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GLOBALIZATION AND FINANCIAL AND TECHNOLOGICAL INTEGRATION AMONG EMERGING COUNTRIES:
THE BRICS NEW DEVELOPMENT BANK 

IGU 2015 - C12.29 Marginalization; Globalization; Regional and Local Responses


Author: Hindenburgo Francisco Pires
Universidade do Estado do Rio de Janeiro
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Abstract

This study analyzes the manner in which the financial deregulation and bankruptcy of the credit system of the mainstream economies (United States, United Kingdom, Japan and European Union) are influencing the financial and technological integration and restructuring processes of the emerging countries with respect to the new development bank of the BRICS nations (Brazil, Russia, India, China and South Africa).
The objective is to show that actions against the current deregulated neoliberal finance model (such as the creation of the BRICS bank, construction of the pipeline infrastructure and establishment of networks parallel to the Internet, which is controlled by the United States) could trigger a geopolitical rearrangement in the current model of globalized accumulation of international finance capital.
In order to conduct this investigation, we surveyed and collected statistical data and economic and financial information at the following research institutions: the World Bank, the International Monetary Fund (IMF), the U. S. Treasury, the Divisions of Research & Statistics and Monetary Affairs of the U. S. Federal Reserve Board, Eurostat (a Directorate-General of the European Commission), the Organization for Economic Cooperation and Development (OECD), the Stockholm International Peace Research Institute (SIPRI) and the Institute of Applied Economic Research (IPEA - Instituto de Pesquisa Econômica Aplicada).
This study aims at providing a series of reflections and questions for the debate on how the financial crisis and the indebtedness of the United States and the mainstream economies are forcing emerging countries to seek: a) new forms of regional integration; b) economic, commercial, technological and financial arrangements; and c) sustainable alternatives that minimize social inequalities aggravated by economic neo-liberalism’s globalization policies.
Keywords: Globalization, Financial Deregulation, Social Inequality, BRICS Bank

 

THE BRICS NEW DEVELOPMENT BANK: A GLOBAL FINANCIAL MULTI-POLARIZATION INITIATIVE

The BRICS (Brazil, Russia, India, China and South Africa) nations’ first attempt to create the New Development Bank (NDB) and the Reserve Fund (RF) occurred during the seventh G20 summit, in Los Cabos, Mexico, in 2012, when the five heads of state of these countries decided to meet outside the G20 summit to discuss and analyze (based on the advice of their finance ministers and central bank representatives) the possibility and viability of establishing the BRICS NDB and RF (BATISTA JR, 2014), so as to jointly be able to act to found the NDB in a coordinated manner.

It may be said that various factors practically forced the BRICS nations to establish the NDB. The first factor was the aggravation of the economic crisis and the failure of globalization measures stimulated by the state-finance connections of the mainstream economies (HARVEY, 2011, p. 54; PIRES, 2012, pp. 112-113); the second was the difficult access to sources of international financing for promoting economic and social development, principally during the recession; and the third was related to divergences in the adoption of neoliberal policies imposed by multilateral finance institutions, which led to economic losses, greater inequalities and higher social costs.

After conducting an in-depth technical analysis as to the real possibilities of creating the NDB, the fifth BRICS Summit (held in Durban, South Africa, on March 27, 2013) reached the conclusion that the establishment of the NDB was more than plausible: it would become a necessity. Prepared by UNCTAD on March 25, 2013, the document “The Rise of BRICS FDI and Africa” revealed the BRICS nations’ vast potential to attract direct external capital and investments (UNCTAD, 2013).

Accordingly, the NDB was founded on the first day of the sixth BRICS Summit (held in Fortaleza between July 15 and 16, 2014), enjoying an initial contribution of 50 billion dollars and permanent headquarters in Shanghai, one of China’s most important financial centers.

The NDB’s chief aim was the promotion of capital investment projects capable of generating sustainable social development (COZENDEY, 2014) and the economic expansion of the production sectors.

