The country is once again in deep crisis mode, with decades high inflation, a crumbling currency and no foreign currency reserves. It is shackled to the IMF but now faces the possibility of being able to tap alternative sources of finance.
What a difference a day can make. On Wednesday afternoon, it seemed that Argentina would not be admitted to the BRICS grouping following months of speculation that it was a virtual shove in. Mercopress even reported that Argentina’s President Alberto Fernández had called off his scheduled trip to Johannesburg to attend the summit after learning that his country would not be joining the BRICS during this round of admissions.
By Wednesday evening, news outlets around the world were reporting that Argentina was no longer on the list. One of the key participants of the Argentine government’s visit to the IMF’s HQ in Washington this week said “the Fund and the BRICS are two very different families,” suggesting a clash of interests between one group and the other. Even as late as Wednesday night, Reuters was reporting that divisions persisted among BRICS members on how much to expand the bloc’s membership and how quickly:
An agreement had been meant to be adopted following a plenary session earlier on Wednesday, but the source said it had been delayed after Indian Prime Minister Narendra Modi introduced new admission criteria.
Asked about the delay, an Indian official aware of the details of the talks told Reuters late on Wednesday that the discussion were continuing.
“Yesterday … India pushed for consensus on criteria as well as the issue of (candidate) names. There was a broad understanding,” he said.
By Thursday morning, that “broad understanding” had given way to full, unanimous agreement. For the first time since late 2010, the BRICS’ doors was open to new members, those members being Saudi Arabia, the United Arab Emirates, Iran, Egypt, Ethiopia and Argentina. Four countries from the Middle East, a region that until now the US and Western Europe have collectively dominated for over a century and another from Africa (though Egypt is also, of course, an African country). Look at a map and you will see what the Rev Kev noted in comments yesterday:
[T]he Persian Gulf is now flanked on both sides by BRICS members as is the Suez Canal. And Ethiopia seems to be in a pretty strategic place too for that matter.
Half a World Away
The other new member, Argentina, is half a world away. And for the umpteenth time, it is in the grip of a very serious financial crisis.
Though much anticipated, the enlargement of the BRICS will have myriad potentially game-changing ramifications. The fact that three of the six countries (Saudi Arabia, Iran and the United Arab Emirates) are among the world’s eight biggest oil producers while another, Argentina, could (and should) become a major natural gas exporter in the coming years is a sobering reminder of the enduring importance of fossil fuels.
The BRICS alliance now includes two of the world’s three preeminent oil producers, Saudi Arabia (#2) and Russia (#3), which will probably further erode the influence of the US (#1) over global energy markets in the future. Also hugely significant as well as welcome is the fact that Iran and Saudi Arabia, two countries whose bitter rivalry has played an important part in destabilising the Middle East in recent decades, appear to have put their differences aside to join the BRICS. Lest we forget, it was Beijing that brokered the initial reconciliation between the two regional powers.
There are many other wide ranging ramifications of the BRICS enlargement (some of which were discussed in this cross-posted piece by Andrew Korybko), but for the sake of this article, I am only interested in exploring one: the possibility that Argentina, once again in deep crisis mode, could soon become the first recipient of a full-scale BRICS bailout.
The country is grappling with inflation of over 100% as well as an acute dollar shortage after a historic drought caused total agricultural losses of €17.6 billion, or 3% of Argentine GDP. In fact, it would have probably already defaulted on its $44 billion IMF bailout if it hadn’t been for the $18.2 billion currency swap arrangement Argentina’s government signed with Beijing back in April, which enabled it to continue servicing the debt.
In recent weeks, Argentina, a country wearily accustomed to upheaval, has been rocked by multiple political and economic shocks. First came the news that Javier Milei, a fake libertarian populist with close ties to Koch-sponsored think tanks as well as one of Argentina’s richest monopolists, had come out on top of the recent primary elections, largely on the back of widespread disaffection with the two mainstream parties. Milei is promising to “burn down” the central bank, put the Argentine peso out of its misery and fully replace it with the US dollar, privatise all assets still in the public domain, endorse sanctions on Russia and realign Argentina’s foreign and economic policies with the US and Israel.
Shortly after the elections, the outgoing Alberto Fernández government devalued the Argentine peso by 18% and raised the benchmark interest rate by 21 percentage points to 118%, which will inevitable push Argentina’s three-digit inflation rate (113 % at last count) even closer to hyper inflationary levels. Reuters described the government’s two measures as “politically costly moves amid a presidential campaign.” This is especially true given that the man who executed them, Economy Minister Sergio Massa, is the governing Peronist coalition’s candidate in the presidential election.
Eerie Echoes of 2001
So it has transpired. The spectre of even faster rising prices, especially of food and other essentials, has allegedly triggered a wave of looting in cities such as Mendoza, Cordoba and Nequen that bear eerie echoes of the chaos that gripped Argentina during the economic crisis of 2001-02. I use the word “allegedly” because some government figures deny that the looting is happening, insisting that the images are fake and are being generated by opposition forces intent on further destabilising the country. From El País on Wednesday:
The governor of the province of Buenos Aires, the Peronist Axel Kicillof, has pointed to “an organised campaign” that began at the weekend spreading “false denunciations” and “fake images”… The presidential spokesperson, Gabriela Cerruti, went a step further. “This is an operation carried out by the people of Javier Milei, whose objective is to destabilise, generate uncertainty and undermine democracy,” she said in a live broadcast on Tuesday night.
Argentina’s latest devaluation of its currency and hike in interest rates is seen as positive by the IMF and Wall Street. As Mexico’s El Financiero reported, Bank of America strategists called the devaluation “broadly positive” given the currency was “highly overvalued”, and said it was good that the current government was bearing the burden of some of the necessary macroeconomic adjustment. “It should be favourable to the IMF deal pending IMF Board approval for a $7.5 billion loan disbursement,” they wrote.
And so it proved to be. On Wednesday, the Fund approved the disbursement of $7.5 billion for Argentina after completing the fifth and sixth reviews of their $44 billion program, which is essentially a 2020 restructuring of the $57 billion bailout requested by Macri in 2018.
That Massa was in Washington negotiating another instalment in Argentina’s IMF loan at the same time that the five original BRICS members were debating whether to admit Argentina as a new member speaks volumes about Argentina’s current place in the world. It is shackled to the IMF, an institution with which it has a long, painful relationship and to whom it still owes $46 billion, making it the IMF’s largest debtor. But it also faces the possibility, for now undefined, of being able to tap a new source of funding, from the BRICS’ New Development Bank…
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Nick Corbishley 