On August 23, the Vikram lander of the Chandrayaan-3 mission managed to land on the south pole of the Earth’s satellite. This made India the first country in the world to achieve this and the fourth to reach the moon. The feat, which brought the space race back to the forefront after years of political agenda-setting, came just three days after a Russian spacecraft crashed onto the lunar surface on the same southern side. Despite the different results, both missions show that the countries of the so-called Global South are demanding a place on the global stage and that they are demanding recognition and treatment in line with this new reality. They are no longer willing to wait for the powers that modeled the international architecture after World War II to give them a seat at the table. Now they are the ones creating their own structures to assert their growing power.
The success of India’s space mission came just as the BRICS (acronym for Brazil, Russia, India, China and South Africa) summit began in Johannesburg, where the group announced its first major expansion after the incorporation of South Africa in 2010 original members, just a year after their first summit, which took place at the behest of Russia. The experts conclude that this expansion from 5 to 11 members undoubtedly represents a victory for China, which is increasing its geopolitical sphere of influence, although they also see it as a victory with limits, as the expanded group will be a difficult organization to manage . And therefore with limited consequences for the global economy in the medium term.
A worker retouches a poster for the 2023 BRICS summit in Johannesburg on August 20. MARCO LONGARI (AFP/GETTY IMAGES
Despite the lack of a clear goal as a group and the many difficulties in cooperation between them, the BRICS have begun adding members from the twenty or so countries that have officially applied for membership, according to the South African presidency, and from the approximately 40 that have have shown interest in the project. Saudi Arabia, Argentina, Egypt, the United Arab Emirates, Ethiopia and Iran have been formally invited to join the bloc from January 2024. This will see the BRICS+ economies (in the absence of a new name for the expanded group) add 30.8 trillion dollars, calculated using International Monetary Fund (IMF) data for 2022. But if we measure GDP using purchasing power parity (PPP, excluding exchange rate effects) measure, the BRICS+ will represent 36.38% of global gross domestic product GDP, compared to 30.39% represented by the G-7 countries (Germany, Canada, the United States, France, Italy, Japan and the United Kingdom). become. A group that will also account for 45% of global oil production and that has a more than considerable weight in the iron ore, coal and bauxite extraction industries, not to mention agricultural production. With these baskets, the BRICS+ are hard to miss.
The project, which originally grew out of an investment banker’s attempt to understand the transformation the global economy was undergoing in the early 2000s, has now evolved into a political platform that aims to be the voice of the Global South. It was Jim O’Neill, then chief economist at Goldman Sachs, who coined the now famous term in 2001 to describe the economies with the greatest growth potential that were likely to be outside of investors’ focus at that time. because they lack a multilateral presence commensurate with the population they represent. 22 years later, the international institutional architecture is still unaware of the importance of these shareholders’ powers. Take the example of China, which accounts for just over 18% of global GDP and barely has a 5% voting share in the World Bank’s main lending arm. Institution along with the IMF, whose top positions continue to be shared between the United States and Europe since its inception.
The demand for fair representation in international financial institutions is the origin of the BRICS countries and was expressed in their first joint statement. Faced with the lack of progress, the BRICS countries decided in 2013 to create the New Development Bank as an alternative to the IMF, which was established two years later with a capital of $50 billion. It is their biggest success as a group to date, even if the company’s profile is far from becoming a lender of last resort for countries in crisis.
“The BRICS are sometimes presented as an alternative to the G-7, but they function differently because they do not have the level of internal cohesion among their members to coordinate their policies. Their interests are very different,” explains Alí Ahmadi, an expert on sanctions and economic strategy at the Geneva Center for Security Policy. An assessment that Sunjoy Joshi, President of the Indian research center Observer Research Foundation, justifies. “It is not a group that is useful for everything, it does not represent ideological positions, but acts pragmatically.” The BRICS countries will serve to address some issues, such as those related to dealing with the consequences of climate change, other issues will covered in other forums. “What should, without a doubt, cease to exist is the G7, which is unable to offer solutions to the successive crises that we have been going through in recent years because it cannot deal with them without relying on the countries of the global south to count,” he said via video call from New Delhi.
From left, heads of state and government Luiz Inácio Lula da Silva (Brazil), Xi Jinping (China), Cyril Ramaphosa (South Africa), Narendra Modi (India) and Russian Foreign Minister Sergei Lavrov at the BRICS summit in South AfricaGIANLUIGI GUERCIA (AFP/GETTY IMA
There is no doubt that the Western model has shown significant cracks in recent years, the financial crisis, the subsequent debt crisis in Europe and the trade war with China with its long list of sanctions and protectionist measures in response to the economic boom, the technological and Geopolitical aspects of the Asian giant have diminished the authority of their positions. In some cases it has even opened wounds that the West is unaware of but that regional authorities are well aware of.
During the Covid-19 pandemic, developed countries realized their enormous dependence on global production chains and the lack of security of their supplies, which is why they began to take measures to bring factories closer to countries and regions that were considered safe. But for emerging economies, the pandemic has made clear that citizens of the Global South are viewed as second-class by industrial powers when it comes to distributing vaccines and releasing drug patents, regardless of their speech. In fact, when a vaccine was developed that could minimize the impact of the disease, the G-7 countries accounted for more than a third of the global production of these doses, even though they make up barely 13% of the population.
As a result, the BRICS opened its own vaccine research and development center in March 2022 “to prepare for future crises and make vaccines more accessible to emerging economies,” the five BRICS announced in a statement at the time. Political and security autonomy will have an ever greater impact on trade flows, from north to south and vice versa, says Alí Ahmadi.
