Last week, after 70 years of financial subterfuge and economic exploitation which the South finally realized wasn’t going to change, a treaty was signed to create an alternative to the World Bank and IMF— the BRICS development bank, the acronym taken from the five countries that came together to form it – Brazil, Russia, India, China and South Africa. Other South countries are expected to join eventually.
Terms for lending to other South nations, especially poor countries, are expected to be humane and manageable. The greatest thing to cheer will be the absence of ‘structural adjustment conditionalities’ – IMF’s fancy term for forcing governments to slash funds for basic social services – healthcare, education, water, sanitation and much else – so that money ‘saved’ from these allocations maximizes repayment installments or compound interest payments. Bleeding countries white has been the mainstay of being the highest-paid bankers in the world. Yet, structural adjustment has never been applied to a western country.
Culturally, ideologically and in other ways, the BRICS countries are poles apart, making them an unlikely grouping. The Asians are wary of one another. Yet BRICS was a necessity. It may rescue corporate-besieged Africa. Nor can it be easily trifled with. These five alone represent 3 billion people – 40% of the world population. Three are nuclear powers. By next year, BRIC countries will have done $500 billion worth of trade amongst themselves, mostly in their own currencies. The dollar is done for.
BRICS will start off with 50 billion dollars, and another 100 billion in contingency funds for emergencies such as sudden flight of foreign capital. But leaders who think they only need to switch from one money-lender to another to resolve social and economic disasters of their own making, need not celebrate. An invitation does not seem immediately forthcoming, given their reputation for borrowing with little intention or ability to repay. They’ve dug us neck-deep into what looks alarmingly like a grave.
Besides, Shylock will not let go without first reclaiming his pound of flesh. And there’s no one to bail us out except by continuing to serve the same master. — Unlikely that the World Bank/IMF will lend to join a rival bank! Furthermore, the treaty still needs ratification by the parliaments of all five countries, and a couple of years more to work out finer details and mechanics.
Former colonial South countries were constantly told that the World Bank/IMF were made for them – to pull them out of poverty and enable them to reach the same economic footing as industrialized countries. That was pure bluff. As historian Eric Toussaint, President of the Committee for the Abolition of Third World Debt (CADTM) points out, the US and UK pushed the WORLD Bank/IMF’s creation for their own benefit – to cover for them when an economic recession set in, because of capitalism gone amok or shabby treatment of other countries.
As Toussaint elaborates, the west was still haunted by the 1920s and 1930s — beyond the awareness of colonized people preoccupied with troubles of their own. The economic depression in the US affected the rest of the world. Consequently, in 1931, Germany, forced to pay war debts to France, Belgium, Italy and Great Britain, stopped paying because it simply couldn’t. These creditor countries were in turn unable to pay their debts to the US. It was a financial domino effect. Coming up short, the US was forced to cut down on both exports and imports. The financial system built around capitalism ground to a halt.
Devaluing their own currencies to make exports more attractive didn’t help either. It never is, if regular customers suddenly go broke and no one – certainly not the private banks – extends credit. President Roosevelt realized money had to be lent to debtor countries so they could put it to work and then repay debts; without credit they couldn’t make money.
Sometimes outright grants were better than loans, to give them a kickstart back to productivity. That was the idea behind the Marshall Plan going to the rescue of war-devastated Europe. It worked magnificently, except that the US gave so much in grants to Europe, they no longer needed World Bank/IMF loans.
Yet too much charity without pay back can have negative psychological consequences. To this day, Europe has co-opted NATO in unprovoked war-mongering at America’s behest, even when the Europeans are not particularly keen.
The other realization about a bank for nations was that borrowing countries also need to have a say, a sense of belonging, instead of being treated like desperate prey. Strong-arm tactics, as those applied to Germany until it resisted, and the American penchant for bombing countries into submission, or threatening to, did not necessarily bring debt repayment.
Experts advised that private international investments needed to be policed to ensure they were fair and square, and prevent any likelihood of lenders making illegitimate demands of their governments to intervene politically or militarily or economically. While Roosevelt was agreeable, America’s private bankers and capitalists were not. The idea of multilateral banks moving into their unregulated territory and profits, did not go down well. There was tremendous pressure from the Republican Party, and the best features were removed or toned down.
Consequently, the World Bank/ IMF remained American-dictated banks throughout. Initially, the World Bank was supposed to lend from its own capital. Instead, it borrowed lending money from the private sector! What could have made the latter happier? – It would add to, not subtract from their business. Not for nothing did the USSR denounce them as “branches of Wall Street.”
That was not all. It wasn’t one vote for each country, but distributed according to financial contribution, although most South countries were already rendered financially dirt poor. The US bagged over a third of the total votes. The US and UK together accounted for almost 50%. The 11 most industrialized countries held over 70%. All the African countries together had less than 2.5%. It was merely formalization of an elaborate charade for continued colonization by manipulative financial means. All they had to do was to keep the South exporting commodities, their currencies undervalued, apply compound interest, and compel loans to be spent on the west’s products and services. It was a formula designed for perpetual poverty.
Why then did the South countries agree? They didn’t really. Most were still colonized when the Banks were formed and their masters decided for them. It was part of the reason South countries were never properly informed; although they have only themselves to blame for not educating themselves for decades on end.
BRICS have a lot of rough spots yet to smoothen out. There is terrible inequality in all of them. The gulf between the haves and have-nots is painful and embarrassing. Some have their own ‘one-percenters’. For its population of 146 million, Russia has 110 billionaires, the world’s highest ratio. The Financial Times claims China’s wealthiest 1% controls 60% of household wealth, although China’s own survey says it is 10 percent – in a country of 1.3 billion. South Africa’s natural wealth is still controlled by the whites, and India has unfortunate habits similar to Pakistan.
Only Brazil scores high on the social index. In 7 years it has actually added 40 million to its middle-class and extends family allowances to 11 million households (at least 60 million people) – this is no small feat.
BRICS will be mainly lending for major infrastructure projects without the World Bank/IMF’s crippling terms. But only when the BRICS countries focus on restoring land to the tiller, livelihoods, health, education, and social services, enabling everyone to become part of the mainstream, will priorities be right, and true, visible change will have come about.
The writer is a former journalist and currently director of The Green Economic Initiative at Shirkat Gah, a rights and advocacy group.