BRICS PLUS
Erdogan never loses elections, Lula wins Brasília Consensus, China debt relief lead, Indonesia's taxi's are BYD not Tesla, Mohammed bin Salman directs investment and joins the BRICS bank
UPDATE: Recep Tayyip Erdogan, the Turkish leader “who never loses elections,” won the runoff of Turkey’s presidential poll and a solid majority in the country’s legislature, his victory all but anoints Erdogan as Turkey’s indisputable sultan.
Brazil's President Luiz Inácio Lula da Silva hosted eleven South American presidents and released the "Brasília Consensus," a document reaffirming shared values and a commitment to deepening discussions on the creation or re-establishment of a cooperation mechanism, and shared currency, involving all countries in the region.
The existing architecture for sovereign debt relief was badly in need of reform. The rise of major new creditors like China and bondholders, new institutions, and new rules, were in order. The DSSI succeeded in providing a pathway for China, the world’s largest bilateral creditor, to negotiate debt treatments together with the Paris Club in the context of IMF balance of payments assistance.
BYD will be the main supplier of Indonesia's largest taxi operator's electric vehicle (EV) fleet, as the Chinese new energy vehicle (NEV) giant continues to expand in overseas markets. PT Blue Bird will buy 80 percent of its EVs from BYD while reviewing its Tesla orders as lower-cost models win out in the country.
The growing dominance of the US$650 billion sovereign wealth fund, chaired by Crown Prince Mohammed bin Salman, underscores the extent to which Saudi Arabia’s day-to-day ruler has upended the old order as he robustly asserts his control over the economy and seeks to diversify it away from oil revenues.
Over the last few months, BRICS has gained prominence on mainstream media, in part for the reopening of China to the rest of the world as well as a convergence of interests that could lead to significant global repercussions. According to news reports, the New Development Bank (NDB), which aims at "mobilizing resources for infrastructure and sustainable development projects" in emerging markets and developing countries, has been in concrete talks with Saudi Arabia regarding the possibility of membership.
Erdogan’s Russian Victory
On May 28, Recep Tayyip Erdogan, the Turkish leader “who never loses elections,” won the runoff of Turkey’s presidential poll against his opponent, Kemal Kilicdaroglu. Erdogan has been at Turkey’s helm since 2003, first as prime minister and then, since 2014, as president. His latest win gives him another five-year presidential term. Together with a sweep in the parliamentary polls on May 14 that yielded pro-Erdogan far-right- and right-wing parties a solid majority in the country’s legislature, his victory all but anoints Erdogan as Turkey’s indisputable sultan.
The outcome of the May elections suggests that Turkey has now shifted closer to a Eurasian autocracy than an illiberal European democracy. One reason is that Erdogan’s approach to electoral power has increasingly come to resemble that of a different kind of leader altogether: Russian President Vladimir Putin.
In fact, Erdogan has spent much of the past seven years cultivating closer ties with Russia. Given that Erdogan spent his initial years in office known as a moderate leader who would reign in Turkey’s generals and bring the country into Europe — and given Turkey’s position in NATO — the extent of his recent tilt toward Russia is all the more striking.
Of course, Erdogan was an astute political strategist long before the current election, and his approach to power also borrows from other sources. But his reelection, against powerful odds, could mark a crucial watershed: Erdogan could now be in power for many more years to come, and the Russian president’s growing role as supporter and model may hold key insights into what Erdogan’s new mandate will mean for Turkey’s future, writes with surprise and bitterness ‘Foreign Affairs’.
Although Erdogan’s turn toward Putin has developed incrementally, its origins can be traced to the 2016 failed coup attempt in Turkey. This was one of the most critical moments of Erdogan’s time in office, a point of dramatic uncertainty that Putin used to draw Turkey’s leader closer to him. During the night of July 15, 2016, plotters within Turkey’s armed forces tried to overthrow Erdogan and take control of the country. Erdogan, who nearly lost his life, held on to power and regained control but was deeply shaken. Barely two weeks later, Putin invited him to St. Petersburg for a meeting. For both leaders, the encounter was a game-changer.
Crucially for Putin, the 2016 meeting paved the way for Russia to bring Turkey closer to its own foreign policy. The two countries entered into a series of agreements — first in Syria and subsequently in Libya and the South Caucasus, where Moscow and Ankara had also been engaged in proxy wars. In Syria, for instance, Erdogan agreed to stop intensive military campaigns against the Assad regime, instead turning the Turkish military’s attention to the Kurdish People’s Protection Units (YPG), the United States’ partner in fighting the Islamic State (or ISIS), much to the ire of U.S. policymakers, especially at the Pentagon.
Following the 2016 meeting, Erdogan also committed to purchasing the S-400 missile defense system from Russia, knowing full well that this purchase would result in an additional rupture in Turkish-U.S. ties. (In fact, the congressional sanctions that resulted effectively put a freeze on U.S. military cooperation with Turkey.) Thus Putin was able to create the two core problems in the Washington-Ankara relationship — the YPG and the S-400s — that continue to hamper U.S.-Turkish ties to this day and that many analysts now consider to be irresolvable…‘Foreign Affairs’ notes.
Read more here.
New Brasília Consensus
On Tuesday (May 30), the eleven South American presidents convened in Brasília jointly released, at the end of their meeting, the "Brasília Consensus," a document reaffirming shared values and a commitment to deepening discussions on the creation or re-establishment of a cooperation mechanism involving all countries in the region.
