Geopolitics…Is It Shrinking or Expanding Policy Space?

(Paper delivered at  Global Conference on “Retrofit for Purpose: Reform of the International Financial Architecture,” IDEAS, Rio de Janeiro, Aug 7-9, 2024.)

By Walden Bello*

 

Today, Aug 9, is the 79th anniversary of the nuclear bombing of Nagasaki, one of the key events that ushered in the post-World War II international order marked by the hegemony of the United States.

Crisis of the Liberal International Order

A key part of that order was the North Atlantic Treaty Organization (NATO).  Also a central part of that order was the Bretton Woods system.  The ideological pillar of that order was liberal democracy American-style,  a view that Joe Biden expressed at the recent NATO summit in July when he repeated Madeleine Albright’s awful paean to America as “the indispensable nation.”   This whole global regime is now under heavy strain, buffeted both from outside the West and within the West.

When assessing issues related to the Bretton Woods institutions, access to capital for emergency and development financing, the new debt crisis, and policy space for developing countries, it is imperative that we see them in this broader geopolitical context or we might miss some of the key features of the new situation.

The New Developing Country Debt Crisis

I think all of you must have read about the massive rallies in Kenya against an IMF-driven bill finance bill that would make austerity the centerpiece of economic policy and legislate new regressive taxes.  The Kenyan government is trying to comply with a $3.6bn IMF bailout launched four years ago that requires raising revenues and slashing spending.  Interest payments on Kenya’s debt have been eating up almost 38 per cent of annual revenues.[1] Like many Sub-Saharan countries, Kenya now spends more in servicing the debt than in education and health. At least 39 people have already lost their lives opposing the bill in the streets.  There have been mass arrests and abductions of protesters.  In response, the people have torched Parliament.

Kenya is just the latest addition to a now long list of countries that have been hit by anti-debt, anti-austerity, and anti-tax protests in the global South over the last four years.   Among them is neighboring Argentina, which carries a debt load of $324 billion that comes to 90 per cent of its GDP.  Partly to satisfy creditors like the Fund, the new president, Javier Miel, a self-described “anarcho-capitalist economist,” has, according to the New York Times,  “cut thousands of jobs, chopped wages and frozen infrastructure projects, imposing austerity measures that exceed even those the I.M.F. has sought in its attempts to help the country fix its finances. In his first six months, poverty rates have soared.”[2]

The debt burden of the global South is horrendous, and the protests simply underline the fact that we are living through a massive debt crisis of the scale of the so-called “Third World Debt Crisis” of the 1980’s. One report sums up its scale:

In 2023, developing countries owed an estimated $381 billion in debt service on medium- and long-term external debt according to the World Bank International Debt Statistics. 53 countries have credit rating classifications estimated to be “highly speculative” or worse. This subset of developing countries owes $166 billion in debt service in 2023. The top 10 debtors alone owe almost 60 percent of this debt service, or a quarter of total debt service due by developing countries.[3]

What has been the response of the Bretton Woods institutions to this new global debt crisis?  It is that these countries have lived beyond their means, and, consequently, as Indermit Gill, chief economist of the World Bank and a Chicago Boy, told the New York Times rather cynically,  they have “essentially two ways to pay their bills: printing money or raising taxes. ‘One leads to inflation…The other leads to unrest.’”[4]

Blaming the victims as living beyond their means is the time-honored way the Bretton Woods institutions have explained the debt crises of developing countries.  There is today, however, another excuse that the IMF and the World Bank resort to to hide their total incapacity to deal with the debt crisis, and that is to engage in the geopolitical blame game, that is, to paint China as the culprit.

Typical of this is former IMF Deputy Director Anne Krueger’s assertion that,

China’s emergence as a leading creditor has created problems, not least because it has refused an invitation to join the Paris Club. While Paris Club members share information about the sums owed to them, China does not. Nor has it been willing to participate meaningfully in multilateral debt-restructuring arrangements. Instead, it has operated as a black box, attaching nondisclosure agreements to many of its loans, and funneling credit through a wide range of agencies.[5]

Seconding Anne Krueger, Mark Sobel, a former Treasury Department official and the US chairman of the Official Monetary and Financial Institutions Forum, claimed that failure to arrive at a debt restructuring agreement stemmed from “China being unwilling to admit its lending has been unsustainable and China dragging its feet in getting to deals.”[6]