In this context, India and Brazil, the most reluctant, are giving in to pressure from China and agreeing to the enlargement agreed in South Africa, without anyone clarifying what criteria led them to accept some countries and postpone the accession of others. Argentina, for example, may not fully realize its accession because the candidates most likely to win the October 22 elections – Javier Milei and Patricia Bullrich – do not want to be part of a platform that they say is completely dominated by China. “Ethiopia is a country rich in minerals and by joining Egypt it reduces the possibility of a water war between the two countries,” explains Enrique Feás from Luxembourg. “Iran joins the group as one of those affected by Western sanctions and also asserts its oil potential. In the case of Saudi Arabia and, to a lesser extent, the United Arab Emirates, on the other hand, it appears to be more of a means of putting pressure on the United States to regain some of the status it has lost,” he concludes. Because one cannot ignore the scenario in which the agreement takes place, which is dominated by tensions between Washington and Beijing and the war in Ukraine.
The conflict taking place on European soil was one of the most intensively planned topics at the Johannesburg summit. Certainly not because one of its members was the instigator of the armed conflict, nor because Russian President Vladimir Putin was unable to attend the meeting due to the international arrest warrant on him following the invasion. As Sunjoy Joshi explains, the conflict has led to sanctions that previously seemed unlikely and that the BRICS countries have taken note of as positive for the future. “The war in Ukraine has shown that absolutely anything can be used as a weapon in the event of a conflict. Sanctions against Russia have made a significant leap and affect all sectors, technology, energy, food, financial transactions, central bank reserves abroad… This has created awareness among emerging powers of the need to implement risk reduction strategies,” emphasizes Joshi. “And that will further increase the fragmentation of the global economy,” he emphasizes.
For the BRICS countries, this risk reduction strategy involves reducing their dependence on the US dollar. This is not about creating a common currency, which capital controls and the non-convertibility of currencies such as the Indian rupee or Chinese yuan make impossible, but about increasing bilateral payments and transactions in their respective currencies. Something similar is happening between Russia and China, whose central banks have worked for years to develop a system that would allow them to use their respective currencies in bilateral trade and which, according to Vladimir Putin, already accounts for 80% of exchanges between the two countries. “If the group promotes the development of these mechanisms to generalize them in their exchanges, it can create a model for trade with countries affected by sanctions.” In addition, the integration of major raw material producers into the BRICS fits well with the plans on dollarization,” says Ali Ahmadi from Geneva.
At the South Africa summit, BRICS leaders asked their finance ministers to submit a report within next year with measures to reduce dollar dependence. But the equation is very complex. “Any attempt to replace the dollar or the euro in international finance will achieve nothing, at least within 30 years,” says Enrique Feás, principal researcher at the Elcano Royal Institute. “BRICS countries can increase the use of their respective currencies in some of their trade, but who wants to have a million yuan in their wallet if they don’t know whether they can convert it into dollars or take it out of the country? Nobody trusts these markets, and under these conditions it is simply impossible to imagine an alternative global reserve currency to the dollar,” he adds. Without reforms to those countries’ financial markets that lift capital controls and allow their currencies to be convertible, economists say the attempts will have limited impact.
Since the financial crises in Asia and Russia in 1997 and 1998, the major emerging economies have accumulated dollar reserves to ensure the stability of their currencies. And although inflation has reduced the value of these reserves and caused some concern among those in charge, they still have many more guarantees than any other BRICS currencies. Franco Macchiavelli, head of analysis at Admirals Spain, explained this using the recent case between India and Russia. “India bought oil from Russia at a significant discount to the price in the West. Some purchases are paid for in rupees. In addition, Russia faces significant currency risk, meaning that over time the rupee will depreciate even more than the dollar. “In addition, unlike the dollar, rupees are only accepted in India and are not used to purchase assets anywhere in the world, making the management of the central bank’s international reserves significantly more difficult,” it said in a note.
All this explains why the dollar continues to account for 60% of world reserves, the euro 20%, and the yuan does not even reach 5%. According to April 2022 data from the Bank of International Settlements, 88% of trade exchanges are conducted in dollars, and a study by the US Federal Reserve shows that the weight of the greenback between international reserves and trade exchanges has barely changed between 2018 and 2023. The BRICS Development Bank itself is a good example of the difficulties posed by the vaunted goal of de-dollarization: of its loan portfolio for projects in the BRICS countries, 19,979 million are in dollars; 5.359 million yuan; 3,025 million euros, 1,226 million South African rand and 541 million Swiss francs.
According to Cliff Kupchan, president of political risk consulting firm Eurasia Group, the New Development Bank in particular could make a significant difference in the new geopolitical order if countries agree to increase their capitalization to compete with the over 330 billion dollars in assets , which the World Bank had at its disposal at the end of June, or the 600,000 million from the European Investment Bank. “China’s recent experience shows that loans granted for purely political purposes can cause enormous debt collection problems and the bank’s influence would be undermined without a coordinated vision of its mission. But it has the potential to become an institution of great importance in the medium term,” he said at a recent conference.
But it’s one thing to agree that there are things that need to change and another to agree on how to work together to implement it and how to make it happen. Border tensions between India and China have increased since May 2020, largely explaining Chinese leader Xi Jinping’s decision not to attend the G-20 summit days after the South African meeting. Countries like India, South Africa and Brazil have made it clear that they want to have just as good relations with the Western powers as they do with China or Russia. And while these powers have refused to support Western sanctions against Moscow, they are unwilling to turn the BRICS into an anti-Western group.
The next 12 months until the next summit in October 2024 in Kazan, Russia, will reveal much about the challenges facing the BRICS countries and the true potential they have as a geopolitical platform. And maybe by then they’ll even have found a name that encompasses them all.
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