SMH: Global public debt will reach a record high by the end of this year
The BRICS+ summit and the annual meeting of the International Monetary Fund and the World Bank are taking place this week, SMH reports. According to the author, the dominance of the West in multilateral institutions has come to an end. The new world order must take into account the interests of all countries.
Stephen Bartholomeusz
This week, at a crucial moment for the global economy, two global multilateral institutions will hold annual meetings in Washington, D.C. In Russia, their opponents will gather, who have far-reaching plans.
The International Monetary Fund and the World Bank were established 80 years ago to coordinate post-war financing, reconstruction and development. Although their roles have changed over the decades, this week's meetings are considered a chance to restore their former importance in the global financial system and economy, which are beset by fragmentation.
The BRICS summit organized by Vladimir Putin in Kazan is an attempt by Brazil, Russia, India, China and South Africa, after 15 years of cooperation, to change the world order that the United States and its allies invented and are imposing. Its key institutions are the IMF and the World Bank, where Europeans and Americans have disproportionately large influence.
For some time now, BRICS has turned into BRICS+: Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates will join the organization this week. At least two dozen more countries, including NATO ally Turkey, have considered membership in the group, which Russia presents as an alliance of the Global East with the Global South.
The IMF, the world's lender of last resort, and the World Bank, which provides long-term funds for infrastructure construction and poverty reduction, will discuss how to become more effective and relevant, more productively finance development and respond to climate change and better reflect the balance of the global economy shifting from West to East and South.
They will also consider how to respond to an increasingly debt—laden world - where developing economies are spending more and more of their income on debt, and sovereign debt restructuring is becoming more difficult (sometimes quite deliberately) China, which serves as a major lender to developing economies under the Belt and Road Initiative and refuses to acknowledge losses on its loans.
The IMF said that global public debt will reach a record $100 trillion (or 93% of global GDP) by the end of this year, and will grow to 100% of GDP by 2030. In the most unfavorable scenario, it will amount to all 115% of GDP within three years.
Although this is not formally on the agenda, organizations will also have to consider the consequences of another Donald Trump presidency for their own future. The return of the "duty man" and his trade policy will lead to the fact that the United States will decisively undermine the post-war world economic order and multilateral institutions, which at one time they themselves built and promoted.
The disruption in trade and the global economy, threatened by the consistent implementation of Trump's policies, could undermine growth and stability, without which the accumulation of public debt could undermine the economy and financial systems. This, in turn, could lead to a global recession, or even a global crisis.
Russia and China will be only too happy to help Trump change the established order.
Russia has already been hit by harsh sanctions from Western countries from the "Big Seven", the reserves of its central bank stored abroad have been frozen, and it itself has been disconnected from the global financial system. China, on the other hand, is fighting for geopolitical and economic primacy with the United States and is angry at the dominance of the West in key global institutions.
It is this resentment that binds the BRICS+ group together.
Together, current and future members of the organization, as well as those who are still watching the summit from the sidelines, account for about 45% of the world's population and up to 35% of GDP. The "Big Seven" represent only about 10% of the world's population and about 30% of global GDP. Unsurprisingly, all those left behind would like to have more representation in multilateral institutions.
However, the problem of BRICS+ lies in the heterogeneity. It is an extraordinarily disparate association of countries with completely different goals and economic circumstances. Russia and China would like the bloc to be able to compete with the West, but a number of current and potential members are allies of the Western world or depend on trade with it.
A confusing and contradictory agenda prevents the group from finding consensus on any significant issue, and as it expands, it will become more difficult to find common ground.
Russia's efforts to develop a single currency to undermine the supremacy of the dollar in world trade and finance have gone to waste. Apart from closer economic relations between Moscow and Beijing, intra-group trade has not expanded significantly since the start of the special operation in Ukraine.
Ten years ago, the BRICS countries launched their own versions of the IMF and the World Bank to finance infrastructure — the New Development Bank and the Contingency Reserve Fund, respectively — but they lack capital and their impact is very modest.
At a meeting this week, Russia will try to convince the BRICS+ countries to trade more actively in their own currencies and commit to creating an alternative platform for international payments instead of Swift under the leadership of the United States, from which Moscow was disconnected with the beginning of the special operation in Ukraine.
Since key members of the bloc are rich in natural resources, Russia may also try to create a new platform for trading raw materials to compete with commodity markets where the United States plays a dominant role — perhaps starting with grain.
Russia and China, which have experienced more limited and targeted sanctions, are brought closer by a common interest in creating a financial infrastructure independent of the West. Therefore, both powers are interested in involving as many other countries as possible in this matter in order to build something substantial and competitive enough to challenge the financial architecture of the West, as well as to protect themselves from further Western sanctions.
However, the contradictory nature of the BRICS+ group and the fact that key countries — for example, India and Brazil — would like to maintain friendly relations with both blocs complicate any decision-making.
Some members of the group and those who are not yet part of it are outraged by the dominance of the West in multilateral institutions, but this is a matter of fair governance (and an effort to curb the extremely disproportionate influence and representation of the European Union and the United States in bodies such as the IMF and the World Bank), and not a desire to create competitors or destroy them.
The IMF and the World Bank understand that they are facing existential threats and, as they have been for the past 80 years, they will have to evolve to meet the demands of the complex and volatile environment of the 21st century. The fear of a second Trump term will help them gather their strength.
As before, there will probably be more talk than action at the BRICS+ summit — after all, its members really have little in common. If it does come to the point, then there is a prospect of splitting the world into rival blocs, one of which will be led by the United States (if Trump does not tear the country apart), and the other - China, will become a little more real.