Beijing’s Ministry of Foreign Affairs hotly disputed this effort to blame China for the new developing country debt crisis, saying, “multilateral financial institutions and commercial creditors hold nearly three-quarters of Africa’s total external debt. They take a larger share of Africa’s debt, and they can and should take more robust actions to relieve the debt burden on African countries. China calls upon all parties concerned to contribute to alleviating Africa’s debt burden in line with the principle of common actions and fair burden-sharing.”[7]

What appears to be operating in this exchange between western and Chinese officials is a fundamental difference: the western view that debt relief should be conditioned on the acceptance of austerity programs with IMF-type conditionalities and China’s more balanced, more strategic approach that takes into consideration the developing countries’ need for capital for infrastructure and production to enable them to grow and thus better service their debts in the long term.  As China’s Ministry of Foreign Affairs notes:

Africa’s debt problem is essentially an issue of development. The solution to the problem requires addressing not only the symptoms but also the root causes by means of debt treatment, among others, so as to enhance Africa’s independent and sustainable development capacity. China’s financing cooperation with Africa is mainly in fields such as infrastructure development and production capacity, with a view to enhancing Africa’s capacity for independent and sustainable development.[8]

The Golden Age of China’s Development Assistance

In retrospect, the period from 2000 to around 2018 was the golden age of China’s development lending, one that coincided with China’s ascent to becoming the center of global capital accumulation, accounting at the end of that period for 28% of all growth worldwide, which was more than twice the share of the United States.[9]

China, as Kevin Gallagher notes wryly, is now “the world’s largest development bank.”[10] Two of its agencies, the China Development Bank and the Export-Import Bank of China, have provided nearly a trillion dollars’ worth of financing to foreign countries since the early 2000’s. Additionally, it has negotiated or pledged some $230 billion in bilateral and regional development funds across the world.[11] Including loans and direct investment, China’s cumulative investment in Africa totaled $40 billion in 2012. From 2005 to 2014, China has provided more than $100 billion in loan financing to Latin American countries and firms, principally through the China Development Bank and China Eximbank.

The record also shows that China wrote off $72 million owed by Cameroon in 2019, $72 million owed by Botswana and $10.6 million owed by Lesotho in 2018, and $160 million owed by Sudan in 2017. The Rhodium research group found 40 instances of renegotiations of debts to China amounting to $50 billion across 24 countries since 2000. In 2010 United Nations Millennium Challenge speech, then Prime Minister Wen Jiabao revealed that China cancelled debt owed by 50 heavily indebted poor countries (HIPCs) and least developed countries (LDCs) worth 25.6 billion yuan ($3.8 billion) as of 2009.[12]

In addition, Beijing was central to the formation of the BRICS, and it led in the formation of new institutions for channeling development assistance and emergency financial aid, the most important being the one-trillion dollar Belt and Road Initiative, the Asian Infrastructure Investment Bank (AIIB), and the BRICS’ New Development Bank and Contingent Reserve Arrangement.  These institutions serve as the potential pillars of an alternative multilateral system.

While some Chinese-financed development projects have been criticized for a number of different reasons—for instance, that their gains go mainly to developing country elites or, that, as Arundhati Roy puts it, they have a penchant for “gigantism” or massive infrastructure projects—overall, China’s aid has been, on balance, hugely positive for the Global South.  It has offered an alternative source of financing to western multilateral and bilateral aid and commercial lending, thus providing developing countries with “development space” or “policy space” that is foreclosed by the usual IMF conditionalities.

Geopolitics, Development Assistance, and IMF Reform

One of the questions that is now being posed is how access to financial and development assistance will be affected by the geopolitical conflict with China that the United States is provoking.  The implicit threat contained in the statements of Anne Krueger and Mark Sobel that I referred to earlier is that the Bretton Woods institutions will not look kindly on those countries whose debt portfolio contains a large proportion of Chinese financing.

In fact, it is not only the access to the IMF  and World Bank’s  resources that is now at stake in developing countries’ relations with China but also IMF and World Bank reform.  As Paulo Nogueira Batista, Brazil’s former executive director at the IMF, has underlined,

the rivalry between the West, led by the United States, and emerging powers, notably China, is at the root of the current widtespread pessimism concerning IMF reform. Always a difficult endeavor, this reform now stumbles on the fact that the main shareholders, the United States, European countries, and Japan, as well as other high-income nations, are dead set against contemplating any reform that would provide more decision-making power for China. China, however, is precisely the country that is most heavily underrepresented by any conceivable metric and, therefore, the one that most stands to gain from a redistribution of quotas and voting power in the Fund. In other words, China is at the same time the main reason and the main obstacle to reform. The other side of the coin is that the developed countries, especially European members, are heavily overrepresented. Countries that control the institution would therefore definitely stand to lose from the redistribution of quotas and votes. The developed world, notably Europe, is at the same time the main reason and the main obstacle to reform.”[13]

In short, the long desired increase in the voting power of both the so-called emerging economies and the least developed countries is likely to end up as a collateral victim of the West’s New Cold War on China.

