The South African Civil Society Information Service

The Root of All Evil? The Dollar, the BRICS and South Africa

By Leonard Gentle · 29 Mar 2012

Picture: Deccan Chronicle

South Africa (SA) is attending its second meeting of the BRICS group of countries: Brazil, Russia, India, China and SA. The summit, which took place today March 29 2012, in India, is themed "BRICS Partnership for Global Stability, Security and Prosperity".

In his address to the BRICS summit, India’s Prime Minister, Dr. Manmohan Singh said, “We have agreed to examine in greater detail a proposal to set up a BRICS-led South-South Development Bank…”

A March edition of the Financial Times noted that “During the upcoming BRICS summit, Brazil, Russia, India, China and South Africa are due to sign an agreement to grant one another loans in their national currencies…The move is almost certain to weaken the position of the dollar.”

In recent times, there have been two notable attempts to circumvent the dollar. They both ended in tears. Saddam Hussein wanted to do the Iraqi oil trade in Euros and was overthrown. And Gaddafi’s Libya forced countries to buy its oil in Libyan dinars, as it was not a member of the Bank for International Settlements (BIS) through which world trade takes place in dollars. Gaddafi was reduced to cowering in a sewer before being killed and his regime, overthrown.

A battle is being waged over the roll of the dollar. A battle, which, if historical precedent repeats itself, may turn ugly, but whose outcome will shape our world in new ways.

Yet when SA first joined the BRICS group of countries in 2011, there was largely a media silence. At best there were some footnotes in the business media. This was accompanied by some bemusement at SA’s ‘inappropriateness’ for membership and some criticism that SA was kow-towing to and being seduced into the orbit of strange bedfellows (a reference to China).

Much of this has got to do with the origins of the “BRIC” acronym coined by Goldman Sachs. The focus then was on return on investments in countries, which were gaining an increasing percentage of global GDP (18%), world trade (15%), global currency reserves (40%) and even population (40%).

But with these as the criteria, SA seemed to make an odd choice – too small a population at only 50 million people and too small an economy (at about $500b).

Mindful of this, many commentators have coined this notion that SA is a “gateway to Africa” for investors. Its role is, therefore, as a means to ends pursued by other agents – notably China and India. And so the talk is of a new scramble for Africa, for the continent’s resources, and for access to its new middle class.

But there is no need to form a bloc to pursue such an agenda, and certainly not one roping in potential rivals like China and India in the same bloc. And while Brazil, for sure, is stepping up its investments in Lusophone Africa, Russia is hardly a player at all.            
             
And, more than this, far from SA being a mere conduit for foreign investment, it is by far the biggest “foreign investor” on the rest of the continent. South African Transnational Corporations (TNCs) and parastatals dominate investment in SADC countries by 80% and at 40% for the continent, as a whole, it simply dwarfs the US and the EU, not to mention China, India and Brazil.

So SA is not a weak partner in the BRICS or a mere conduit. The rationale for its membership needs another explanation.
                                                                                   
For this we now know, as the fourth BRICS summit wraps up, the battle over the role of the dollar is the key.

The dollar was the lubricant that fuelled US power since Bretton Woods at the end of World War II. Its potential displacement shows us a battle for a new world order taking place today.    

With the dollar as the world’s currency, the US is the only country in the world that can expand its buying power simply by printing its currency. Any other country doing so (as Zimbabwe did) in a world of global trade would simply cause rampant inflation and currency collapse. At the same time, any act of devaluing its currency immediately lowers its foreign debt (because this is also in dollars) and lowers everyone else’s reserves (which are also in dollars). This is a source of enormous political power, as much as its economic and military power.
     
Today, the US is in effect relying on “borrowing” $1billion each day to cover its deficit in trade. Much of the debt is Treasury Bonds owned by the Chinese state - the main buyer of such Bonds. This increases the value of the dollar and keeps China’s currency, the Renminbi, down making Chinese exports cheaper. China thus has a huge trade surplus, which it then uses to buy more US Treasury Bonds. China is lending the US money it needs to buy Chinese goods.

But on the other hand all the trump cards are not in China’s hands. The “Chinese goods” are often components of US TNCs taking advantage of China’s cheap labour. The Chinese-US relationship is thus a symbiotic one marked by growing tensions and yet inextricable co-dependence.
 
But tensions have been exacerbated by US Fed initiatives such as the two rounds of quantitative easing, which are driving down the dollar and flooding all countries with cheap dollars. China therefore wants a new global financial architecture, but one which does not come about through direct confrontation with the US.                        
       
