Tuesday, 5 August 2014

Mario Monti and Hans Tietmeyer quotes of the day

"Those who govern must not allow themselves to be completely bound by the parliamentarians."

--- Mario Monti

What then is the higher force whose authority can suspend the decisions of the democratically elected representatives of the people? As far back as 1998, the answer was provided by Hans Tietmeyer, the then Governor of Deutsche Bundesbank, who praised national governments for preferring "the permanent plebiscite of global markets" to the "plebiscite of the ballot box".

Yucks, there is a serious challenge to my work on Legislative Oversight.  

BRICS Bank/NDB: where are the fault lines lying?

In response to a couple of pieces by Oscar Ugarteche and translated by Jordan Bishop here and here on the BRICS Bank as part of a new financial architecture, my response follows (which is a bit sketchy though, and would certainly undergo some fine tuning):

 1. Financing works of great importance in BRICS countries. And which are the ones that qualify as 'Great Importance': Here, we could get in Parliamentary Oversight/Legislative Oversight at least in the so-called democracies among the group. Who decides, what is great importance, and what roles do people and their representatives have in making or reaching such a decision? Issuing guarantees and buying publicly held shares is a very logical implication. Nothing new there. 

2. Looking at the 3-tiered architecture of the Bank now, and I see no difference from the way WB and/or ADB is structured. Correct me, if I am wrong here. The BoG is the finance ministers in all three cases. They have no explicit executive function in all three cases, and where they score immensely is having leverage on the Executive Council, or EDs for particular regions. The executive capacity of the council is whether we like it or not controlled by BoG in all three cases. So, where is the difference here? But, yes, there is one though: Unlike the WB, where an ED could represent a multiple geographies, in BRICS, at least to begin with, there would not be multiple countries represented. But, this could change over time, as any member country of the UN could become a member, but not be subjected to credit. Now, this is where things could get murky, and linked with the first point where leverage would be decided by financial muscle and a position in global relations. There could be a horde on inflating the clout of influence by the member countries, especially the likes of China, Russia and India, and with a disparity in what goes on to create the Contingency Reserve Fund, some of the member countries could find themselves left behind, or decelerating in the process. And moreover, the ambiguity of whether stakeholders would be members is hardly addressed even though discussed. 

3. This is crucial and beats me sensibly. Why should the Bank even begin to operate under the US Laws and New York Tribunals? And this being agreed to by none other China, who has been for the past two decades at least waging currency wars with the US. A need to drive away from US Dollars and corresponding denominated-bonds did have a successful challenge only very recently in IFC-Rupee-Denominated-Bonds (Well, at some of the times, an enemy strategy needs serious deliberations, and hence even if we are fighting tooth and nail against IFC, this strategy scores well in challenging US Dollars, isn't it?). It is the fragility of the US-Dollars-Denominated Bonds due to extreme fluctuations in exchange rates that could even lead to currency depreciation in BRICS countries were another global financial crisis to surface. 

4. The BRICS claim that they have a neoliberal content. Consider this: "Our economic growth and social inclusion policies have helped to stabilise global economy, to foster the creation of jobs, to reduce poverty, and to combat inequality, thus contributing to the achievement of the MDGs. In this new cycle, besides contribution in fostering strong, sustainable and balanced growth, BRICS will continue to play a significant role in promoting social development and in contributing to define the international agenda in this area building on its experiences in addressing the challenges of poverty and inequality." Now, this is plain gibberish. Period. We have a dwindling manufacturing sector in our country, and unemployment is only on the rise. China has had a major a battle that is still being waged with unemployment and the domestic sector. Russia is crony-capitalism personified. These three parameters logically hinder fight against inequality and foster dissent. So, we have to not buy into this ideal nonsense. And come on, nothing could be anti liberal from the likes of China and India and the others not far behind, but could be even be miles ahead in certain track events other than delusions. 

5. There is a mention of international reserves that are in good shape and a growth rate that is unparalleled among the BRICS, especially China and India over the last decade. How could we forget that India just managed to avoid BOP problem and was only a month away from knocking on the IMF doors. And this in the last one decade. How wise would it be to really start thinking of the glory days of the past. If the FED decides on Quantitative Easing once more, then the past laurels might well be written down in history and the end of the chapter. 

Himanshu

Monday, 14 October 2013

Could BRICS Bank help repair the International Financial Architecture?


Could  BRICS Bank help repair the International Financial Architecture?

BRICS Bank is not about bringing order to global financial disorder, but is mired in geopolitical realities as well. Even though the bank is in an embryonic state, it is gearing itself up to stand up to the Bretton Woods Institutions and neoliberal ideology with its south-centred, state-aided capital accumulation. How, if at all is BRICS Bank going to differ from seven-decades old institutions is a contentious issue?

One of the objectives of Contingent Reserve Arrangement (CRA), the idea behind BRICS Bank is to complement existing financial arrangements. At both the DurbanSummit in March and the G20 in Russia a month back, critical details like bank capitalization, institutional leadership and location could not be sorted out. It goes without saying that $50 Billion BRICS Bank capitalization and $100 Billion CRA would be pale in comparison to serious financial meltdowns. Add to that the 2013 economic upheavals in BRICS economies, thanks to US Fed’s Quantitative Easing, when BRICS currencies tanked and resulted in dramatic outflows of capital from the emerging markets, the honeymoon period for emerging economies culminated in recrimination. This deceleration means that the booming emerging economies will no longer make up for weakness in rich countries, according to magazine, The
Economist. 

According to Chinese economic experts, the BRICS bloc is already showing signs of rupture in material ways, leaving only China to push ahead through the storm. As Tsinghua University economist Li Dokui remarked, the end of the US Fed’s Quantitative Easing is “good news for the renminbi” because it need no longer rise in value – but meantime, “the concept of the BRICS may vanish, leaving just China versus other emerging economies”. According to Merrill Lynch economist Lu Ting, “China will be largely immune to the impact due to its sustained current-account surplus, low foreign debt, huge exchange reserves, high savings and capital controls”. But there are streaks of optimism, where fiscal austerity and credit constraint could elevate the mood in BRICS, even though strategies advocated have so far not had any discernible effect on the financial volatility.

Thus, it was genuine to ask if BRICS really posed a challenge to Bretton Woods Institutions. After all, there was an alternative already in place that they could have supported: the Bank of the South. Founded by the late Venezuelan president Hugo Chavez in 2007 and supported by Argentina, Bolivia, Brazil, Ecuador, Paraguay and Uruguay, Banco del Sur already has $7-billion in capital. It offers a more profound development finance challenge to the Washington Consensus, especially after Ecuadoran radical economists improved the design.

Most ironically, the “left-talk” that pervades most of BRICS foreign policy is countered by “walk-right” by Central Banks in these nations, thus rupturing further the North-South political confrontation, but at the same time unable to build an economic bridge.

Himanshu