by Peter Koenig
Peter Koenig is an economist
and geopolitical analyst.
He is also a former World Bank staff and worked
extensively around the world in the fields of
environment and water resources. He lectures at
universities in the US, Europe and South America.
writes regularly for Global Research, ICH, RT, Sputnik,
PressTV, The 4th Media (China), TeleSUR, The Vineyard of
The Saker Blog,
and other internet sites.
He is the
author of Implosion - An Economic Thriller about War,
Environmental Destruction and Corporate Greed - fiction
based on facts and on 30 years of World Bank experience
around the globe.
He is also a co-author of The World
Order and Revolution! - Essays from the Resistance.
Based on an interview with
Tashreeq Truebody, Radio 786,
Economy and BRICS
the BRICS in perspective:
The BRICS are of
course Brazil, Russia, India, China and South Africa.
Together they make up
for almost 50% of the world population and close to one third of
the world's economic output, or GDP.
This alone would make them fully independent from the western
economy, from the western, what I call, fraudulent dollar-based
And it will happen - it will happen sooner than
the world believes.
However, with the
current political structure of the BRICS, the relative lack of
political and economic coherence, safe for Russia and China,
this for the moment is just theory.
If you allow me, let's backtrack a bit in history, to where the
term BRIC came from, and who coined it.
At the beginning,
South Africa was not yet member of the association.
shortly after the 9/11, in 2001, the chief economist of Goldman
Jim O'Neill, invented the term
'BRIC' - as he was
forecasting that these emerging economies, spread throughout the
world, Brazil, Russia, India and China - would overtake the
so-called western economy by 2041.
The forecast was
later revised several times, all the way to 2032 - and now,
there is, I believe no formal forecast, but it could easily
happen by 2025, or earlier, especially with the new Oil-for-yuan
and gold exchange market soon to be opened in Shanghai.
predict this to be the end of the petro-dollar, and the end of
the dollar hegemony.
Then strangely and formidably the four BRIC countries realized
their potential and took things in their own hands. That's how
dynamics work - often totally unpredictably.
For sure, Goldman
Sachs and their Chief economist had no clue that this would
create the western monetary and economic system's most daunting
The first BRIC summit was held in Russia in June 2009. That was
the formal conference to create the BRICS.
By 2011, the five countries, Brazil, Russia, India and China -
plus South Africa were the five fastest growing emerging
markets, and in April 2013, South Africa was added to the BRIC
group - to make it formally the BRICS.
This just as a little historic introduction - to show that the
impetus for the BRIC(S) came actually form a most unlikely
western source - Goldman Sachs.
In the meantime, the BRICS are struggling with another reality.
For the BRICS to be
an effective alternative to the western economy, or the western
monetary system, they need a unified political vision, as well
as a coherent and unified economic development approach, one
that distances itself from the western dollar-euro based system.
Unfortunately, today this is not so. But that doesn't mean it
will not happen. Personally, I believe
it will. It may just take longer than the majority of the world
may have liked.
Both Brazil and India are totally in the hands of Wall Street,
the World Bank and the IMF.
In the case of India,
you will recall last fall's deadly monetary fiasco, when PM
Narendra Modi decided to cancel more than 80% of the
countries circulating cash currency, and as an interim step to
replace it with other bills and eventually
digitalize the Indian
It is not known how many poor Indians perished, those with no
access to bank accounts, those who have no alternative means to
pay for food.
Uncountable small businesses failed - an important
impact on the Indian economy. More, much more inhuman was the
impact on the poor average Indians.
But, Modi followed
the dictate of the west, of Wall Street and the IMF, with a
program to test digitalization in a large emerging economy,
implemented by USAID.
How much trust does India under Modi as
a BRICS member deserve?
And Brazil under neoliberal Temer, who is under
accusation of corruption; he has literally handed his country's
economy to the sharks of Wall Street, the IMF and the WB.
So, when Temer and
Modi stood there holding hands with the other three BRICS
members in Xiamen, China on 4th and 5th September, it looked to
me like a club that was united only by name.
Yet, the theme of this 9th BRICS Conference was "BRICS
Partnership for a Brighter Future" - I truly hope this
objective will be achieved. And it very well may - over time...
It is important to
approach such an event in a positive and forward-looking spirit.