The US’ relative decline has opened the door to a number of potential challengers. Most importantly, China, but each of the individual BRICS countries is a rising regional power.

India was for decades China’s main ally in the Cold War, as the US focused its geo-political interests on Pakistan. Inside India a growing national bourgeoisie has been at the helm of a new India, aggressively pursuing wealth for its steel, car and pharmaceutical interests. Thumbing its nose at the West, India even announced that it had become a nuclear power.

Brazil has taken advantage of the new independent path of Latin American countries that reject the US’ Free Trade Agreement of the America’s and favour their own regional project, Mercosur. For years various military dictators in Brazil favoured a national project, which included a nationalised bank and its own energy company, Petrobras. Under ex-President Lula, Brazil became an independent force in global affairs promoting its own capitalists in relations with Lusophone Africa, intervening militarily in Haiti and even trying to broker a deal along with Turkey to help Iran avoid the threat of a US-Israeli attack.

Russia, under Putin, is another example of such a bourgeois nationalist project seeking independence from the West. After the collapse of the Berlin Wall the whole of Eastern Europe became open season for World Bank economists and Western TNCs eyeing the ailing car companies and oil and gas fields. But in Russia, a class of oligarchs got in first, grabbing the privatised oil and gas companies and rebuffing the BPs and Standard Oils of this world. Putin has acted at the head of a project ruthlessly crushing any act of further break-ups of the Russian Federation and safeguarding the interests of a Russian elite. 

This is not to say that these “national projects” are being pursued with the wellbeing of their people in mind. One would be hard-pressed to see Putin’s manoeuvrings to get back into the Presidency and the brutal crushing of dissent in its contested republics, as democratic or progressive.

China’s brand of forced capitalism based on cheap labour and primitive accumulation orchestrated by the Communist Party heirs of Mao may have produced impressive growth rates and changed the economic balance of power in the world, but it seethes with discontent.

India may have its Guptas and Mittals, its nuclear bomb and its cheesy Bollywood glamour, but thousands of poor farmers commit suicide annually and its millions are dirt-poor.

Brazil may well have overtaken Britain as the world’s sixth largest economy but ex-President Lula’s nurturing of a Brazilian bourgeoisie has come at the expense of the very social forces that brought Lula, and his successor, to power - the social movements of Brazil’s Landless Workers Movement (MST) and the radical labour movement.

So these projects are not necessarily “national” in the sense that they galvanise all social classes towards some perceived common goal. But at the same time they are “national” in the sense that in a world dominated by US interests - one in which the global architecture has US power at the centre of its design and one where all states concede national sovereignty as a trade-off for flourishing in that design - these projects are directly challenging that power on behalf of national elites.                                                                                                             

Which brings us to South Africa…

Unlike their BRICS counterparts the SA bourgeoisie is not seeking to promote some kind of national project. South Africa’s super wealthy are white and, if anything, unpatriotic. These are the people who benefited from decades of apartheid’s white rule and only went along with majority rule when the ANC negotiators guaranteed their investments. Even with these assurances, the spectre of democracy was enough to send them scurrying off to shield their operations from political interference by setting up shop in London, Amsterdam and Sydney.

With unseemly haste they joined the “shareholder value” movement globally (where they have been remarkably successful) becoming the world biggest resources company: the Gencor-dominated BHP Billiton; the biggest paper manufacturer in Europe: Mondi, and the second biggest beer company in the world: SAB Millar, amongst others. This relocation has caused a balance of payments problem for SA, as profits and dividends have to be sent to London and Sydney whilst denuding the fiscus of tax.
      
Because their main assets in SA are Rand-denominated, successive ANC governments have had to pursue policies of maintaining a strong rand and lowering exchange controls (so that these corporate giants can get their money out easily). They are also the main investors in Rand denominated bonds (which are served by the high interest rates). But the high value of the rand and the high real interest rates are killing SA industry. Some one million jobs have been lost since 2008.

Meanwhile the owners of maize and wheat have simply used the relaxing of agricultural market restrictions to join global futures markets -- selling SA’s grain surpluses at huge profits such that today we have become a net importer of the staple food of the poor – maize – even though it’s grown right here, and we’re also one of the biggest exporters.         

Even the Russian oligarchs were more “patriotic” than that.  
 