Subsequent to the plenary session of the sixth BRICS Summit, during a press conference granted on July 15, 2014, Brazilian President Dilma Rousseff furnished details concerning the five-year post rotating system and the organization of three important administrative functions in the NDB: the first, the bank’s presidency, will be headed initially by a representative from India; the second, the presidency of the board of directors, will be the responsibility of a representative from Brazil; and the third, the presidency of the board of governors (made up of ministers from the five BRICS nations), will be run by a representative designated by Russia. The bank’s African Regional Center or the NDB’s regional office will be located initially in South Africa, in accordance with the five-year rotating principle; subsequent to this period, it will be situated in Brazil. 

The currency that will mainly govern the bank’s deposits will continue to be the dollar. Nonetheless, the BRICS nations also intend to adopt a basket of regional currencies so as to intensify commercial and financial trade. The emergence of a basket of currencies could come to be the test of a process of de-dollarization of the global economy and the construction process of a new monetary model of general international equivalence. The Brazilian proposal is that all the BRICS nations participate equally in the voting process with regard to decision making in the NDB.

As an alternative to the financial governance of the IMF and the World Bank, the creation of the NDB will certainly face the resistance of the United States, which was able to consolidate its hegemony (after WWII) when it produced the most important international reserve currency – the dollar.

The process of institutional construction of the NDB and RF of the BRICS nations has been conducted with great caution and complex technical foundations. In 2014, the nominal GDP of the countries that make up the BRICS group totaled 16.99 trillion dollars, which is equivalent to 22% of the global GDP. During the same period, these countries had 3.028 billion inhabitants, around 42.7% of the world’s population (MRE, 2015, p.2). They thus had the resources, reserves and potential to create the NDB.

However, in order for this initiative to be credible and effective, these countries are seeking to establish mutually consented accords and treaties in relation to the technical characteristics of the BRICS NDB and RF.

The NDB is the result of the profound strengthening of ties of cooperation between these countries, with the aim of correcting the multilateral institutions’ limitations with respect to the political management of capitalism’s global financial crisis; i.e., the NDB is an initiative that seeks to generate alternatives of multilateral cooperation, aiming at overcoming and redirecting the global economic crisis.

Accordingly, the creation of the NDB will tend to reduce the existing asymmetry of economic power that favors the mainstream economies of the North over the emerging economies of the South in the decision-making spheres of the multilateral global finance institutions.

 

BRICS RESERVE FUND 

The establishment of the BRICS Reserve Fund (RF) aims at creating a mutual protection network and an accord for the establishment of a Contingency Reserve Arrangement, which will make it possible to fight the risk of finance institution volatility (ROUSSEFF, 2014).

This protection network was estimated at 100 billion dollars, of which 41 billion will be provided by China; 18 billion by Brazil, Russia and India; and 5 billion by South Africa (NETTO, 2014; LIMA, 2014). Thus, as one can observe, based on the total amount of funds provided to maintain the BRICS RF (MRE, 2015, p.2), China, with 61% of the nominal GDP and 45% of the population of the BRICS nations, will play a leading role in maintaining the reserves of the BRICS protection network.

The BRICS RF is an intergovernmental accord; it is not an institution like the NDB because the reserves remain subject to the administration and control of the central banks of the signatory nations and can only be disbursed within contexts of extreme necessity and in accordance with procedures to be established, such as in cases of aggravation of a financial crisis that could place at risk the economic stability of one of the member nations, especially when these countries undergo problems related to indebtedness and deterioration of the trade balance.

The creation of the BRICS RF also indicates the need for the BRICS nations to create their own financial regulatory mechanisms and produce a more balanced environment for financial governance, working against the crisis and the unstable climate that have affected the various spheres of the international economy.

The BRICS RF is a complementary initiative, one of the goals of which is the establishment of a financial security network supplementary to multilateral finance arrangements, which is important in times of crisis and economic instability. This initiative reinforces the need to alter the control that has been amassed by two multilateral institutions under the protection of the United States, the only nation with a veto power concerning decisions made by the IMF.

