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.

Arslan Razmi on South-South trade and the limits to wage-led growth

Another presentation from the same session at the ASSA in Philadelphia. Arslan extends (Power Point here) the so-called Neo-Kaleckian model to show that destination of exports matter. He suggested that in this kind of model the limit to wage-led growth does not come from the conventional negative effect of wages on external competitiveness (real exchange rate appreciation, as in Robert Blecker's famous 1989 paper), but as the result of the negative effect of higher wages on capacity utilization and investment in the "homogenous" good sector (tradable, but price taking sector that he suggests might characterize South-South trade).

Amitava Dutt on South-South Integration at the ASSA

Amitava Dutt presented a paper (Power Point here) on South-South integration. While Amitava emphasizes the importance of South-South relations he remains more skeptical than most.

South-South technological dependency

The increase in South-South trade noted here before is not necessarily symmetrical and there are winners and losers too with this type of integration.

When speaking of Argentina’s economic, cultural or technological dependency, it is usually seen as a matter of north-south relationships. Now then, are there south-south dependencies? In the field of industry and technology, the answer seems to be affirmative. 

Historically, Argentina has heavily depended on Brazil’s manufacturing development. “Argentina is a country characterized by an important level of technological dependence which in the last 10 years, far from reverting, deepened,” states Martín Schorr, researcher from CONICET in the Facultad Latinoamericana de Ciencias Sociales (FLACSO). “The trade surplus is kept basically by the agricultural sector, some agro-industries, and the mining sector. The rest of the industrial network produces losses.” 

Of the total of Argentina’s export to Brazil in 2011, products with industrial origin represented 67 percent. At first sight, that’s not bad. However, of those industrial products, only 6.7 percent are machinery and electrical appliances; that is, goods of higher technological development. On the other hand, that same year Argentina imported from Brazil 87 percent of products with industrial origin, of which 18.5 percent was machinery and electrical appliances. 

Thus, even though Brazil’s situation is not the best either, in both cases the balance is unfavorable towards Argentina. “Brazil is losing space in the rest of the world in matters of export of technological goods, but it compensated this with exports to Mercosur. In fact, the main destination of this type of exports is Argentina,” states Eduardo Crespo, economist and researcher from Universidade Federal do Rio de Janeiro (UFRJ).

Read the whole thing here.

South Centre hails Indian drug patent decision

We have discussed the role of property rights in the process of development. The recent Indian case is one in which a broader definition of property rights, one which may be seen by some conservative economists as a violation of patents held by corporations, may actually help the process of development.

From SOUTHNEWS, by Martin Khor:

"The ruling by the Supreme Court of India dismissing the petition from Novartis AG is a historic decision with positive global implications ... The Novartis AG application had claimed a patent for a new salt form (imatinib mesylate), a medicine for the treatment of chronic myeloid leukemia. Novartis sells this medicine in several countries under the brand name Glivec (Gleevec). The Indian patent office had rejected the patent application on the ground that the claimed new form was anticipated in a US patent of 1996 for the compound imatinib and that the new form did not enhance the therapeutic efficacy of the drug. The decision was upheld by the Indian Patents Appellate Board (IPAB).

...

The decision by the Supreme Court of India has significant positive global implications. It has effectively protected the leading role of India in supplying affordable medicines to other developing countries. The reaffirmation of the primacy of health and access to medicines as a right of citizens is particularly important for the international community when these rights are under significant threat under bilateral trade and investment agreements."

South-South Trade

The Human Development Report (see here p. 46), which was the topic of a recent post, has a great graph on the huge expansion of South-South trade, when compared to North-South and North-North trade, in the last decade.

As one can see, the share of North-South trade in total world trade has expanded at a relatively slow pace, while the share of South-South trade has exploded. The obvious counterpart is the collapse of North-North trade.

I had a teacher that used to say that if someone asked you a question about globalization, and you didn't know the answer, just say China, and you'll be right a third of the times. So let's say China explains what is going on in South-South trade. [China entered the World Trade Organization (WTO) in 2001].