And on the rest of the African continent South Africa’s credentials to represent the continent are suspect. There is cold comfort for ordinary Zimbabweans, Malawians and Congolese people when their experience of South African corporations is 1) destroying local producers, as Shoprite is doing to small-scale Zambian producers; 2) tax breaks and capital repatriation, as AngloGold Ashanti is doing to Ghana; and 3) losing competitiveness, as the strong rand is doing to the Southern African Customs Union (SACU) countries and Zimbabwe (where the rand has become the medium of exchange).
                       
The problem with SA’s involvement in the BRICS is not about its relative economic merits for candidacy of such a huge, power-shifting, project. Its problem is political.

In each of the other BRICS countries there is continuity between the objectives being pursued by the political leaders driving the project and their social base – their own national elite. This is not so easily the case here in SA.

Faced with this tension between a project seeking to shift world power relations quite dramatically and the character of the national elite the ANC government shows all the contradictions, which characterise it domestically -- a kind of speak “left” act “right” zigzagging.                          

A case in point is the differing responses of the SA government to what is at the heart of BRICS – the currency question. Despite speaking to the BRICS consensus of trading in ‘non-third party’ currencies or even setting up a BRICS bank, SA has responded in opposite ways to its allies.

With the flow of cheap dollars, which saw investors speculate in Brazil and SA, driving up currencies like the Real, the Rand and the Rouble in 2011, Brazil re-imposed capital controls to tax these flows, whereas SA cut controls even more. Whereas Brazil, Russia and China hate a strong Real, Rouble or Renminbi, SA simply loves a strong Rand.
                   
It is even notable that SA differs on concrete instances of foreign policy. Whereas China, Russia, India and Brazil abstained from Resolution 1973 on Libya - used as a justification for NATO’s overthrow of Gaddafi - SA supported the resolution. And whereas SA supported calls for sanctions against Assad’s Syria, Russia and China have vetoed this, seeing it as a prelude to another Western military adventure. And as the US bullies countries into cutting Iranian oil imports, SA has backed down whilst both Russia and China have simply told the US where to get off.
 
Someone, somewhere, long ago once remarked that foreign policy is an extension of domestic policy.

These contradictions are also evident in the ANC government’s rhetoric of a “developmental” state and a “New Growth Path” whilst it continues on the old path of privatising public services, imposing the “user-pays” principle for public roads and heightening the tradeability of the rand.                     
              
Which brings us to the question: Is this challenge to US global power a good thing?
  
We cannot answer this question from the relative merits of any of the BRICS countries as some kind of new alternative hegemon. We’re a long way from such an eventuality and even China - the most powerful of the BRICS - has neither the military capacity, nor the moral authority to attempt such a replacement. Instead we must view this question from the perspective of a social justice movement struggling for global democracy.

From this perspective it is better to have a weakened multi-polar world than a strong “world policeman” dominating the world militarily and in currency terms. In that sense the BRICS represents both a decline of the US and the space to do something different in the world because no new power is replacing the US as the imperial hegemon.

Already we can see that the weakening of US domination has been a significant factor in allowing Latin America’s pink tide to emerge. Past movements for liberation were simply crushed by the CIA or US-surrogates. In Latin America today the mass social movements of Bolivia, Venezuela and Ecuador have been able to bring in populist political leaders that act independently of the US and are forging development agendas.

The Arab Spring could blossom in the backyard of US puppets like Ben Ali and Mubarak, precisely because the US was no longer able to simply impose its will. Even the holding back of new imperial military adventures - like a US invasion of Iran - is a direct result of the current balance of forces. 

And, most importantly, popular movements everywhere can now pose more radical solutions to the current neo-liberal order because the epicentre of that order, the US, is itself in economic crisis. So an alternative pole to the US, symbolised by repudiating the dollar, and only possible via some serious global arm-wrestling, would be a good thing.

But BRICS is not the only alternative for SA. In the last few years we saw other initiatives. For instance, before the talk about a BRICS bank, a number of progressive Latin American countries set up a Bank of the South, as a real development bank without the neo-liberal conditionalities of the IMF and the World Bank. SA declined an invitation to join.

In this it reflects the ongoing symbiosis between a state and government drawn from a liberation tradition and the powerful South African ruling class, which that government now serves.

Editor's Note: Leonard Gentle recently delivered a paper at a conference in Moscow hosted by the Institute for African Studies of the Russian Academy of Sciences. The conference, which took place on 13-14 March 2012, focused strongly on the role of the BRICS in Africa and was titled The Future of Africa: Competition of Old and New Actors. 

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