The creation of the BRICS RF is an initiative of a political nature that has technical, economic and financial implications; it is not an initiative aimed at breaking away; nor is it a way of substituting the existing mechanisms of financial regulation, in part because the BRICS nations are members of the International Monetary Fund (IMF), the World Bank and the G20. According to Paulo Nogueira Batista Jr., Brazil’s IMF representative, there would be no impediments, in the future, to the BRICS RF coming to cooperate with the IMF or the World Bank. 

 

THE ABSENCE OF REFORMS IN THE IMF AND THE WORLD BANK AS A FACTOR FOR THE CREATION OF THE BRICS NDB

The creation of the BRICS NDB targeted overcoming the delay existing in the administrative management of the world’s two main finance institutions: the International Monetary Fund and the World Bank. These institutions were founded in 1944 at the Bretton Woods Conference in the state of New Hampshire (U.S.), which was held to establish the new foundations and security of the international economic and monetary system of the post-war period.

Even today, well into the twenty-first century, the presidency of the World Bank is reserved for United States citizens alone; and the supervision of the IMF, for European citizens. With regard to the IMF, the European Union enjoys one-third of the votes and almost twenty percent of the global economy; in other words, no alterations to these entities have been made that would help promote a change in the geopolitical situation, especially in terms of defining the importance that national economies should deserve.

In the World Bank, Brazil has only one of the twenty-four representatives; eight are European (1/3 of the directors); and this occurs despite Brazil being among the fund’s ten largest shareholders since 2010 (BATISTA JR, 2014). The possibility of Brazil coming to enjoy a share compatible with its status as a shareholder also depends on a ratification to be made by the U. S. Congress.

In the World Bank, decisions are sanctioned “according to the principle of voting power consonant with one’s percentage of capital and not the ‘one country, one vote’ principle (the standard that governs the UNO)” (PATNAIK, 2014); as a result of this criterion, countries that hold larger shares come to impose neoliberal economic policies – which are established based on structural programs of adjustments (SINGER, 2000, p.101) or “austerities” – for granting emergency assistance or financial aid (MENDOZA, 2015, p.15-16).

Market deregulation and liberalization are part of a series of globalizing neoliberal measures perpetrated by international finance institutions against indebted National States requesting loans and financial resources to surmount times of crisis. Achieved via economic adjustment programs, such measures have been venerated as principles of “good governance” by the media and by the supposed scientific competence of the think tanks of these international organizations (ALTVATER, 2010, p.101).

Attorney Christine Lagarde became the fifth French representative to head the IMF’s Directorate-General; and, as of 1946, she became the eleventh European representative designated to run the IMF; in other words, the IMF has been functioning in practically the exact same manner ever since its founding 71 years ago (1944).

 

CONCLUSION: IN DEFENSE OF MULTILATERALISM 

The lack of changes in international organizations founded at the Bretton Woods Conference and the feeble representative power of the majority of the signatory nations were causal factors for the emergence of the NDB.

The maintenance of these ancient “legal safeguards” (which uphold unilateral rights), to which the United States and Europe still cling, is no longer recognized by the emerging nations; hence, the legitimacy of the Bretton Woods institutions is losing credibility (EL-ERIAN, 2014).

The multilateralism principle has been substituted and subverted by the “multi-stakeholder” model, a concept that is increasingly prevalent at forums and meetings coordinated by the UNO, such as the World Conference on International Telecommunications, the Internet Governance Forum and the World Summit on the Information Society (PIRES, 2014). 

Therefore, even with many BRICS representatives’ active participation in the IMF, there is still much to be done before this institution can perform an administrative reform and achieve effective power redistribution so as to become a truly multilateral institution.

