The main point of the summit of leaders from Brazil, Russia, India, China and South Africa this week was host Vladimir Putin’s demonstration of economic autonomy, given how much Western sanctions and low oil prices keep biting Russia. In part this sense of autonomy comes from nominal progress made on finally launching the bloc’s two new financial institutions.
But can these new banks address the extraordinary challenges in world finance? For example, more than 60% of Greeks voting in last Sunday’s referendum opposed the neoliberal dictates of Brussels-Berlin-Washington, thus raising hopes across Southern Europe and amongst victims of ‘Odious Debt’ everywhere.
Meanwhile, bubbly Shanghai and Shenzhen stock markets were crashing by $3 trillion from peak levels in just 17 days, a world-historic meltdown, at a time Chinese housing prices were also down 20% over the prior year. Beijing’s emergency bail-out measures represent vast subsidies to financiers, just like those used in Washington, London, Brussels and Tokyo since 2007.
Change is urgently needed yet the BRICS’ finance bureaucrats – especially two leading appointees from South Africa – won’t deviate from orthodoxy. Ongoing financial turbulence should offer a gap for the $100 billion Contingent Reserve Arrangement (CRA), which is anticipated to open its doors next month. However, it carries not only a strange name that even many insider experts often get wrong, but is dollar-denominated and structurally hard-wired to support the International Monetary Fund (IMF).
To illustrate, according to CRA rules agreed at last year’s BRICS Fortaleza summit, after 30% of a country’s quota is borrowed – based on double the amount of its own contributions (China at $41 billion, and Brazil, Russia and India at $18 billion each, and South Africa at $5 billion) – then the borrower must next sign a neoliberal IMF agreement.
For South Africa this could prove painful in the period ahead, after Pretoria finds itself borrowing from the CRA to repay the country’s soaring foreign debt. Inheriting $25 billion in apartheid Odious Debt in 1994, Nelson Mandela’s government worked diligently to repay. But over the past decade, outflows of profits, dividends and interest soared as the largest Johannesburg-based firms (Anglo American, DeBeers, etc) shifted their financial headquarters to London.
The foreign debt ballooned to its present $145 billion, the same level compared to the size of the economy that was hit thirty years ago when PW Botha’s apartheid regime declared a default. To repay short-term debt in a crisis would soon exhaust the $3 billion Pretoria is permitted to immediately access from the CRA, and then the IMF will march in.
New Development Bank to take over World Bank’s nastiest projects
Sadly, even with Greece’s new mandate, there appears no hope for bucking the IMF and European bankers on debt repayment by finding a new bail-out partner in Russia this week. Early rumours that Moscow would invite Athens to join the BRICS New Development Bank (NDB) proved cruelly deceptive.
Once launched next April, the NDB could well fund specific projects in other non-BRICS countries, even Greece if profits there ensure repayment – such as its controversial Chinese port privatization. However, these are likely to be the sorts of pro-corporate infrastructure deals that even the World Bank finds increasingly difficult to support due to sustained protest against community displacement and climate change, e.g. land grabs, mega-dams and coal-fired power plants.
At the ‘BRICS-Civil’ conference in Moscow last week, the Delhi-based Vasudha Foundation’s Srinivas Krishnaswamy told the BRICS Post that the NDB should be considered “in the light of a new World Bank Energy Strategy which restricted funding of coal projects for developing economies. This was opposed by India, South Africa and other countries dependent on coal to satisfy their energy requirement.”
The BRICS banks will thus ‘complement’ the Bretton Woods Institutions, thanks to a self-mandate dating to early 2014. As Brazil’s finance ministry reminded last week, the CRA “will contribute to promoting international financial stability, as it will complement the current global network of financial protection. It will also reinforce the world’s economic and financial agents’ trust.”
But shouldn’t we question trust in the world’s top financial ‘agents’? Two examples from South Africa, appointed to the top tier of the NDB last Tuesday, remind us why.
Karl Marx prefaced Das Kapital with a concern that “Individuals are dealt with here only in so far as they are the personifications of economic categories, the bearers of particular class-relations and interest.” Biographies sometimes perform a useful exercise, if we want to understand why an institution in the making will not in any way ‘threaten‘ the hegemony of Washington’s financial agents.
Pretoria’s neoliberal appointees
Relegitimization of world financial imperialism is explicitly reflected in Pretoria’s two new appointees to NDB leadership:
* NDB vice president Leslie Maasdorp was the main privatiser of South Africa’s state assets and also worked in the local leadership of Bank of America and Barclays – both charged in recent weeks with currency manipulation worth billions of dollars.
* NDB board director Tito Mboweni, who in 2001 was Euromoney’s ‘Central Bank Governor of the Year’, regularly bragged of learning from the US Federal Reserve’s notorious free-marketeer and financial-liberaliser, Alan Greenspan. From 1999-2009, Mboweni was the most conservative central banker in modern SA history. He not only loosened exchange controls dozens of times, but as a result then had to push interest rates to painful highs while local bank profits soared to amongst the world’s highest rates.
The two South Africans deployed to the NDB have long enjoyed leadership and key advisory roles at the Johannesburg office of Goldman Sachs, the New York investment bank partly responsible for the 2007-09 global financial meltdown thanks to rampantly illegal lending practices. Its managers first got bail-outs and then faced multi-billion dollar fines but were spared criminal prosecution thanks to carefully cultivated revolving-door relationships in Washington, Pretoria and many other capitals.