Perhaps it was along the same philosophy, that ahead of the
September summit in Xiamen, President Putin said
something crucial, but highly political and highly diplomatic:
"It is important
that our group's activities are based on the principles of
equality, respect for one another's opinions and consensus.
Within BRICS, nothing is ever forced on anyone. When the
approaches of its members do not coincide, we work patiently
and carefully to coordinate them.
This open and trust-based
atmosphere is conducive to the successful implementation of
Understanding Industrialization/development and the Brics Bank
start with the BRICS development bank, now called New
Development Bank (NDB).
It emerged as an idea
from the Durban BRICS summit in March 2013 and was formally
created in 2014, and signed as a Treaty in July 2015.
Under the Agreement the BRICS Development Bank, as it was first
called - now the NDB - they set up a "reserve currency pool" of
US$ 100 billion.
Each of the
five-member countries was to allocate an equal share of the US$
50 billion start-up capital, to be expanded later to the US$ 100
Contributions per country were, Brazil, $18 billion, Russia $18
billion, India $18 billion, China $41 billion and South Africa
The problem is that the initial capital and the
Contingency Reserve Arrangement (CRA) of US$ 100 billion was set
up in US dollars.
How can they break loose from the western dollar-based monetary
system, if their contribution is dollar based?
Also, South Africa and Brazil are heavily indebted - in US
dollars. South Africa's current debt is today above 50% (US$ 153
billion) of GDP which stands just below 300 billion.
To comply with their contribution to the dollar-denominated CRA,
Brazil and SA may have to borrow from where? Wall Street, or
the IMF, as the CRA is a dollar reserve fund.
This puts these
countries even more into a dollar bondage, in the hands of
FED and the
Bretton Woods Organizations - instead of freeing
them from this predicament.
As a parenthesis, South Africa's interest on foreign debt of
$153 billion was about US$ 5 billion (2016). Foreign debt is
almost 52% of SA's GDP of close to US$ 300 billion.
The US$ 5 billion
debt payments are higher than the country's spending on tertiary
education (about R60 billion/US$ 4.6 billion equivalent).
This is also a good
reason to detach from a debt-based monetary system - and, as
originally was planned by the BRICS - migrate towards a BRICS
own monetary and international payment system - similar to the
one already introduced to the world by China - the Chinese
International Payment System (CIPS).
On Industrialization - the NDB will certainly help boost
industrialization within each of the BRICS countries, but also
among the BRICS countries - and even outside the BRICS nations,
as trade will increase.
At present the NDB has approved seven investment projects in the
BRICS countries, worth around $1.5 billion. This year, the NDB
is to approve a second package of investment projects worth $2.5
to $3 billion in total.
Although it is not clear what precisely these projects entail,
the original idea for the NDB was to support infrastructure and
energy projects within the BRICS countries.
There is a big need
for infrastructure and independent energy production.
infrastructure and energy development, means also
industrialization and trade.
PK: A solid
BRICS cooperation, as well as an own development bank, will most
likely attract - and through the NDB leverage - new investments.
This was one of the
goals discussed during the Xiamen summit. The amount of which
is difficult to predict, but Indian PM Modi has talked about an
expected 40% increase over the next few years.
But even if India
or any BRICS country receives foreign investments, it will be
difficult to discern which investments are directly related to
the new BRICS strength, as so fervently expressed in Xiamen.
More important is the diversification of investments, as well as
the related trade. There are currently several countries on a -
what shall I call it, "waiting list" - to become members of the BRICS.
For example, South
Korea and Mexico (both are OECD members), Indonesia, Turkey,
Argentina, have been mentioned.
Trade between emerging and developing markets has already been
increasing more rapidly than "globalized average trade" for
which WTO imposes the rules.
I could imagine that
trade - and, thus, diversification - between BRICS countries, or
better even, an enlarged BRICS block, could really boom.
It would be a sort of
'globalization' with most trade barriers removed, of a
peace-oriented economy, one that strives for the well-being of
the people, rather than
an elite - and of course, an economy
that does not work for the war industry, as does the western
For that reason, it will be important that the BRICS detach
themselves from the western dollar-based economy and eventually
have their own currency. At the Xiamen summit, this was
discussed in some ways.
