Watchdogging the Brics Bank

The Brics Bank is planned for a launch announcement at the fifth summit of heads of state from Brazil, Russia, India, China and South Africa, in Durban. Officials have said $50 billion will be contributed for start-up capital.

In our view, this bank must adopt at least five criteria to reach minimum democratic patterns:

·         a wide public information policy, including norms of transparency;

·         international accountability criteria;

·         prior to the disbursements, an open process of discussion and decision with peoples potentially affected by the projects to be funded;

·         a deliberative space of decision that includes civil society organizations of the countries impacted; and

·         a norm against any violation of human rights by the projects supported.

The lack of access to official documents related to negotiations among banks and governments, and the lack of consultation mechanisms for civil society, together demonstrate the urgency of action over this powerful new institution.

We do not need more non-transparent public institutions. Modern democratic criteria for funding require that such a bank must incorporate rules of social control that meet recent standards in the development of a healthy relationship between governments and civil society organizations and popular movements.

One reason for opening the Brics Bank for broader negotiations is that its creation is not only a matter of economics. It reflects new political space thanks to the fragility of the US and Europe in the wake of the most recent financial crisis of globalized capitalism.

The 2008-09 crisis of the US and Europe economies revealed the fact that so-called emergent economies have huge accumulated reserves, due to the previous ascendency of raw materials prices and high demand in international markets.

Institutions such as the IMF and the World Bank, and forums like the G-20, have been regularly confronted by civil society protesters because of their incapacity to prevent and mitigate crisis. They were incapable of addressing the cyclical fragilities of accumulation, and there must be alternatives to these institutions – not copy-cat institutions.

This means that we embrace the opportunity of creating a new development bank governed by a special group of countries who could make a genuine difference. Even not all of them are (yet) central to the global capitalism, as a whole or isolatedly they have characteristics that are not negligible.

The Brics bloc has a $20 trillion GDP (in purchasing power parity), for example, far higher than either the EU or US (about $15 trillion each).

Among these five countries, two have permanent seats at the UN Security Council and are also among the world´s largest producers, exporters and importers of oil and natural gas (Russia and China). Another three have repeatedly demanded their inclusion in the Security Council (Brazil, India and South Africa). Three have nuclear weapons (Russia, China and India), while one destroyed theirs (South Africa before apartheid ended). As a whole, they have 40 percent of the world´s population but 48 percent of the formal workforce.

The creation of a Brics Bank is the outcome of criticism the five countries offer about the system of Bretton Woods Institution quotas which give the US and Europe hegemonic governance, and leave their management highly biased. Until recently, pressed by a weak balance of payments and non-autonomous governments, these five countries were too dependent on foreign resources and the two global financial institutions were free to fix draconian conditions for their loans.

However, since the early 2000’s, with increased demand and international prices for commodities, the Brics have accumulated expressive currency reserves (almost $4.5 trillion as of late 2011) and recovered the capacity to conduct sovereign public policies. Among them are the creation of funds in their own currencies, dispensing with dollars and euros, and financing more economic infrastructure, thus helping to expand their markets and to reduce the impacts of future crises in a globally interconnected capitalism.

They also look at opportunities in green capitalism, particularly those related to the Reducing Emissions through Deforestration and Forest Degradation (REDD) scheme. They are capable of engaging in the most conceptually advanced financial mechanisms to tap natural resources (of which the Brics have abundant reserves) and they intend to fund the construction of economic infrastructure in Africa.

Another objective is to support Brics corporations particularly in Africa, which is the stage for a potential cold war between Brazil and China concerning the construction of infrastructure and the funding of agricultural fuel, both at an extremely large scale.

Not by coincidence, the Brics Bank feasibility studies point to infrastructure and sustainable development as priority areas for the bloc’s future financial institution. Of course, this is all further enhanced by Brics countries’ impatience with the Bretton Woods Institutions’ slow democratizing reforms.

In April 2010, the BNDES, a bank 100 percent owned by the Brazilian State, signed a Memorandum of Understanding with development and foreign trade banks from China, India, and Russia, to form a common bank. Six months after, South Africa also joined them.

Perhaps the most important factor in the creation of the Brics Bank will be the role played by BNDES, a giant with an annual budget twice as large as the World Bank (lending between $70-80 billion).

If the Brics Bank is mirrored on BNDES, this reveals a probable lack of transparency and omissions in governance, given the examples of the mega-projects run by Brazil´s multinationals which BNDES funds in Latin America and Africa, particularly in the extractive industries.

The BNDES philosophy is to put ‘national champion companies’ in place to create and expand major Brazil-based conglomerates. The largest projects financed by the bank show the same patterns: 1) a high level of state subsidies; 2) a lack of transparency; 3) credit to projects with serious compliance problems on labour and environmental concerns; and 4) a tendency to privilege certain economic groups.

In line with Brazil’s official diplomacy, BNDES finances projects in Latin America, the Caribbean, and Lusophone Africa, where, co-ordinated with Embrapa (a Brazilian 100 percent state-owned company for agricultural research), the bank provides funds to large Brazilian groups to generate agricultural fuels. These fuels are becoming an internationally traded commodity, with Brazil playing a prominent role in this market.

Another operating front, converging with one of the areas pointed out as priority for the future Brics Bank, is climate financing, as seen in the recently created International Development Finance Club. BNDES president Luciano Coutinho is the vice-chairperson and the Fundo Amazônia, the world’s largest REDD fund, managed by the BNDES, is presented as a benchmark.

Time has come for civil society across the five Brics countries to work pre-emptively during the coming Brics summit. We must focus on the new Brics Bank so as to avoid new mega-financial institutions without any citizen control, even if they are public in name.

Carlos Tautz, a journalist, coordinates Brazil’s More Democracy Institute.

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