On August 23, the Vikram lander of the Chandrayaan-3 mission managed to land on the south pole of the Earth satellite and made India the first country in the world to achieve it and the fourth to reach the moon successfully. The feat, which brought the space race back to the fore after years relegated to political agendas, came just three days after a Russian spacecraft crashed into the lunar surface on the same south face. Despite the disparity of results, both missions demonstrate that the countries of the so-called global south are asking for passage on the global scene and that they demand to be recognized and treated according to this new reality. They are no longer willing to wait for the powers that designed international architecture in their image and likeness after World War II to make a place for them at the table. Now they are the ones creating their own structures to assert their growing power.
The achievement of the Indian space mission occurred just as the BRICS summit (acronym for Brazil, Russia, India, China and South Africa) began in Johannesburg, in which the group announced its first major expansion, after the incorporation in 2010 of South Africa to the original members, just one year after its first summit held at the request of Russia. This enlargement from 5 to 11 members, experts conclude, represents an undoubted victory for China, which sees its geopolitical area of influence increase, although they also see it as a victory with limits, since the enlarged group will be a difficult organization to manage, and, therefore, also with limited consequences for the global economy in the medium term.
A worker touches up a poster of the 2023 BRICS Summit in Johannesburg on August 20. MARCO LONGARI ( AFP/GETTY IMAGES
Despite lacking a clear purpose as a group and the many difficulties of cooperation between them, the BRICS have begun to add members among the twenty or so countries that, according to the South African presidency, have formally applied for membership and the 40 or so that have shown interest in the project. Saudi Arabia, Argentina, Egypt, the United Arab Emirates, Ethiopia and Iran have been formally invited to join the bloc from January 2024. With this, the economies of the BRICS+ (in the absence of a new name for the expanded group) will total 30.8 trillion dollars, if calculated with the data of the International Monetary Fund (IMF) of 2022. But if we measure GDP in terms of purchasing power parity (PPP, excluding the effect of the exchange rate), the BRICS+ will represent 36.38% of global GDP, compared to 30.39% represented by the countries that make up the G-7 (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States). A group that will also sit on 45% of world oil production and that has a more than remarkable weight in the iron ore, coal and bauxite extraction industry, not to mention agricultural production. With these wickers, the BRICS+ can hardly be ignored.
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The project that initially emerged from an investment banker's attempt to understand the transformation of the world economy in the early 2000s has now become a political platform that aspires to be the voice of the global south. It was Jim O'Neill, then chief economist of Goldman Sachs, who in 2001 coined the term that has become so famous later to designate the economies with the greatest growth potential and that could be out of the focus of investors at that time precisely because they lacked a multilateral presence according to the population they represented. Twenty-two years later, the international institutional architecture still does not recognize the weight of these powers in its shareholding. Suffice the example of China, which accounts for just over 18% of world GDP and barely has a 5% voting share in the main lending arm of the World Bank. Institution together with the IMF whose top executive positions continue to be divided between the United States and Europe since its creation.
The demand for fair representation in the international financial institutions is at the very origin of the BRICS and this was reflected in their first joint communiqué. In the absence of progress, in 2013, the BRICS decided to create the New Development Bank as an alternative to the IMF and that started two years later with a capital of 50,000 million dollars. It is, to date, its greatest success as a group, although the profile of the entity is far from becoming a lender of last resort for countries in crisis.
Disparate interests
"The BRICS sometimes present themselves as an alternative to the G-7, but they work differently, because they do not have the level of internal cohesion among their members to coordinate their policies. Their interests are very different," said Ali Ahmadi, an expert on sanctions and economic strategy at the Geneva Centre for Security Policy. An assessment that qualifies Sunjoy Joshi, president of the Indian research center Observer Research Foundation. "It is not a group that serves for everything, does not defend ideological positions, but acts from pragmatism. The BRICS will serve to address some issues, such as those related to, for example, managing the consequences of climate change, and other issues will be addressed in other for a. What should undoubtedly cease to exist is the G-7, which is incapable of offering solutions to the successive crises that we have gone through in recent years, because it cannot address them without counting on the countries of the global south, "he says by video call from New Delhi.
From left, leaders Luiz Inácio Lula da Silva (Brazil), Xi Jinping (China), Cyril Ramaphosa (South Africa), Narendra Modi (India) and Russian Foreign Minister Sergey Lavrov at the BRICS summit in South AfricaGIANLUIGI GUERCIA (AFP/GETTY IMA
There is no doubt that the Western model has exhibited significant cracks in recent years, that the financial crisis, the subsequent debt crisis in Europe and the trade war with China, with its long list of sanctions and protectionist policies in response to the economic, technological and geopolitical boom of the Asian giant, have reduced authority to its positions. In some cases, it has even opened wounds of which the West is not aware, but which the regional authorities are very aware of.
During the COVID-19 pandemic, developed countries realized their heavy dependence on global production chains and the lack of security of their supplies, and began to adopt measures to bring factories closer to partner countries and regions considered safe. For emerging economies, however, the pandemic made it clear that when it comes to distributing vaccines and releasing pharmaceutical patents, citizens of the global south are considered second-class by industrialized powers, regardless of their speeches. In fact, when it was possible to develop a vaccine that managed to minimize the effects of the disease, the G-7 countries accounted for more than a third of the world production of those doses even though they represent only 13% of the population.
As a consequence, the BRICS launched in March 2022 their own Vaccine Research and Development Center "to be prepared for future crises and make vaccines more accessible to emerging countries," the five BRICS proclaimed in a statement. Political and security autonomy will increasingly have an impact on trade flows, from North to South, and vice versa, says Ali Ahmadi.
