BRICS’ New Bank and the IMF: Emerging Rivalries

On July 22, the International Monetary Fund was celebrating its 70th anniversary along with that of the World Bank. Both institutions were a product of the Bretton Woods Conference agreements in order to ensure U.S. leadership in the post-World War II world.

Just a few days earlier, on July 16, the sixth annual summit of BRICS — Brazil, Russia, India, China and South Africa — took place in Fortaleza, Brazil, where the group signed an agreement creating the New Development Bank and a common exchange reserve.

“[It’s] an important contribution to reconfigure the system of international economic governance,” commended Brazilian President Dilma Rousseff, a response to the American refusal to accept any IMF reform that would give more latitude to BRICS, in defiance of economic realities, another step in the challenge of the emerging capitalist powers toward American leadership.

Financial and Political Deployment

The Development Bank will be based in Shanghai, and its mission with be to finance major infrastructural projects in the countries in question, and eventually, in other emerging economies. Its initial capitalization will be $50 billion by the five participating countries in order to work toward $100 billion.

It will not harmonize its loans with the IMF’s typically restrictive demands on structural reforms or its political interference.

A “framework agreement” that inaugurates a common exchange reserve has also been signed. With $100 billion, including $41 billion contributed by China, $18 billion by India, Brazil and Russia, and $5 billion by South Africa, this monetary fund could be operational beginning from 2015. It would allow its members to protect themselves in the event of a speculative storm on their currencies — a political gesture of capitalist solidarity whose efficacy will probably be very relative.

Russian President Vladimir Putin was at the summit in the middle of the Ukrainian crisis. He also went to Cuba and Argentina. In Brasilia, the BRICS leaders met heads of state from South America — Latin America represented nearly 20 percent of Chinese foreign investments last year. It’s enough to say that for the BRICS [countries], the new bank is an opportunity for financial and political deployment.

“We do not have the slightest interest in giving up the International Monetary Fund. On the contrary, we have interest in making it more democratic and representative.

“Our relationship with the IMF has gone from one of debtor to creditor. During the (global economic) problems of the euro crisis, we contributed a ‘firewall’ to ensure things did not worsen still further.”

“Our relationship with the IMF is a relationship of independence,” summed up Dilma Rousseff.

You can be sure that the establishment of the new bank is a weapon in the global race, an economic and political weapon for a group of countries that, making up 40 percent of the planet’s population, makes use of immense natural resources and generate nearly 30 percent of the global GDP.

New Financial World Order?

The evolution of relations between BRICS and the IMF will mainly depend on China, which so far has been progressing while avoiding any arrogance. Its allocated budget for foreign aid alone exceeds that of the World Bank, which, in fact, no longer holds a dominant position. Moreover, China is developing another regional project, the Asian Bank of Infrastructural Investments, a direct rival to the Asian Development Bank, dominated by the Japanese — complementarity, say Chinese leaders, as well as Dilma Rousseff, a complementarity through which new power relations get built.

The world order that Bretton Woods decided, which had already undergone a shakeup between 1968 and 1971, no longer responds to the needs of global liberal capitalism shredded by the heightened rivalries and competitions that render void the dominance the U.S. would like to perpetuate.

The BRICS response challenges this hegemony, but it is not a way out of the global crisis engendered by the race for financial profitability. The answer could only come from the reappropriation of capital by the people and their countries, by expropriating private banks in order to put in place a banking monopoly and coordinate at the regional and global level their financial policies to serve the needs of the people. That would be another story …