to incrementally reform either the leadership, ownership or policies at the Bretton Woods Institutions in the manner often advertised, what then have progressive critics suggested should be a more thoroughgoing approach to international financial transformation? Certainly, as the BRICS became a five-continent bloc in 2010 with South Africa’s membership, a real alternative to the World Bank was already formally established: a ‘Bank of the South.’ The institution was meant to accompany the ‘Pink Tide’ of Latin American governments from 1998 when Hugo Chávez’s successful Venezuelan presidential campaign launched the idea. Chávez and Argentine leader Néstor Kirchner promoted the Banco del Sur in 2006, gaining endorsements in 2007 from other regional presidents Luiz Inácio Lula da Silva (Brazil), Rafael Correa (Ecuador), Evo Morales (Bolivia), Nicanor Duarte (Paraguay), Tabaré Vázquez (Uruguay) and even right-wing Álvaro Uribe (Colombia), as well as Stiglitz. Former Ecuadorian Minister of Economic Planning Pedro Páez attempted to introduce into its provisional articles of agreement several important innovations in eco-social project assessment criteria as well as trade financing to support the Bolivarian Alliance for the Peoples of Our America ALBA ‘Peoples’ Trade Treaty.’ However, the bank’s requested $20 billion capitalisation never appeared, in part because of Brazilian neoliberal and centrist opposition to its champion Chávez, who died in 2013.

Another institution that should and could have gotten BRICS leaders’ support even within the parameters of sub-imperial power relations, was the oft-promised alternative credit rating institution, which never materialised. And a reform that Russian leaders have publicly advocated for – and no doubt wished was much more advanced in 2022 – is trading facilitated by a non-dollar-centric payment settlement system.

Where does the spalling end?

The problem, though, is obvious: the BRICS as an institution and vision are ‘spalling’ and indeed falling. The construction industry considers a brick-and-mortar wall to be safe if properly set on foundations and without excessive height, and built with sufficient thickness. The BRICS turned out to be thinly constructed with low-quality masonry, and excessive stated ambition, so the spalling process that began in the mid-2010s now in 2022 means, as industry specialists warn,

chunks of brick are falling from the structure. Spalling starts off as small cracks that grow into bigger cracks until the entire surface deteriorates. If left untreated this condition will worsen until it interferes with the overall stability and safety of a building. Once bricks began spalling in one location, it increases the risk surrounding bricks will do the same. (Turnbull Masonry, 2016)

It’s difficult to see which directions the falling BRICS will take, given the unreliability of several governments and indeed the likely election of Lula as Brazilian president in October, which will reignite hopes for a more counter-hegemonic bloc’s revival. The geopolitical turmoil catalysed by Putin’s invasion left BRICS far more vulnerable given the divergent reactions, as noted above. But it also changed some of the typical summer summitry in 2022, as Beijing scrambled to have an early meeting and assert some leadership, due to the G7 host Germany’s invitation to Modi and Ramaphosa to meet together – to fuse the interests of imperialist and relatively-loyal subimperial forces – in late June. So instead of hosting the BRICS Summit in September (as on prior occasions), a virtual summit was quickly arranged for 24 June.

As another feature – not just spalling and falling BRICS but reconstruction of the bloc - Beijing now talks openly of a formal expansion of the group, adding both IMF-occupied albeit centre-leftist Argentina and Saudi Arabia – led by dictator Mohammed Bin Salmon, whose connections to traditional U.S. patrimony were tearing due to the 2018 murder of Washington Post columnist Jamal Khashoggi (leading to a ‘BRICSASA’ perhaps). Waiting in the wings, there are also Egypt, Indonesia, Kazakhstan, United Arab Emirates, Nigeria, Senegal and Thailand as potential future additions, which would mean an ideological and functional member-mishmash beyond any logical comprehension. The traditional approach to such conflict is not to even mention it, which was the path Xi took when meeting the BRICS foreign ministers in May 2022.

