Monthly Archives: April 2013

FP – Ten Questions for the New BRICS Bank

The great emerging markets want to start their own bank. But it doesn’t seem like they’ve really thought it through.



The recent BRICS summit in Durban, South Africa concluded with its first tangible outcome since the countries began meeting formally five years ago: The commitment to create a new BRICS development bank. What more do we know about this ambitious project? Not much. So below are ten questions to consider as the bank takes shape.

1. Is the BRICS Development Bank a done deal?

Not necessarily. The joint statement from the BRICS leaders announcing that they “have agreed to establish the New Development Bank” sounded pretty definite, but then there seemed to be some hedging going on too. President of South Africa Jacob Zuma struck a cautious note, saying only that “…we have decided to enter formal negotiations” on the BRICS bank, while Russian officials muttered about the devil being in the details. Newspaper headlines reflected the ambiguity, with the Financial Times declaring “BRICS agree to create development bank [sic],” while on the same day, Voice of America led with the more cautious “BRICS Summit Ends Without Development Bank Deal.” Obviously, there’s still a lot of work to do and a lot can happen.

2. Do the BRICS have enough in common to sustain a shared institution?

Maybe. Maybe not. Some lack of consensus is undoubtedly behind the hedging. The BRICS encompass very different political systems — from thriving democracy in Brazil to entrenched oligarchy in Russia — and their economies are little integrated, inherently competitive, and are different in size by orders of magnitude. In 2011, China’s GDP was over $7.3 trillion, about eighteen times larger than South Africa’s economy, the smallest of the BRICS, and three times larger than Brazil’s economy, the second biggest of the BRICS. It’s also unclear to what extent the BRICS share a vision with respect to economic development, other than not being “the West.” Still, while such differences create challenges, success is not impossible.  Remember, the economy of the United States dwarfed those of its allies when it created the Bretton Woods institutions in the postwar years. And there was no lack of disagreement about the postwar order among the European powers and Washington, but somehow the Bretton Woods system survived.

3. What will the new development bank focus on?

Infrastructure, it seems. The BRICS themselves have an estimated $4.5 trillion in infrastructure needs over the next five years, and coincidently, have about the same amount in foreign exchange reserves. A safe bet is that the new BRICS bank won’t be doing the governance and democratization work that is popular at the World Bank these days, such as the “open data” project to make information about international development easily accessible to anyone. It is similarly difficult to imagine that the BRICS, which are not known for their transparency, would share the World Bank’s enthusiasm for anticorruption efforts.

4. Will developing countries welcome the BRICS development bank?

Probably. China is known for extending loans and resources without conditionality around touchy subjects like governance, and if the BRICS development bank follows suit, it’s hard to imagine many countries saying no to easy money. Still, there’s likely to be some skepticism, in no small part because of China’s inevitably outsized role in the new bank and also because of the mixed reviews China gets from its global south trading partners. Across Africa, various leaders have criticized China’s export of labor to the continent, and bemoaned the onslaught of cheap Chinese manufactured goods that undercut local production. In a particularly pointed criticism, Nigeria’s central bank governor Lamido Sanusi, lambasted China as “a significant contributor to Africa’s de-industrialization and under-development.”  Nevertheless, if the BRICS bank offers economic assistance, most countries are likely to be interested. Money talks, and can even produce changes of heart. Look at the turnaround in attitude of Zambian president Michael Sata, who went from making scathing comments about China in 2006 to encouraging Chinese investment in his country in 2011.

5. Will the Bank be dominated by China?

Pretty likely, given China’s relative economic weight. And that prospect is unlikely to delight the other BRICS. Some speculate that South Africa wants to host the bank and that an African seat for the bank could be one way to reduce China’s influence. But that’s wishful thinking. Even if the bank is physically located on another continent, China will hold the purse strings, and with that comes privilege. Look how the United States, nearly seventy years after the creation of the World Bank, still gets to pick the institution’s president.

6. How will the bank be capitalized?

Not clear. There is talk of each country putting in $10 billion for an out-of-the-gate capitalization of$50 billion. But $10 billion would be an enormous commitment for South Africa. Presumably the other countries — notably China — would have to lend South Africa the money to meet its share. And this gets tricky quickly. China lending South Africa money to lend to Mozambique? In any event, $50 billion doesn’t go very far in the world of global economic development. The World Bankcommitted $52.6 billion in “loans, grants, equity investments, and guarantees” in 2012 alone.