Goldman’s lead strategist Jim O’Neill even coined the ‘BRIC’ meme in 2001 to argue that imperialism in the form of the G7 should incorporate the emerging powers. In South Africa, Goldman’s local chief executive Colin Coleman regularly articulates a cringe-worthy pro-government stance, for example, writing in the Financial Times last year, “As one of the five BRICS, South Africa will play a decisive role in global economic development in the coming decades.”
According to Maasdorp in an interview with Independent Online this week, ‘decisive’ is actually ameliorative: “When it comes to the design, engineering and financial packaging of new projects I suspect we will work very closely with the Development Bank of Southern Africa, African Development Bank, the World Bank and others. We will and should benefit from the long years and decades of experience of these institutions.”
He added, “As international adviser of Goldman Sachs from 2002, I played a leading role in expanding the reach of the firm into new market segments including the public sector and the rest of the continent.” As translated by Rolling Stone’s Matt Taibi, “The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”
Maasdorp also witnessed the highest-profile corruption in African infrastructure finance, not only because his South African big business allies are considered to be the ‘world champs’ of money-laundering, bribery and corruption, procurement fraud, asset misappropriation and cybercrime. “I served for example as chairman of TransCaledon Tunnel Authority (TCTA), which is a state-owned enterprise with a mandate to finance and implement bulk raw water infrastructure projects in South Africa, and played an oversight role from a governance perspective for seven years of large infrastructure projects.”
TCTA pipes run from Africa’s highest dams in Lesotho to Johannesburg, which led to what was the world’s most infamous case of construction company bribery in World Bank lending history. More than $2 million flowed from a ‘dirty dozen’ multinational corporations to the Swiss accounts of the leading Lesotho dam official, Masupha Sole, who served 9 years in jail but was then, to everyone’s astonishment, reinstated thanks to his political influence.
Although the World Bank debarred some of the most corrupt companies, thus catalysing the bankruptcy of Canada’s once formidable civil engineering firm Acres International, nothing was done to punish the firms by Pretoria officials, including Maasdorp at the TCTA. Several then reappeared in a construction collusion case involving white-elephant World Cup 2010 stadiums and other mega-projects in which billions of dollars were ripped off.
BRICS has been rife with mega-project corruption, and as just one example, the World Bank last year debarred the China Three Gorges Corporation’s subsidiary building dams in Africa. The World Bank ‘Vice President – Integrity’ (sic) responsible, Leonard McCarthy, was himself declared by the finest South African newspaper editor, Ferial Haffajee, to have “ruined our criminal justice system” because of his own political corruption when serving as lead prosecutor of current South African president Jacob Zuma. In this cesspool, international infrastructure financing is bound up with cronyism; South Africans are well placed to help the money flow.
Mboweni had a central role in the IMF’s 1993 financing deal, one of South Africa’s historic capitulations to neoliberalism. As Mboweni explained in a 2004 speech, he knew that “the apartheid government was trying to lock us into an IMF structural adjustment programme via the back door, thereby tying the hands of the future democratic government… We did not sell out!”
He did indeed: the $850 million loan came with severe economic policy and even personnel conditions attached. Former ANC Minister of Intelligence Ronnie Kasrils in 2013 termed this deal “the fatal turning point. I will call it our Faustian moment when we became entrapped – some today crying out that we ‘sold our people down the river’.”
As SA Reserve Bank governor, Mboweni braved similar controversy to the IMF’s repeated applause, especially with extreme interest rate increases. As he left, the only major economy with higher rates was Russia’s, and shortly after that, the only one amongst SA’s trading partners where capital cost more was Greece.
Keeping inflation low – since banks hate the devaluation of their main asset, money – was the main reason for Mboweni’s sado-monetarism. Yet self-interestedly, on the eve of the 2008 world financial meltdown he rewarded himself a 28% personal pay raise at a time his institution had declared a 6% maximum inflation target.
Remarked business ezine Moneyweb (normally fans of neoliberalism), “The high-living governor already has a reputation for excessive ego, after attempting to censor what pictures of him are released into the public domain.” The reference is to Mboweni banning photographers from the Reserve Bank because they were “taking pictures when I was wiping off my sweat.”
Is another BRICS possible?
Ironically, at the time Durban hosted the BRICS summit in early 2013, Mboweni used a speech to regional business elites to attack the NDB as “very costly. I would rather take that money and build the Coega Petro SA oil refinery here in Port Elizabeth.” Mboweni also chairs a local oil company.
Will men like Maasdorp and Mboweni fight the poverty, ecological destruction and climate change, privatisation and corruption, illicit financial flows and Resource Cursing associated with current global lending, or will they amplify these features?
A genuine alternative to imperialist finance would be based upon
* the sort of default on unpayable, unjustifiable debt that Argentina managed to accomplish in 2002;
* exchange controls that countries like Malaysia (in 1998) and Venezuela (in 2003) imposed on their elites (as did Greece last week);
* new regional currency arrangements such Ecuador’s proposed sucre; and
*socially- and ecologically-conscious financing strategies tied to compatible trade (like ALBA) such as were once proposed and seed-funded by the late Venezuelan leader Hugo Chavez in the stillborn Bank of the South.
Given NDB and CRA positioning and personnel, it is foolish and perhaps dangerous to invest hope in the BRICS’ fake alternative.