The Rise of the BRICS

However, one must not ignore positive developments.  Saudi Arabia, Qatar, Iran, Ethiopia, and Egypt have officially joined the BRICS, with nearly 50 other countries indicating their intention to join.  Saudi Arabia and Qatar, with the tremendous financial resources locked up in their sovereign wealth funds are the most significant new members from the point of view of development and emergency financing.  Saudi Arabia has a sovereign wealth fund of $925 billion while Qatar has one worth $475 to $500 billion.  These sums could potentially bolster the firepower of the current Contingent Reserve Arrangement and the New Development Bank, which had loaned some $32 billion by the end of 2022.[14]

Now a 10-country organization, BRICS currently boasts a total population covering over 40 percent of the world. They also have a substantial 28 percent share of the global economy, equivalent to $26.5 trillion.[15] That so many countries, including Thailand and Malaysia, are queueing up to join indicates that the Global South realizes that the scale is steadily tipping against the West, which has grown increasingly defensive, grouchy, and insecure.

As pointed out yesterdat, It is not only BRICS’ collective capital that have the potential to be alternative sources of capital.  There are the regional financial arrangements (RFAs), such as the Chiang Mai Initiative, Contingent Reserve Arrangement, Latin American Reserve Fund and Arab Monetary Fund, which have $329 billion available for the emerging and developing economies.[16]  This is, of course, very limited, compared to the massive needs for emergency financing and development assistance.  Moreover, as Kevin Gallgher and Richard Kozul-Wright point out, they need to “de-link from the need to have an associated IMF program so that they will be more attractive to their members.”[17]

Alternative financing is not the onl y benefit from the rise of the BRICS.  Another is an alternative development model, where the state plays a leading role, in contrast to the Bretton Woods institutions that sanctify the role of markets and the private corporate sector.  Submission to a global market skewed toward the interests of the big corporate oligopolies of the West has been the massive rock against which the development aspirations of the global South have foundered.

The Far Right and Liberal Internationalism

So far I have focused on the challenge to the liberal international order posed by the crises and demands of the Global South.  However, there are internal challenges to the reign of neoliberalism and liberal democracy coming from within the West itelf that will have massive implications for the Cold War order.  Donald Trump, as we observed from his first term in office, tore up the Trans-Pacific Partnership, considered NATO a burden, trampled on the rules of the World Trade Organization, ignored the IMF and World Bank, negotiated the US withdrawal from Afghanistan from the Taliban, and broke the West’s united front against North Korea by crossing into that country to negotiate with Kim Jong Un.  Some have said that his foreign policy was erratic, but there was an underlying logic to his supposed madness, and this was his felt need to play opportunistically to a strong feeling among people in the US that they are tired of bearing the burdens of empire, that America is not an “indispensable nation,” as Albright and Biden put it, that defending the empire has been a major cause of the United States’ economic decline, that Big Tech and Wall Street are a major part of the problem, and that American corporations have betrayed the American people by shipping investment and jobs overseas.

One finds the same suspicion and resentment of transnational institutions in the European far right that is on the move from France to Hungary.  Indeed, Viktor Orban of Hungary has been very critical of NATO and condemned the European Union, another pillar of the West, for destroying the nation state and has described it, in a recent speech, as a malign political entity “under the occupation of a liberal oligarchy…This left-liberal elite is in fact organizing a transatlantic elite: not European, but global; not based on the nation state, but federal; and not democratic, but oligarchic.”[18]  Pounded by the increasingly powerful far right, Brussels is on the defensive, and it knows that if France’s Marine Le Pen and the Alternativ fur Deutschland come to power and join Italy’s Georgia Meloni, the European Union’s 70 year old project of liberal political and neoliberal economic integration will become a thing of the past.