7. What currency will the new bank use?

Very possibly the Yuan. China will no doubt want to make loans denominated in yuans, a borrowing option it extended to other BRICS countries in 2012. It has already pushed for lending in its own currency to protect it against currency risk in Africa’s enticing but volatile emerging markets. But making the Yuan the currency of the new development bank might only deepen unease about China’s outsized role.

8. Aren’t the BRICS “doing development” already?

Yes, a lot of it, by some measures, which is surprising given the high levels of poverty that persist across the BRICS. China is the big player; in recent years, it has substantially grown its activities abroad, particularly in Africa.  However, traditional metrics of development aid are difficult, if not impossible, to apply to what China is doing, and estimates of its aid vary hugely, from $1.5 billion to $25 billion. Brazil is also emerging as a more active donor, giving more than $1 billion in various forms of aid to more to sixty-five countries in 2012. Russia, too, is a re-emerging as donor. During the Cold War, the Soviet Union competed with the United States for influence by giving away wads of cash and assistance — in 1986, it gave away a whopping $26 billion. But after the country fell apart in the 1990s, Russia became a net recipient of aid. Today, it is once again a donor, distributing $514 million in Official Development Assistance in 2011 (compared with around $5.3 billion from Canada and $30.7 billion from the United States). India is just beginning to establish itself as a foreign donor. In 2012, it collected its aid programs into the Development Partnership Administration, which has a five-year coffer of some $15 billion. South Africa, meanwhile, is supposed to put an aid agency into action in 2013. How a BRICS bank would interact with these unilateral efforts is not clear.

9. Do the BRICS already invest in each other?

Not much. In 2011, only 2.5 percent of FDI from BRICS countries went to other BRICS, whereas over 40 percent of their FDI went to developed countries. Presumably, one of the purposes of a BRICS development bank is to change this, but such a change would require a considerable shift in current priorities. Meanwhile, the World Bank has recent projects of some kind or another in all the BRICS countries, such as financing for sustainable rural development in Brazil.

10. Will a new development bank pose a challenge to the World Bank?

Perhaps. It is certainly intended by its creators as an alternative to the World Bank, although it’s still a long way from meeting that challenge. Comments from BRICS leaders don’t do much to hide a sense of schadenfreude over the declining economic circumstances of the West versus the rising fortunes of their own countries, and a deepening level of frustration that the rules of the game have not changed to reflect that reality. “We still have a situation where certain parts of the world are over-represented,” declared South African finance minister Pravin Gordhan. Despite years of promises to give the global South more say in both the IMF and the World Bank, no big structural changes have happened. And stagnating aid budgets among OECD countries only create more openings for the BRICS. So if a BRICS bank does emerge as a challenge, the West has no one to blame but itself.


WP – William Brownfield: drug traffickers will expand in Caribbean by 2015

William Brownfield, assistant secretary of state for international narcotics and law enforcement, says he believes drug traffickers squeezed out of Mexico, Central America and South America will target the Caribbean by 2015.

China’s exploitation of Latin American natural resources raises concern | EurActiv

China’s exploitation of Latin American natural resources raises concern | EurActiv.

REUTER – Post Chavez: Can U.S. rebuild Latin American ties?

By Peter Hakim

MARCH 27, 2013

The funeral of Venezuelan President Hugo Chavez earlier this month was a massive celebration of a vitriolic foe of the United States. This tribute should make Washington take a fresh look not only at its relations with Venezuela but also with all of Latin America.

Virtually every Latin American country sent a high-level delegation to show its esteem for Chavez, who, during his 14 years in office, regularly vilified the United States, disparaged its leaders and campaigned tirelessly to end the U.S. role in the region. The presidents of Latin America’s six largest nations — including the closest U.S. regional allies, Mexico, Colombia and Chile — traveled to Caracas for the burial ceremonies. Never in Latin America, as many commentators noted, has a deceased leader been given a grander memorial — not even Argentina’s adored Juan Domingo Peron back in 1974.

This extraordinary acclaim for Washington’s most virulent adversary in the Americas was probably not intended as a deliberate snub. There were other reasons that so many of Washington’s friends ended up applauding a committed antagonist of the United States.

