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Neoliberals dominate. How will this affect Brics' bank?



Patrick Bond (The Star, Johannesburg) 15 July 2015

The RussiaToday tv interview by President Jacob Zuma and the Brazil-Russia-India-China-South Africa (Brics) summit’s Ufa declaration last week together left no doubt about the New Development Bank (NDB) mandate, with $50 billion in capital, of which South Africa’s immediate $5 billion (R62.5 bn) contribution will strain the budget not inconsiderably. “The NDB shall serve as a powerful instrument for financing infrastructure investment and sustainable development projects.”

This excellent-sounding phrase motivates much more open critiques of Washington’s two ‘Bretton Woods Institutions,’ founded in 1944 to reboot a world economy in desperate need of order. In Ufa, as IOL’s Shannon Ebrahim put it, “the World Bank and International Monetary Fund (IMF) got a clear message from the world’s most important emerging economies: don’t use your economic power to threaten us or dictate the terms of our development any longer.”

Zuma was even more blunt about the two Washington institutions, which “want to dictate what you should do. You can’t utilize that kind of assistance the way you want. So, in a sense, it has conditions that will keep you dependent all the time. That’s what we’re trying to take ourselves out of.”

Perhaps unwittingly, is Zuma reiterating his nemesis Ronnie Kasrils’ criticism of the IMF’s $850 million loan to South Africa six months before democracy dawned? The former ANC Minister of Intelligence in 2013 termed this deal “the fatal turning point. I will call it our Faustian moment when we became entrapped – some today crying out that we ‘sold our people down the river’.” Economic policy overly influenced by Washington has failed South Africa, ever since.

Pretoria’s new non-executive director to the NDB, Tito Mboweni, had a central role in the IMF deal and subsequent neoliberal strategies such as record-high interest rates and exchange control liberalisation. As Mboweni explained in a 2004 speech, he knew that “the apartheid government was trying to lock us into an IMF structural adjustment programme via the back door, thereby tying the hands of the future democratic government.” But, he claims, “We did not sell out!”

Greek prime minister Alex Tsipras is trying to explain exactly the same circumstances to the Greek people this week. Though 21 years apart, both countries witnessed 61% votes against neoliberalism (the ANC’s alternative was the Reconstruction and Development Programme). Yet by invoking power far greater than mere democratic elections, the IMF imposed severe policy conditions in both countries: budget cuts, higher Value Added Tax on poor people’s consumption, privatisation, labour casualisation and deregulation.

Tsipras’ Monday morning agreement with the IMF and European Union authorities will worsen Greek austerity, just as Pretoria’s budget cuts of 3% for poor people’s grants this year prove that locally, neoliberals remain dominant. Higher inequality, unemployment and social unrest will logically follow, in both countries.

In South Africa’s case, even personnel conditions were attached to the initial deal: Mboweni had to wait an extra five years to become central bank governor because IMF head Michel Camdessus insisted informally in a January 1994 meeting with Nelson Mandela that apartheid-era neoliberals Chris Stals at the Reserve Bank and finance minister Derek Keys be reappointed to their jobs.

Will the BRICS’ NDB and its $100 billion ‘Contingent Reserve Arrangement’ (CRA) fund for stabilisation during financial crisis prove any different? Probably not, for as Peter Fabricius points out (‘Brics bank not entirely free of IMF’), “According to its own articles, the CRA will barely be able to function without IMF backing.” Once Pretoria needs just $3 billion to service a foreign debt which now exceeds $140 billion, the CRA orders that it take on an IMF agreement before more credit is granted.

Indeed the CRA is – like the NDB – initially denominated in US dollars, and repayment of those can be a wicked challenge, as the Passenger Rail Agency of SA learned this week, what with its failure to contemplate the 50% rand devaluation since 2011 and hence a 40% price mark-up on imported locomotives. The BRICS have a great potential for non-$-denominated lending and it would be ideal to break reliance on the US Federal Reserve’s unreasonable power of world money creation, to be sure.

However, asks Fabricius about the NDB and CRA, “Whether they are also politically skewed in their funding, by imposing pro-Western conditionalities, is less clear.” This is indeed the critical question, especially on foreign policy matters where anti-imperialist rhetoric comes easy. You can hear the ‘talk left’ but are you watching the ‘walk right’?

Unfortunately, Pretoria’s neoliberal agenda becomes most visible when considering the personnel deployed to lead the NDB. Mboweni and NDB vice president Leslie Maasdorp are senior advisors to international financier Goldman Sachs and have a long history of endorsing Washington bankers’ logic. Maasdorp was in charge of privatising South Africa’s state assets and chaired a parastatal – the TransCaledon Tunnel Authority – notorious for turning a blind eye to extreme Lesotho mega-dams corruption.

Mboweni joined an elite group of IMF reform advisors in 2006, men like former US Federal Reserve chief Alan Greenspan, who simply shifted some of the deck chairs. China thus got more voting power and African countries less. By 2012 when the BRICS put $75 billion into bailing out the IMF when it needed more money, the only conditionality I found discussed in public was SA finance minister Pravin Gordhan’s Moneyweb interview when he advocated that the IMF be more ‘nasty’ to Europeans (like Tsipras) in need of emergency loans.

In other words, if Pretoria’s neoliberal bloc remains in control, the NDB’s allegedly ‘sustainable’ infrastructure could include items from Eskom chair Brian Molefe’s Brics Business Council project wish-list: new coal-fired generators, Operation Phakisa off-shore oil drilling, and Durban’s $25 billion new port. Even worse, Mboweni last week told Bloomberg, the proposed R1 trillion nuclear deal “falls squarely within the mandate of the NDB”.

Since the same corrupt construction companies will be building NDB-financed infrastructure given our ongoing lack of state building capacity, and since we are still paying off white elephant soccer stadiums that were an unintended adverse consequence of the bribe-laden 2010 World Cup bid, it is time to ask harder questions about ‘sustainable’ Brics infrastructure. We may find that the worst tendencies of the World Bank and IMF are actually amplified in the allegedly alternative financial institutions.

Bond, a joint professor of political economy at UKZN and Wits, is co-editor with Ana Garcia of a new Jacana book, BRICS.

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