In that very same speech, Orban captures succincly what Trump’s anti-globalist agenda really is:

[M]any people think that if Donald Trump returns to the White House, the Americans will want to retain their world supremacy by maintaining their position in the world. I think that this is wrong. Of course, no one gives up positions of their own accord, but that will not be the most important goal. On the contrary, the priority will be to rebuild and strengthen North America. This means not only the US, but also Canada and Mexico, because together they form an economic area. And America’s place in the world will be less important. You have to take what the President says seriously: “America First, everything here, everything will come home!”…I do not know whether you have read what the President said. For example, they are not an insurance company, and if Taiwan wants security, it should pay. They will make us Europeans, NATO and China pay the price of security; and they will also achieve a trade balance with China through negotiations, and change it in favour of the US. They will trigger massive US infrastructure development, military research, and innovation. They will achieve – or perhaps have already achieved – energy self-sufficiency and raw material self-sufficiency; and finally they will improve ideologically, giving up on the export of democracy. America First. The export of democracy is at an end. This is the essence of the experiment America is conducting in response to the situation described here.[19]

Now, of course, both Orban and Trump espouse racist and nativist values that most of us would find repulsive.  But our point here is that we must see that Trump is not interested in expanding a liberal empire via free trade and the free flow of capital–an order defended by political canopy of multilateralism, and promoted via an economic ideology of globalization and a political ideology of liberal democracy.  What he is interested in is in building a Fortress America that is much, much less engaged with the world, where the multilateral institutions through which the US has exercised its economic power, NATO and the Bretton Woods institutions, would be much less relevant as instruments of US power. Deal-making, like the one Trump conducted with Kim Jong-Un would, instead, be one of the main methods of defending American interests.

It is not only Orban who has claimed that the far right is inward instead of outward looking.  One of the things that Sir Richard Evans, one of the leading authorities on fascism, got right in  our Cambridge Union debate in 2021, was that while traditional fascism was expansionist, today’s far right is all about walling off the outside world.  Others have gone further and said that whatever may be the New Cold War liberals’ rhetoric about American being the “indispensable country,” western disengagement with most of the rest of the world is irreversible.  Indeed, in its latest issue, the Economist appears to be saying that it’s all over but the shouting.

As the West has turned inward, China and the rest of the emerging world have drawn closer…The consequences of its decision to turn inward to shield itself from Chinese competition will take years to become completely clear. But the world is not standing still. Western multinationals have long been the main agents of cross-border trade and investment, and some of the biggest beneficiaries of openness. Today they are surrendering ground in the world’s fastest-growing and most populous markets. China is already reaping the rewards.[20]

What is to be Done?

If the far rightist Orban and the neoliberal Economist are correct, that, whatever the results of the November 2024 US elections, the trend is, in the medium and long term, towards a Fortress America and Fortress Europa, the questions we must pose to ourselves, are the following:

One, instead of knocking our heads against the wall pushing for reform of the IMF, World Bank, and WTO, shouldn’t our governments just play a defensive holding operation to prevent them from becoming even worse than they are now?  This is my reading of Paulo Nogueira Batista’s paper on IMF reform that I referred to earlier.[21]  Others would probably advocate a more aggressive spoiler’s game and push these institutions to become more and more marginal and dysfunctional.

Two, should we not be pushing our governments to adopt a comprehensive strategy to speed up western disengagement?

Three, what steps must the BRICS take to step into the vacuum left by a West that is less engaged with the rest of the world, so that the we will avoid the social costs that accompanied the collapse of the socialist states of Eastern Europe in the 1990’s?

Four, how do we ensure that the period of transition is one that leads to more financing, policy space, and a New Deal  for the Global South, and not one mainly for the more powerful BRICS?

Conclusion

By way of conclusion, I would like to make a comment on the coming US elections.

Kamala Harris represents the old, anachronistic Cold War liberal international order that seeks to contain China militarily, pledges full military support for Israel, disdains negotiations for peace in Ukraine and indeed would drag our governments to the conflict there, and seeks continuation of the “multilateral economic order” that has kept the Global South down for the last 70 years. Trump and Vance offer a Fortress America agenda whose thrust is to disengage from what Trump has called “shithole countries,” one that is focused on keeping the rest of the world out of the United States, and using periodic unilateral military strikes like those employed by the Israelis to discipline those outside the Wall, meaning us, and leaving our surroundings a wasteland.

True, the Harris-Trump battle may have contrasting “visions” for the United States on domestic issues, but I ask, is it more of the same neoliberal pro-Wall Street/Silicon Valley policies cloaked with pious democratic rhetoric versus insurgent fascism that feeds on the failures of neoliberalism and liberal democracy? Fascism’s best ally is a liberal democratic elite that presides over an economic order that has radically increased inequality while piously asserting it is the best defense against fascism.