The five members have agreed to,
develop BRICS Local Currency Bond Markets and jointly
establish a BRICS Local Currency Bond Fund, as a means of
contribution to the capital sustainability of financing in
BRICS countries, boosting the development of BRICS domestic
and regional bond markets."
This comes pretty
close to what the Euro was before it became Fiat money, i.e. it
was the European Currency Unit (ECU) that then converted into
the virtual Euro, before in January 2002, the Euro became paper
and dollar like Fiat money.
By now we know that the US drove this European currency effort -
establishing the euro as the foster child of the US dollar -
totally unsustainable as a unitary currency of a group of
countries that have no common political interests and goals,
that have no common Constitution.
Their only common
denominator is NATO, their permanent drive for war. It was clear
from the beginning that such a project will be doomed to fail.
Hopefully - and I trust - the BRICS will learn a lesson from this
failed exercise, and only with a strong bond that includes
political, economic and defense long-term goals, a common
currency can flourish.
In Xiamen, the BRICS also established the Strategy for,
Partnership and initiatives related to its priority areas
such as trade and investment, manufacturing and minerals
processing, infrastructure connectivity, financial
integration, science, technology and innovation, and
Information and Communication Technology (ICT) cooperation,
All this for
sustainable, balanced and inclusive global growth.
addresses Dialogue of
Emerging Market and Developing Countries
(Source: BRICS 2017)
This Strategy already is indicative for a different development
and monetary approach than was the one that laid the cornerstone
for the European Union.
between BRICS and the dollar
PK: This will
be interesting to see emerging.
In the medium term, I
see a full integration between the countries of the Shanghai
Cooperation Organization (SCO) and the BRICS.
are already today members of both associations; for example,
Russia and China, recently also India joined the SCO.
The SCO also
comprises most of central Asia, the former Soviet Republics, and
also new Iran and Pakistan. The SCO has already a common
long-term objective, in economic development, political vision,
as well as defense strategy.
During the recent Eastern Economic Forum (EEF) in Vladivostok,
President Putin and President Xi announced cementing of the
fusion between the Eurasian Economic Union (EAEU) and the new
'Silk Road', also called "One Belt One Road" (OBOR), or for
short "OBI" - the One Belt Initiative.
Since OBI is largely driven by SCO, i.e. by China, this also
means that the countries of the Eurasian Economic Union are part
of SCO. Imagine, the economic power of the entire group SCO,
EAEU and BRICS… Western supremacy will be a thing of the past.
This means worldwide trading, but without the dollar hegemony,
without an economic and monetary systems that allows Washington
to impose "sanctions" - outrageous and illegal punishments on
countries that refuse to follow their dictate.
Its high time that
this high crime stops. And that we reinstate international law -
which today is completely 'bought' by Washington.
Today it is clear to most progressive and forward-looking
economists that the future is the east; the west has practically
committed suicide with its constant wars for greed and dominance
and disrespect for the very peoples that foot the western
empire's war bills.
Development Bank and World Bank
PK: Yes, the
original idea was - and I hope still is - that the BRICS New
Development Bank (NDB) will be able to compete with the WB and the
In other words, by
applying non-neoliberal economic policies and with loans that do
not impose austerity - which, as we know, is devastating for
economic development - but will promote peoples' based
development - aiming at a more just income and wealth
This is not yet the case.
As mentioned before, the problem is that the BRICS bank's
initial capital and the Contingency Reserve Arrangement (CRA) of
US$ 100 billion was set up in US dollars.
Also, as said before, South Africa and Brazil are heavily
indebted in US dollars, an existing bondage that is difficult
to break. But not impossible!
The same is true for the Chinese Asian Infrastructure and
Investment Bank (AIIB), whose capital of currently also US$ 100
billion is also dollar denominated, and of which about US$ 18
billion is paid in.
It is very likely that the NDB and the AIIB will work together
in the future - and jointly break the stranglehold of the WB and
In order to do so, they both need to totally break loose from
the dollar economy - which is about to happen, perhaps soon,
with the enactment of the Chinese Petrol exchange in Shanghai,
where trading will NOT be in US dollars but in gold-convertible
A possible solution is an SCO-BRICS currency basket, similar to
the IMFs Special Drawing Rights (SDR) basket which currently
consist of 5 currencies:
This may start out as
a virtual currency for external trade, while each country
preserves her own monetary system.
It looks like a brighter future is ahead...