However, the broader turmoil in geopolitics appeared to be intensifying. With Washington, London, Berlin, Paris and other Western regimes approving more billions of dollars’ worth of sophisticated armaments headed for use to defend eastern Ukraine from another Putin annexation, his Foreign Minister Sergey Lavrov believes "the situation has deteriorated to the point where there is a real and serious threat" of escalation into a nuclear holocaust, which would kill 90 million people in a few hours (Scientific American 2022), through the use of tactical nukes by either Putin or two NATO leaders – U.S. President Joe Biden and UK Prime Minister Boris Johnson – who were in mid-2022 desperately hoping to avoid electoral decline by appearing tough on Ukraine. At the same moment, Taiwan emerged as a site of conflict in part due to Biden’s off-the-cuff statement in an Asian summit press conference in May that radically changed Washington’s long-standing "strategic ambiguity" policy on One China; he committed that the Pentagon would defend Taiwan against Beijing’s ongoing threats.

Climate controversy also continued to dog the BRICS because in Cape Town, a Russian oil exploration ship discovered what it claimed could be 500 billion barrels of oil and gas underwater offshore Antarctica: a carbon bomb that if detonated by Russian and/or South African firms (the latter most likely in league with Shell and Total) would end any chance at controlling climate change (Walters 2021). With its massive surpluses of oil, gas and coal now subject to Western sanctions, Russia also announced the desire that the BRICS should establish a separate energy treaty (hosted in Moscow), as Xi and Modi bought discounted fossil fuels from Putin.

Meanwhile in South Africa, to help explain a U-turn in political positioning (since in late February the foreign minister Naledi Pandor had insisted that Russian troops pull out) , questions also were raised about Russia’s role in party politics in mid-2022. New electoral transparency regulations compelled the ruling party to reveal that the only financial contributions it received in the first quarter of 2022 – indeed on 1 March, a date suspiciously close to the invasion and Ramaphosa’s policy reversal – were $650 000 from pro-Putin Russian oligarch Viktor Vekselberg (Gerber 2022a). The party’s main contributions in late 2021 were from an ANC trust drawing all its funding from Shell and passing the resultant $1 million to the party (Gerber 2022a). Both donations were vital for a political party that had spent 2021 in near bankruptcy (with widespread staff strikes), thus causing dramatic declines in its support and the loss of nearly all the major metropolitan areas to its centre-right opposition.

But assuming both that short-term nuclear crisis would be prevented by the Mutually Assured Destruction doctrine, and that fossil-fuel and political controversies would simply continue at a low level, it was the broader global financial system that appeared most important for BRICS collaboration in 2022. Would the BRICS – or at minimum Russia and China – finally make the long-threatened break from dollar dependency? The West’s banking-transaction sanctions and nearly $300 billion in financial seizures appeared to the world as both hypocritical – since property rights and neoliberal financial liberalisation were hallmarks of the Washington Consensus – as well as potentially necessary as a peaceful way to discipline Russian elites. Hopes were raised that such funding would help rebuild Ukraine due to Putin’s weekly physical damage of an estimated $4.5 billion (Partington 2022). Yet because of soaring oil and gas prices Russia was still attracting nearly double that amount in payments from Europe for Nordstar 1 gas and other fossil supplies, leaving the rouble to not only recover after the initial crash in March, but achieve a higher rate.

In that context, the firm yet ultimately half-baked character of financial sanctions and the inability of BRICS institutions to rise from their architects’ ambitions to play a profound role on the world stage left many in their countries – after all, more than 40 percent of the world’s population considering a strange but somehow logical formulation: the rogue sub-imperialism of Putin’s Russia could somehow be justified by the West’s rogue imperialism. Neither were playing by the rules after 24 February 2022. The vestiges of financial propriety were in tatters, and respect for those broader rules of the game – explaining the NDB’s sudden westward tilt in March 2022 – including the neoliberal conditionality banks always impose, should also be considered in tatters, were there popular movements in the BRICS countries ready to rise to the occasion, to question the Odious Debt and so many other stresses that were making their lives so difficult in the 2020s.

Patrick Bond is professor at the University of Johannesburg Department of Sociology, and co-editor of BRICS and Resistance in Africa (published by Zed Books, 2019).

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