EDITORIAL: The world’s emerging economies – Brazil, Russia, India and China – created BRIC in 2006 and South Africa joined in 2010 making it BRICS.
Its original objective was to strengthen economic ties between member countries and enhance their political and economic standing in the world - a standing that was not accepted post-World War II by seven of the then world’s largest and most resilient economies – the United States, United Kingdom, France, Germany, Italy, Canada and Japan – and is not accepted today as the group’s doors remain firmly shut to new entrants including emerging economies.
In addition, all multilateral banks barring the Asian Infrastructure Development Bank established by China with start-up years 2016-2022 – World Bank, International Monetary Fund, Asian Development Bank, African Development Bank and Inter-American Development Bank – are led by G-7 countries and their conditions are increasingly being assailed by debtor nations, including Pakistan, as being extremely burdensome for the general public.
The post-War economically prominent position enjoyed by the US has declined considerably – from 45 percent of global GDP in mid 1940s to only 25 percent today.
China is now in second place at 18 percent pre-Covid. Yuefen Li, Economist and Special Advisor on South-South Cooperation and Development Finance, South Centre, Geneva, in a research paper contended that “concentration of power in one country seems frightening to the rest of the world.
Many scholars also believe the current dollar-dominated international financial system is skewed in the United States’ favour and is unsustainable.“
Li itemises the exorbitant advantage to the US which “allows the US to import foreign goods and services more often than not at low rate when compared to the sizeable excess return on US-backed capital exported back to the rest of the world, including interest income, portfolio equity positions and other capital exports in dollars.”
Gourinchas and Rey’s study concludes that US foreign liabilities are almost entirely in dollars, with 70 percent US foreign assets in foreign currencies, implying thereby that a 10 percent dollar depreciation represents a transfer of around 5.9 percent of US GDP from the rest of the world to the US; and during 1952 to 2004 indirect capital transfer from the world to the US owing to dollar’s special status was 0.3 in 1952 and 1.34 in 2004.
The economies of US European allies are also suffering - German car industry has suffered major losses, partly attributable to sanctions imposed on Russian gas, and France, the other major European economy is suffering from a deficit of 5.6 percent of GDP (the European Union limit is 3 percent). Other European nations are also suffering major setbacks to their economies.
Apart from the loss of its economic position the US has also been using economic sanctions against countries, which is fuelling the drive towards de-dollarisation.
Referred to as weaponization of the dollar the sanctions regime has pushed the BRICS member countries together – China recently offloaded 42.6 billion dollars worth of long-term securities consisting of treasury, agency, corporate and other bonds as well as other equities as per the US Treasury; Russia was sanctioned and its 300 billion dollar assets seized by the West with President Biden passing the REPO Act this year, which empowered him to provide these assets to Ukraine however as most of the funds were held in Europe the Europeans did not agree to transfer of the principal and instead agreed to give Ukraine funds from the profits that accrue on the Russian assets; Iran another heavily sanctioned country with large oil reserves is already a BRICS member as is Egypt and the UAE and there is talk of trading with each other in their own currencies with recent reports indicating that BRICS is considering interbank cooperation as well as a new global system as an alternative to SWIFT.
Pakistan, together with more than 40 other countries, has applied for membership of BRICS and while Foreign Minister Dar thanked the visiting Russian Deputy Prime Minister Overchuk for supporting our membership yet the Russian later clarified that the offer of membership will depend on member countries.
As matters stand today two of the “friendly countries” are members of BRICS – China and the UAE – however both have indicated that they will not extend even pledged assistance to Pakistan unless we are on a rigidly monitored IMF (International Monetary Fund) programme, which implies that they have no comfort level with our commitment to meaningful reforms.
Pakistan remains highly dependent on multilateral loans and commercial banking loans from abroad and hence our susceptibility to the threat of US sanctions remains acute.
One way out as Business Recorder repeatedly suggests is to slash current expenditure by at least 2 trillion rupees this year that would not only take away the need to raise taxes further or burden the overburdened people but also create space that would reduce and eventually take away the need to borrow externally.
Copyright Business Recorder, 2024