It is in this context that India and Brazil, the most reluctant, give in to China's pressures and agree to the enlargement agreed in South Africa, without anyone having clarified what criteria have led to accept some countries and postpone the accession of others. Argentina, for example, may not finish materializing its entry, since the candidates most likely to win the elections on October 22 – Javier Milei and Patricia Bullrich – do not want to be part of what they consider a platform totally dominated by China. "Ethiopia is a country rich in minerals and, by joining with Egypt, reduces the chances of a water war between the two countries," explains Enrique Feás from Luxembourg. "Iran joins the group as one of those aggrieved by Western sanctions, in addition to asserting its oil potential. Whereas in the case of Saudi Arabia and, to a lesser extent, the United Arab Emirates, allowing themselves to be courted by Beijing seems more like a way of pressuring the United States to recover some of the lost status," he concludes. Because the scenario in which the agreement takes place, dominated by tensions between Washington and Beijing and the war in Ukraine, cannot be ignored.
Precisely, the conflict that is being waged on European soil was one of the issues that he planned with greater intensity at the Johannesburg summit. Certainly not because one of its members was the instigator of the armed conflict, nor because Russian President Vladimir Putin could not attend the meeting as a result of the international arrest warrant that weighs on him after the invasion. As Sunjoy Joshi explains, the conflict has materialized sanctions that until now seemed unlikely and of which the BRICS have taken good note for the future. "The war in Ukraine has shown that absolutely anything can be used as a weapon in the event of conflict. The sanctions against Russia have taken a substantial leap and affect all areas, technology, energy, food, financial transactions, central bank reserves abroad... This has created an awareness among emerging powers of the need to implement risk reduction strategies," Joshi stresses. "And that's going to deepen the fragmentation of the global economy," he says.
For the BRICS, this risk-reduction strategy involves reducing their dependence on the US dollar. It is not a question of creating a common currency, something that capital controls and the non-convertibility of currencies such as the Indian rupee or the Chinese yuan make impossible, but of increasing payments and bilateral transactions in their respective currencies. Something similar to what happens between Russia and China, whose central banks have worked for years to develop a system that would allow them to use their respective currencies in bilateral trade and which, according to Vladimir Putin, already represents 80% of exchanges between the two countries. "If the group advances in the development of these mechanisms to generalize them in their exchanges, they can create a model to trade with countries affected by sanctions. In addition, the incorporation of large producers of raw materials into the BRICS fits well with the plans to move towards dollarization, "says Ali Ahmadi from Geneva.
At the South Africa summit, BRICS leaders have asked their finance ministers to submit a report in the coming year with measures to reduce dependence on the dollar. But the equation is very complex. "Any attempt to replace the dollar or the euro in international financing is not going anywhere, at least within 30 years," says Enrique Feás, senior researcher at the Elcano Royal Institute. "The BRICS may increase the use of their respective currencies in part of their trade, but who wants a million yuan in their wallet if they don't know if they will be able to exchange it into dollars or take it out of the country? Nobody trusts these markets, and under those conditions it is simply impossible to think of a global reserve currency alternative to the dollar," he adds. Without reforms of these countries' financial markets that lift capital controls and allow convertibility of their currencies, the attempts will have limited impact, economists say.
It is true that since the Asian and Russian financial crises of 1997 and 1998, respectively, the large emerging economies have been accumulating dollar reserves as a guarantee of stability for their currencies. And although inflation has depreciated the value of these reserves and set off some alarms among those responsible, they still have many more guarantees than any of the BRICS currencies. Franco Macchiavelli, head of Analysis at Admirals Spain, explained it with the recent case between India and Russia. "India has been buying oil from Russia at a significant discount to the price in the West. Purchases paid in rupees. Collaterally, Russia faces a significant currency risk, that is, that the rupees depreciate over time even more than the dollar. In addition, and unlike the dollar, rupees are only accepted in India, they do not serve to buy an asset anywhere in the world, which significantly complicates the management of the central bank's international reserves, "he pointed out in a note.
Reserves
All this explains why the dollar still represents 60% of world reserves, the euro 20% and the yuan does not reach 5%. According to data from the Bank for International Settlements, corresponding to April 2022, 88% of commercial exchanges are carried out in dollars and a study by the Federal Reserve of the United States reveals that the weight of the greenback between international reserves and commercial exchanges has hardly changed between 2018 and 2023. The BRICS development bank itself is a good example of the difficulties represented by the vaunted purpose of de-dollarization: of its loan portfolio for projects in the BRICS countries, 19,979 million are in dollars; 5.359 billion yuan; 3,025 million in euros, 1,226 million in South African rand and 541 million in Swiss francs.
According to Cliff Kupchan, president of the political risk consultancy Eurasia Group, it is precisely the New Development Bank that could make a significant difference in the new geopolitical order, if countries agree to increase their capitalization to be able to compete with the more than 330,000 million dollars in assets that the World Bank had at the end of June or the 600,000 million of the European Investment Bank. "China's recent experience shows that lending for purely political purposes can create huge debt collection problems and the Bank's influence would be eroded without a coordinated vision of its mission. But it has the potential to become an institution of great importance in the medium term," he said at a recent conference.
But one thing is to agree that there are things that must be changed and another is to agree on how to work together to carry it out and how to do it. Border tensions between India and China have increased since May 2020 and largely explain the decision of Chinese leader Xi Jinping to absent himself from the G-20 summit a few days after the South African meeting. Countries such as India, South Africa or Brazil have made it clear that they want to have as good relations with Western powers as with China or Russia. And while those powers have refused to back Western sanctions on Moscow, they are unwilling to turn the BRICS into an anti-Western group.
The next 12 months, until the next summit is held in October 2024 in Kazan, Russia, will reveal a lot about the challenges facing the BRICS and the real potential they have as a geopolitical platform. And they may have even found a name that includes them all by then.
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