Some leaders, concerned with politics back home, were seeking to appeal to constituencies on the left, who idolized Chavez. Some who have benefited from the financial largesse distributed by the president of oil rich-Venezuela are eager for his successor to continue that support. Still others were reluctant to stand apart or isolate themselves from their neighbors — so they became part of the crowd.

Yet the fanfare accompanying Chavez’s funeral suggests a troubling degree of indifference to the United States in Latin America — as if Washington no longer counted.

Aside from his ability to hold onto power and sustain the devotion of so many Venezuelans, Chavez’s accomplishments hardly warranted this level of attention. His autocratic rule and reckless spending merit no praise from Latin America’s democratic and fiscally responsible leaders. Make no mistake, however, the foreign leaders came mostly to praise Chavez, not just to bury him.

To be sure, after his presidency, Venezuelans are considerably less poor and unequal than when he came to power in 1999 — though many other Latin American nations did the same, or better, than Venezuela in this period. They achieved this without a huge oil windfall and without pushing the economy toward shambles and undoing the country’s democratic and civil institutions.

Chavez does, though, deserve credit for Petrocaribe, a program that supplied discounted oil (and low-interest loans to buy oil) to poor and energy-deficient countries in Central America and the Caribbean. Cuba got the largest subsidy — some $4 billion to $6 billion a year — without which the island might today be facing a humanitarian crisis. But 13 other nations, some in great need, were also assisted — and are grateful.

This is the kind of aid program that Washington should consider emulating for the region’s low-income countries.

The Chavez funeral is not the only reason for unease about Washington’s relations with Latin America. Two months ago, Cuban ruler Raul Castro, another determined U.S. adversary, was elected to head the Community of Latin American and Caribbean Nations (CELAC), a new organization that includes every nation in the Western Hemisphere — except the United States and Canada. Next year’s meeting is scheduled to be in Havana, though CELAC’s charter requires that members be governed democratically.

At the 2012 meeting of the Summit of the Americas (every country of the hemisphere except Cuba), the discussion, despite Washington’s objections, focused on two topics: drug policy andCuba. Both are sources of long-standing tension between the United States and Latin America. The assembled Latin American heads of state closed the meeting by warning Washington that, unless Cuba is included in future summits, they would no longer participate.

The problem is not that Latin America has retreated from democratic rule. Though democratic governance has deteriorated in some countries, it is still the overwhelming regional norm ‑ and getting stronger in many places.  The commitment of Latin Americans to democracy. however, now largely applies to their own countries. What they have given up on is the idea of collectively defending democratic practice in countries other than their own. Regional solidarity is now a higher priority than democracy, a reflection of the many ideological and political differences among Latin American nations.

On economic matters, developments have been more encouraging for Washington. It is true that China and Europe have made considerable inroads, diminishing U.S. economic preeminence in Latin America. But U.S. exports have more than doubled in the past 12 years, and U.S. investments have grown apace — along with considerable Latin American investments in the United States. Washington now has free-trade agreements in force with 11 of 19 Latin American countries — three in South America, six in Central America and the Dominican Republic and Mexico.

Yet all is not well here, either. Latin America is now effectively (and unfortunately) divided into two economic zones. One includes all the countries that trade freely with the United States. Another seven are members or soon-to-be members of the Brazilian-led South American Market (Mercosur).

Political differences, not economic interests, are what keep the two groups apart. Prospects for an economically integrated hemisphere, once a key aspiration of most countries, have faded and seem unlikely to be revived anytime soon.

Whether Washington can remake its relationship with Latin America is in question. A sensible and humane reform of U.S. immigration legislation would remove one critical obstacle to more productive relations with many countries, as would a more flexible approach to drug-control policy.

Recent developments suggest, however, that for Washington to regain clout in regional affairs, it must it end its standoff with Cuba. U.S. policy toward Cuba sets Washington against the views of every Latin American and Caribbean government. Long-standing U.S. efforts to isolate and sanction Cuba, have, counterproductively, brought every country in Latin America to Cuba’s defense with a general admiration of Havana’s resistance to U.S. pressures.

Because this U.S. policy is viewed as so extreme, no Latin America country is willing to criticize Cuba — almost regardless of its words or actions. Chavez, with his close association with Cuba, possessed some of that immunity — with his neighbors leaving him unaccountable for his violations of democracy, human rights and decency.

His funeral made it clear that the United States has a lot of work to do to prevent that immunity from spreading.

Click here for original article.