If recent developments are any indication, South American political elites seem to have jettisoned much of the high minded left idealism of past years in favor of crass economic interests. In a somewhat outlandish turn of events, Brazil has embraced Vladimir Putin, a figure who has desperately sought to end his country's political and diplomatic isolation. Since Russia came to the aid of Ukraine's rebels, the west has imposed stiff sanctions on the Kremlin, and Putin seems keen on consolidating the inchoate BRICS group (which counts Brazil, Russia, India, China and South Africa as members) as a means of counteracting such pressure.
Far from protesting Russian aggrandizement, Brazil has warmed to Putin and there are even plans afoot to found a so-called BRICS development bank no less. Brazil's courting of Russia is a bad political sign for the future. To be sure, Latin America has its own reasons to oppose U.S.-influenced financial institutions such as the International Monetary Fund (IMF) and World Bank. Indeed, loan recipients have long resented the lecturing IMF, which imposes tough reforms in lieu of financial assistance. In light of the region's unfortunate historic experience with such entities, it's politically understandable that many countries would seek to build up their own rival institutions.
Nevertheless, the idea of countering western financial muscle through an alliance with Russia is dubious at best. What is more, there are serious questions about the viability of the new BRICS bank, as well as its commitment to sustainable development. Moreover, by calling for the creation of a BRICS bank, Brazilian President Dilma Rousseff and others seem to be turning their backs on previous and more innovative efforts in Latin America to counteract western-style capitalism.
Bank of the South Imbroglio
Though certainly disappointing, Rousseff's embrace of the BRICS bank and Putin should not come as a great surprise. Though Brazil forms part of the original "Pink Tide" of leftist regimes taking power in the hemisphere, the country has always been most cautious when it came to promoting a truly progressive agenda, and in some cases the South American giant has even watered down such impulses. Take, for example, Brazil's posture towards Venezuelan-inspired Bank of the South, an initiative launched by Venezuela's Hugo Chávez in 2007 to counteract the IMF while fostering regional integration, poverty alleviation and investment.
Publicly, Brazilian President Luiz Inácio "Lula" da Silva of the Workers' Party embraced Venezuela and Bank of the South, but according to confidential U.S. diplomatic cables published by whistle-blowing outfit WikiLeaks, Brazil was skittish about Chávez's rising profile and provocative moves to counter U.S.-influenced institutions. Indeed, according to WikiLeaks cables both Lula and Argentine President-elect Cristina Fernández de Kirchner were circumspect and "Argentine and Brazilian officials are working behind the scenes to moderate Venezuela's influence in the organization of the bank in order to avoid the overt politicization of the Bank's lending policies." Meanwhile, Lula sent diplomats to neighboring Peru in an effort to torpedo Bank of the South and line up regional allies around more conservative lending institutions.
Brazil's Poor Track Record
Why should Brazil support upstart Venezuela, Lula may have reasoned, when the South American juggernaut already has its own development bank, BNDES? Hardly a progressive-leaning institution, BNDES has sought to encourage the growth of strong Brazilian multinationals via below-market loans. The bank has provided support to companies like oil giant Petrobras, iron flagship Vale, and steel maker Gerdau, all of which have been conducting a big push into neighboring countries. The Brazilian wave however has been met with wariness and resistance from Paraguay to Guyana to Peru to Ecuador, where local residents have protested boondoggle projects. Moreover, when BNDES announced it would support road construction through remote indigenous territory in Bolivia, the effort sparked protest from local Indians who accused President Evo Morales of being a foreign lackey.
Lula and Rousseff's historic support for BNDES provides a strong contrast to the likes of Venezuela, which seemed poised to spearhead more progressive-leaning financial reform during the early Chávez years. In addition to Bank of the South, Chávez also appointed Nora Castañeda to head up the innovative Women's Bank in Caracas [for more on Castañeda and the bank, see my second book]. Chávez backed other innovative measures too such as the Bolivarian Alternative of the Americas (or ALBA) a trade bloc designed to promote complementarity and reciprocity outside of the usual corporate structures, and the Venezuelan leader even created a new common currency called the Sucre. Needless to say, Brazil failed to provide necessary support for such efforts which might have challenged the "Washington Consensus" and the hegemony of the U.S. dollar.
What will it take for South America to overhaul its politics and adopt more radical economic policies? During a recent South American confab, BRICS nations employed fiery rhetoric against western lending institutions, and member nations wasted no time in criticizing the World Bank and IMF. "It is the common intention," Putin stated, "to reform the international monetary and financial system. In the present form it is unjust to the BRICS countries and to new economies in general."
Putin is an awful messenger when it comes to social and economic justice, yet it's also true that BRICS nations have historic grievances. According to a recent article in the Guardian, BRICS possess just 11 percent of the votes at the IMF, even though member countries account for a substantial 20 percent of world economic activity. Furthermore, the American congress has refused to ratify a recent agreement which would rectify this unequal situation. In addition, writes the Guardian, the U.S. has "displayed no willingness to renounce its anachronistic privilege of nominating the World Bank's president."
In a column, Gabriel Elizondo of Al-Jazeera remarks that by creating a new development bank, BRICS nations "dropped a sledge hammer to the so-called Washington Consensus." Elizondo writes that "it was clear leaving Fortaleza [the Brazilian city where BRICS nations signed the agreement to create a new bank], there was a consensus, but it wasn't coming from Washington. The pressure is not on Shanghai. It's now on the U.S. capital. Competition is not a word that's part of the regular World Bank and IMF vocabulary. It is now."