 

DIGITALIZED BIBLIOGRAPHY

BATISTA JR, Paulo Nogueira. O Banco do Brics. Brasília: TV Senado - Agenda Econômica: Interview with IMF Executive Director, July 14th. In: <https://www.youtube.com/watch?v=T9sg4cRejGU> [Accessed in August 2015]

COZENDEY, Carlos. Banco do Brics. Brasília: TV Brasil Internacional: Conexão Internacional: Interview with the Secretário de Assuntos Internacionais do Ministério da Fazenda (International Affairs Officer at the Federal Finance Departament), June 11th, 2014. In: <https://www.youtube.com/watch?v=aDPwn7sgihc> [Accessed in August 2015]

EL-ERIAN, Mohamed A.  A fragmentação de Bretton Woods. São Paulo, SP: Valor Econômico, August 20th 2014. In:  <http://www.valor.com.br/opiniao/3660472/fragmentacao-de-bretton-woods> [Accessed in August 2015]

LIMA, Samatha. Banco dos Brics é resposta a falta de mudança no FMI, diz embaixador. São Paulo, SP, Folha de São Paulo do Rio, July 8th, 2014. In: <http://www1.folha.uol.com.br/mundo/2014/07/1482900-banco-dos-brics-e-resposta-a-falta-de-mudanca-no-fmi-diz-embaixador.shtml> [Accessed in August 2015]

MRE - Ministério das Relações Exteriores. BRICS: Comércio Exterior. Brasília, DF: Departamento de Promoção Comercial e Investimentos - DPR e Divisão de Inteligência Comercial - DIC, June 2015. In: <http://www.brasilexport.gov.br/sites/default/files/publicacoes/indicadoresEconomicos/ComExtBRICs.pdf> [Accessed in August 2015]

NETTO, Delfim. O banco dos BRICS. São Paulo, SP: Carta Capital: Economia - Análise, 15 de julho de 2014. In: <http://www.cartacapital.com.br/revista/808/o-banco-dos-brics-2173.html> [Accessed in August 2015]

PATNAIK, Prabhat. O banco dos BRICS. Brasília: Pátria Latina, July 28th, 2014. In: <http://www.patrialatina.com.br/editorias.php?cod=14082> [Accessed in August 2015]

PIRES, Hindenburgo Francisco. O Controle da Governança da Internet: A rearticulação do discurso nas redes sociais. Scripta Nova - Revista Electrónica de Geografia y Ciencias Sociales, Universidad de Barcelona. Vol. XVIII, núm. 493 (53), 1 de noviembre de 2014. In: <http://www.ub.edu/geocrit//sn/sn-493/493-53.pdf> [Accessed in August 2015]

ROUSSEFF, Dilma. Interview coletiva concedida após a sessão plenária da Sexta Cúpula do BRICS. Fortaleza, CE: TV-NBR, 15 de julho de 2015. In: <https://www.youtube.com/watch?v=dwBMopZZZn0> [Accessed in August 2015]

UNCTAD - United Nations Conference on Trade and Development. The Rise of BRICS FDI and Africa. New York, EUA: United Nations, 25 March 2013. In: <http://unctad.org/en/PublicationsLibrary/webdiaeia2013d6_en.pdf> [Accessed in August 2015]

 

BIBLIOGRAPHICAL RESOURCES

ALTVATER, Elmar. O fim do capitalismo como o conhecemos. Rio de Janeiro, RJ: Editora Civilização Brasileira, 2010.

HARVEY, David. O Enigma do Capital e a Crise do Capitalismo. São Paulo, SP: Boitempo, 2011.

MENDOZA, Kerry-Anne. Austerity: The demolition of the Welfare State and the Rise of the Zombie Economy. Oxford, UK: New Internationalist Publications Ltd, 2015.

PIRES, Hindenburgo Francisco. O Capitalismo Gestor de Dinheiro e Desregulação Financeira:  O endividamento dos EUA e da economias centrais.  In: Globalização, políticas públicas e reestruturação territorial / Susana Mara Miranda Pacheco e Mônica Sampaio Machado,  orgs. - Rio de Janeiro, RJ: 7 Letras, 2012.

SINGER, Paul. Para entender o mundo financeiro. São Paulo, SP: Editora Contexto, 2000.