Confronted with these alternatives, do we in the Global South really have to take sides?

In conclusion, the coincidence of the Bretton Woods system to deal with the developing country debt crisis, China’s becoming a powerful actor, and the rise to dominance of the far, isolationist right may be the alignment of the stars necessary for the birth of a new global order.

There is that enigmatic line the Italian Marxist Gramsci used to describe his era that is also appropriate for ours: “The old world is dying, and the new world struggles to be born: now is the time of monsters.”  To the two monsters that are the genocidal war in Gaza and the war in the Ukraine, there may even be added a war in the South China Sea, my neighborhood, where the US is trying its best to provoke China to a confrontation–with Gen Mike General Mike Minihan, who leads the US Air Mobility Command, declaring, “My gut tells me we will fight in 2025.”[22]

We live in very dangerous times, but it seems like great opportunities for real change and great danger have always been twins.

*Co-Chair of the Board of Focus on the Global South and Honorary Research Fellow, Sociology Department, State University of New York at Binghamton.

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[1] Andres Schipani and Aanu Adeoye, “Kenya’s Mass Protests Expose African Fury with IMF,” Financial Times, July 4, 2024, https://www.ft.com/content/0e1be993-90e1-4477-9c29-414000c0d1c98

[2] Quoted in Patricia Cohen and Jack Nicas, “Political Unrest Worldwide Is Fueled by High Prices and Huge Debts,” New York Times, July t, 2024, https://www.nytimes.com/2024/07/05/business/global-economy-debt-inequality.html

[3] Homi Kharas and Charlotte Rivard, “30 Developing Countries to Watch in 2023,” Commentary, Brookings, Jan 20, 2023.

[5] Anne Krueger, “China and the Sovereign Debt Bomb,”Project Syndicate,”Jan 13, 2023. https://www.project-syndicate.org/commentary/debt-restructuring-china-paris-club-imf-by-anne-o-krueger-2023-01.

[6] Alan Rappeport, “Defaults Loom as Poor Countries Face an Economic Storm,” New York Times, Dec 3, 2022.

[7] Ministry of Foreign Affairs of the People’s Republic of China, “Qin Gang: So-called China’s “Debt Trap” in Africa Is a Narrative Trap Imposed on China and Africa,” January 12, 2023, https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/202301/t20230112_11006510.html

[8] Ministry of Foreign Affairs of the People’s Republic of China.

[9]J. Kemp, “China Has Replaced the US as the Locomotive of Global Economy,” Reuters, Nov 5, 2019, https://www.reuters.com/article/us-economy-global-kemp-column-idUSKBN1XF211/

[10] Kevin Gallagher, “China’s Role as the World’s Development Bank Cannot be Ignored,” National Public Radio, O ct 11, 2018, https://www.npr.org/2018/10/11/64621776/opinion-chinas-role-as-the-world-s-development-bank-cannot-be-ignored.

[11] Ibid.

[12] Agatha Kratz, Allen Feng, and Logan Wright, “New Data on the ‘Debt Trap’ Question,” April 29, 2019, Rhodium Group, https://rhg.com/research/new-data-on-the-debt-trap-question/

[13] Paulo Nogueira Batista, Jr., A Way Out for IMF Reform (London: Bretton Woods Project, June 2024), pp. 4-5.

[14] Antonio Garcia, “Saudi Arabia, UAE Officially Join BRICS as Bloc Expands in MENA, Middle East Economy, Jan 2, 2024, https://economymiddleeast.com/news/saudi-arabia-uae-brics/

[15] Ibid.

[16] Kevin Gallagher and Richard Kozul-Wright, The Case for a New Bretton Woods (Cambridge: Polity Press, 2022), p. 38.

[17] Ibid., p. 69.

[18] Viktor Orban, “Lecture of Prime Minister Viktor Orban at the 33rd Balvanyos Summer Free University and Student Camp,” Office of the Prime Minister, July 27, 2024.  Thanks to Thomas Fazi for calling my attention to this speech.

[19] Ibid.

[20] “Chinese Companies as Winning the Global South,” Economist, Aug 1, 2024.

[21] Paulo Nogueira Batista, Jr., A Way Out for IMF Reform (London: Bretton Woods Project, June 2024).

[22] Quoted in Reuters, Nov 29, 2o23.