Contradictions at New BRICS Bank
Despite such claims, there are real questions about the economic effectiveness of the new BRICS bank. To be sure, member nations have committed $50 billion in initial capital, but BNDES already doles out close to $100 billion a year anyway. What is more, it's unclear whether the BRICS bank can make a real financial difference, given that developing countries have huge infrastructure needs in the neighborhood of $600 to $700 billion. It's unclear when the new bank will actually start lending money, though perhaps somewhat optimistically within less than two years.
It's also similarly unclear whether the BRICS bank really represents such an ideological challenge to western financial institutions. To be sure, the new entity has pledged not to impose budgetary conditions on loan recipients like the IMF. Moreover, BRICS countries have promised to mobilize resources "for sustainable development projects." However, Inter Press Service reports that the new BRICS bank's articles of agreement don't contain any references to social and environmental safeguards. Speaking with reporter Elizondo of Al-Jazeera, BNDES President Luciano Coutinho "downplayed" the notion that the new BRICS bank was opposed to the World Bank or I.M.F. Moreover, despite BRICS claims that the new bank will be transparent, grassroots groups charge that BRICS governments often fail to represent the needs and aspirations of their peoples.
Though the economic future of the BRICS bank remains uncertain, it seems possible that the new entity could help to solidify political ties between member nations. That, at least, is the hope of Vladimir Putin who is eager to obtain new allies who won't challenge the Kremlin's dubious foreign adventures. In Brazil, Putin remarked that the new bank could help to prevent the "harassment" of countries whose foreign policy is at odds with Washington's. Specifically, Putin wants BRICS nations to work against unilateral sanctions. "Recently Russia has been exposed to a sanction attack from the United States and its allies," the Russian President remarked. "We are grateful to our BRICS partners who have criticized such practices in different forms," he added.
If the diplomatic advantages for Putin are somewhat obvious and straightforward, the political calculus for South America is a little less clear. Brazilian President Rousseff is facing a challenging re-election campaign and may surmise that courting the anti-U.S. left within the ranks of her own Workers' Party will reap political dividends, though such a constituency is rather small and unlikely to make much of a real difference. Like Rousseff, other Latin American leaders are rushing to embrace the Putin bandwagon. Take, for example, Cristina Fernández de Kirchner, who seeks Russian financial assistance and diplomatic support for Argentina's disputed claims over the Falkland Islands or Malvinas. In return, Kirchner would like Putin to back the notion of Argentine membership within BRICS.
So much for Brazil and Argentina, but what about Venezuela, a country which has at times sought to challenge U.S. financial hegemony? Like Kirchner, who has stated that Russian-Argentine "multi-polarity" will do away with "double standards" on the world stage and encourage greater adherence to international law, Venezuelan President Nicolás Maduro has done much to rehabilitate Vladimir Putin. In recent years, Venezuelan trade with the BRICS bloc has skyrocketed, increasing by 72% from 2006 to 2013. Hoping to solidify ties yet further, Venezuela participated in a recent BRICS summit in Brazil. Somewhat perversely, Maduro has proposed a joint financial strategy with Bank of the South collaborating with the new BRICS bank. Echoing Kirchner, Maduro said that closer relations between BRICS and Latin America represented a "win win alliance" and "the birth of the multi-polar world."
Buffering Financial Shock
Perhaps, such geopolitical maneuverings make sense in a Machiavellian sense, but they make a mockery of the South American left's pretensions to put forward a more idealistic brand of politics. Furthermore, questions linger over another BRICS initiative, the so-called Contingent Reserve Arrangement (CRA). Concerned about ongoing economic turbulence, BRICS nations set up the scheme earlier in July. The initiative is designed to provide a buffer in light of capital volatility, overcome lack of short-term liquidity and offset fiscal deficits brought on by financial dislocation.
The CRA emergency pool will total $100 billion, and Putin plans to contribute $30 billion to the fund. The scheme aims to lessen BRICS dependence on the U.S. Federal Reserve and the dollar, and member nations will earmark money from their foreign exchange reserves for swap lines which could in turn be called upon in times of distress. The international monetary system depends a lot on the U.S. dollar, Putin has remarked, and BRICS countries are determined to change this.
Sounds like a provocative idea, but will it work? Barry Eichengreen, a professor of economics and political science at University of California, Berkeley believes the CRA amounts to mere "empty symbolism," and "that is how it will be remembered." Writing in the Guardian, Eichengreen remarks that in the event of a financial crisis the CRA probably won't work, since "the interests of prospective borrowers and lenders are not obviously compatible. The next BRICS country experiencing a crisis will want to draw on the CRA. But the other members will hesitate to lend more than token amounts, especially if there are repayment doubts."
The only way to get around this bottleneck, Eichengreen reasons, is to allow lenders to impose policy conditions on borrowers. But such logic would fly in the face of anti-I.M.F. rhetoric emanating from BRICS. Meanwhile, Eichengreen adds, "imposing conditionality on sovereign states is a delicate matter - especially when the countries involved are as large, proud, and diverse as the BRICS." "It is difficult," Eichengreen muses, "to imagine Brazil, for example, accepting policy conditions laid down by China."
Not only may the CRA be unworkable, but the scheme won't provide a systemic challenge to capitalism, either. It's a little odd that the Latin Americans, having already advanced a number of innovative and experimental measures dating from the Chávez administration in Venezuela, are now ignoring such efforts whilst engaging in a geopolitical game to the bottom. Enthralled with the notion of challenging Washington in its own "back yard," South American nations are turning their backs on their earlier idealistic past so as to play in the big leagues, even if that means rehabilitating a pariah figure such as Vladimir Putin.
Nikolas Kozloff is the author of Revolution! South America and the Rise of the New Left. Follow him on Twitter here.