The victory of Javier Milei in Argentina’s presidential elections on November 19th, 2023 will have a significant impact on the economic evolution of the Global South, its regional integration impulses (most notably with respect to MERCOSUR and UNASUR) and of course the process of BRICS expansion. Milei’s chief economic advisor Diana Mondino has already dismissed the possibility of Argentina joining the BRICS grouping, something that should serve as a point of reflection for decision-makers in the developing world. The key problem for the Global South is that the BRICS/BRICS+ has not progressed sufficiently in the direction of economic integration and the creation of instruments of economic policy that can provide financial support to developing economies. In order to serve as a credible economic alternative to the current status quo, the BRICS need to accord far greater priority to the agenda of economic cooperation.
The key factors leading to the outcome of Argentina’s presidential elections were the sizeable macroeconomic imbalances, most notably the extremely high inflation rate of 142.7% YoY in October 2023 and the high debt burden of nearly 90% of GDP (as measured by general government gross debt to GDP). With inflation skyrocketing, poverty rates climbed to more than 40% in the first half of 2023 compared to 36.5% in the first half of 2022. While these difficulties experienced by Argentina were well known, the support from the BRICS economies in the past several years was either insufficient or too slow in coming. It now appears that the stabilization measures to be launched by Milei will target cuts in public spending and caps on growth in monetary aggregates with the main support coming from the US and the Bretton Woods institutions (IMF and the World Bank).
The outcome of the presidential elections in Argentina and the subsequent change in the relations with BRICS is a blow to the BRICS+ expansion momentum, most notably in Latin America, where Argentina plays a crucial role as one of the leading powers within the MERCOSUR regional integration bloc. Apart from the adverse impact on regional integration (ties with Brazil are likely to weaken) there may also be negative implications for BRICS efforts to forge ahead with greater de-dollarization across the Global South, most notably in South America. Clearly, the developments in Argentina send a strong signal to the BRICS grouping about the need to redirect the focus of cooperation into the economic sphere. In order to be able to present greater possibilities for developing countries in stabilizing their economies and becoming new modernization success stories, the BRICS need to:
- Devise a road-map of trade liberalization across the various parts of BRICS+ with particular attention accorded to the cooperation among the regional integration blocs of the Global South
- Expand the capabilities of BRICS CRA with the view to providing assistance to BRICS+ economies in ex-ante crisis prevention and ex-post crisis-resolution
- Scale up the reserve capabilities of BRICS CRA by creating a platform for regional financing arrangements in which BRICS+ economies are members.
- Create a platform for the regional development banks in which BRICS+ economies are members – together with NDB such a platform can become more active in financing priority projects across the Global South
- Increase the coordination of economic policy among BRICS+, both with respect to macroeconomic policy as well as structural and growth-promoting measures
In view of the scale of economic challenges faced by the developing economies there may be a case also for creating additional buffers across the Global South via setting up coordination mechanisms among the largest Stabilization funds and Sovereign Wealth Funds of BRICS+ economies. Thus far, BRICS have attained limited progress in laying the groundwork for stronger economic cooperation across the developing world – the creation of the New Development Bank cannot by itself address the multitudes of challenges facing the Global South economies, particularly in the sphere of attaining macroeconomic stability.
Overall, in advancing their economic cooperation the BRICS have so far either mimicked the Bretton Woods paradigm (via creating an analog of the World Bank in the form of NDB) or have largely been reactive with respect to the constraints and restrictions emanating from the developed world. What the BRICS need instead is a pro-active economic agenda that creates ample opportunities for developing economies to expand trade and investment as well as to obtain financial assistance and policy advice. The Argentina debacle in the expansion of BRICS is an important alarm bell for the Global South – instead of the excessive zeal that targets geopolitical expansion there needs to be a far greater focus on pragmatic economic cooperation within the BRICS+ framework.
Image by Geralt via Pixabay