Leo Panitch on how the US still decides the future of global capitalism

Leo Panitch offers an antidote to the growing consensus that the new development bank launched by the BRICS manifests a significant challenge to US hegemony.

From The Guardian:

International attention has been diverted away from this year’s G20 meetings in Australia by the declaration from the leaders of Brazil, Russia, India, China and South Africa, at their meeting in Fortaleza Brazil this July, that they would launch a new “Brics bank”. Created by the US Treasury in the wake of the Asian financial crisis at the end of the 1990s, the G20 was designed to get the major “emerging market” states to take responsibility alongside the G7 for the “new international financial architecture”. This was seen as providing legitimacy for the continuing central role of the US in superintending a greatly expanded but increasingly volatile global capitalism

Read rest here.

BRICS Bank mini-symposium at the IDEAS Network

The International Development Economics Associates (IDEAS) Network has published a series of short papers on the BRICS Bank, from the more negative views of Prabhat Patnaik, that suggests that the South continues to pursue neoliberal policies and the bank will not be of much help in this context, to the more optimistic of my good friend Oscar Ugarteche (second part here), who thinks that the declaration of the last BRICS Summit had a distinctive anti-neoliberal flavor, and that the bank might be one of the pillars of an alternative to the neoliberal order, in which the dollar has a less prominent role. Jayati Ghosh's views are also less pessimistic than Patnaik (for my preliminary thoughts go here).

Some thoughts on the Bank of the BRICS

The BRICS announced in their last summit a new development bank, with US$ 100 billions in capital, of which US$ 41 billions are from China. There is a certain excitement about the possibilities for South-South cooperation and alternatives to development that this new institution will bring about. First, let me explicitly say that I think in general development banks are a relevant tool for development, that the new bank is a welcome addition that increases South-South cooperation and that reduces the need for developed country dominated institutions.

And yes a lot of the investment that will come will likely (and I would say hopefully) be on infrastructure (I say this since in one of the meetings of the Bank of the South, in Quito years ago, an activist told me I was a neoliberal for supporting infrastructure rather than community based projects; by the way, not against those, but as I said back then, if you want schools or sanitation for local communities, you'll need roads, electricity, sewer facilities and so on, which is what I mean by infrastructure). Stephany Griffith-Jones provides here the sort of defense of development banks I would agree with.

The new arrangements include a Contingent Reserve Arrangement which is more interesting than the bank itself, since it purports to provide “a self-managed contingent reserve arrangement to forestall short-term balance of payments pressures, provide mutual support and further strengthen financial stability.” In other words, not simply provide funding for development projects, but more widely to provide finance for balance of payments problems, which are at the center of developing countries problems. So, all in all, this seems to be something to be celebrated.

My two concerns are not directly connected to the new institutions. The first issue would be implementation. The Bank of the South has been in the works for almost a decade, and has been established since 2009. As I had noted here, barriers to implementation have basically meant that it is an irrelevant institution, at least so far (what I said back in 2009 was that lack of implementation might come from political differences, in the case of the Bank of the South, given its role vis-à-vis the Brazilian National Development Bank, BNDES). Note that in the case of the Bank of South it duplicated to some extent the work done by the Corporación Andina de Fomento (CAF), another regional development bank, also headquartered in Caracas. Not only it has so far failed, but in addition it has precluded the further development of existing institutions.

The second concern is regarding the type of integration between Brazil (member of the BRICS) and other Latin American countries (the same is true with some caveats for India, specialized in services, and Russia and South Africa) with China. If the new development bank is one more instrument to pursue a strategy of development in which Latin American economies specialize in commodity exports, to an increasingly manufacturing based China, then rather than solve our long-term balance of payments problems we will end building a new dependent relation, now with the Asian periphery (for more here). Hope springs eternal.

Kevin P. Gallagher on BRICS Consensus

By Kevin P. Gallagher

Conveniently scheduled at the end of the World Cup, leaders of the BRICS countries travel to Brazil in mid-July for a meeting that presents them with a truly historic opportunity. While in Brazil, the BRICS hope to establish a new development bank and reserve currency pool arrangement. This action could strike a true trifecta — recharge global economic governance and the prospects for development as well as pressure the World Bank and the International Monetary Fund (IMF) — to get back on the right track. The two Bretton Woods institutions, both headquartered in Washington, with good reason originally put financial stability, employment and development as their core missions. That focus, however, became derailed in the last quarter of the 20th century. During the 1980s and 1990s, the World Bank and the IMF pushed the “Washington Consensus,” which offered countries financing but conditioned it on a doctrine of deregulation.

Read rest here.

Mark Weisbrot on BRICS reserve fund & development bank

The New Banks in Town: Chinese Finance in Latin America

By Kevin P. Gallagher, Amos Irwin, & Katherine Koleski

"Although China's impact in Africa receives the most attention, China trades just as much in Latin America as in Africa, and has more investments in the region. Chinese finance in Latin America – chiefly from the China Development Bank and the Export-Import Bank of China – is staggeringly large and growing [...] China's presence is a great opportunity for Latin America, but it brings new risks. If the region can seize the new opportunities that come with Chinese finance, countries could come closer to their development goals, and pose a real challenge to the way western-backed development banks do business. However, if Latin American nations don't channel this new trade and investment toward long-term growth and sustainability, the risks may take away many of the rewards."

Read the rest here.