The Brasília Consensus highlights "the common vision that South America constitutes a region of peace and cooperation, based on dialogue and respect for the diversity of our peoples, committed to democracy and human rights, sustainable development and social justice, the rule of law and institutional stability, the defense of sovereignty and non-interference in internal affairs.
The letter, consisting of nine key points, emphasizes the “importance of maintaining a regular dialogue to boost South American integration and amplify the region's voice in the world."
In pursuit of this goal, the signatories have decided to “establish a contact group led by foreign ministers, tasked with evaluating South American integration mechanisms and drafting a roadmap for integration. The proposals will be presented to the heads of state within approximately four months.”
Earlier in his speech, Brazil's President Luiz Inácio Lula da Silva advocated for the resumption of the Union of South American Nations (Unasur). Created in 2008, during Lula's second mandate, and amid the rise of center-left governments, the group once gathered all the countries in the region, but disintegrated over time, after changes of government in several countries, and now consists of only seven: Venezuela, Bolivia, Guyana, Suriname, and Peru, besides Argentina and Brazil, which recently rejoined the group.
The resumption of Unasur, however, is not a consensus among the region's leaders. "We have to stop this trend: the creation of organizations. Let's base ourselves on actions," said Uruguayan President Luis Lacalle Pou in a speech at the summit. "When I took over the government, I withdrew from Unasur. Then we were invited to join Prosur [a bloc created in 2019 as a counterpoint to Unasur], and I said no. Because otherwise, we end up being ideological clubs that survive only as long as we march with our ideologies," the Uruguayan president added.
For other presidents, however, Unasur has the potential to articulate actions in several areas. "This mechanism for dialogue and political agreement had the great value of uniting us and opening the possibility of a multidimensional regional construction in several areas, such as defense, security, democracy, human rights, infrastructure, energy, among others," said the president of Bolivia, Luis Arce.
The Brasília Consensus also addresses common challenges faced by the region, including climate crisis, threats to peace and international security, pressures on food and energy chains, the risk of new pandemics, increasing social inequalities, and threats to institutional and democratic stability.
Lula calls for more sustainable development actions in Latin America
After welcoming ten South American leaders at the Itamaraty Palace—the seat of Brazil’s Foreign Relations Ministry—President Luiz Inácio Lula da Silva on Tuesday (May 30) stressed the need to advance regional integration in Latin America and the Caribbean.
The Brazilian president regretted the previous administration’s break with foreign policy principles and the closing of borders with historical partners: “Such a stance proved decisive in how the country detached itself from major issues impacting the everyday lives of our neighbors. We allowed ideologies to divide us, we interrupted integration efforts, and we abandoned dialogue channels and cooperation mechanisms. As a result, we all lost.”
The South American leaders heeded the plea made by Lula, who is seeking to revive cooperation within the continent. The president said he is convinced commitment to South American integration must be given a new lease of life.
“What brings us together in Brasília today is a sense of urgency—the urgency to turn our eyes to our region as one yet again, the determination to redefine a common vision and re-launch concrete efforts toward sustainable development, peace, and the well-being of our people.”
South American integration is crucial for strengthening the unity of Latin America and the Caribbean, he went on to argue. “A strong, confident, and politically organized South America expands the possibilities to affirm a true Latin American and Caribbean identity globally.”
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Integrating China into Multilateral Debt Relief: Progress and Problems in the G20 DSSI
By Deborah Brautigam and Huang Yufan
THIS PAPER PROVIDES AN EVALUATION of China’s participation in the G20’s COVID-19 Debt Service Suspension Initiative (DSSI). Through analysis of available data, more than 100 interviews, and fieldwork in Angola, Kenya, and Zambia, we argue, with some caveats, that the DSSI was a success.
First, the existing architecture for sovereign debt relief was badly in need of reform. The old system was based on the G7 negotiating rules for relief, which were carried out by the informal Paris Club and the IMF. With the G20 emerging as the premier forum for global economic coordination, and the rise of major new creditors like China and bondholders, new institutions, and new rules, were in order. The DSSI succeeded in providing a pathway for China, the world’s largest bilateral creditor, to negotiate debt treatments together with the Paris Club in the context of IMF balance of payments assistance. Getting Chinese commitment to join was “miraculous” as one G20 participant put it. Yet much remains to be done.
Second, China fulfilled its role fairly well as a responsible G20 stakeholder implementing the DSSI in the challenging circumstances of the COVID-19 pandemic. In the 46 countries that participated in the DSSI, Chinese creditors accounted for 30 percent of all claims, and contributed 63 percent of debt service suspensions. The perception that other creditors – private and multilateral banks -- were free-riding on Chinese suspensions reinforced Chinese banks’ later resistance to providing debt reductions in the Common Framework. On the other hand, Chinese disbursements dropped significantly in countries requesting DSSI relief, but remained steady for other creditors. The terms of the moratorium did not include instructions on how creditors should act in a situation that closely resembled a default.
Third, the DSSI prompted China and other G20 creditors to take steps to classify their banks into “official” and “commercial” categories, a necessary distinction for member countries participating in the IMF’s financing assurances requirement. It pushed the Chinese government to align interests among fragmented banks and bureaucracies with conflicting goals. It started an internal learning process about how debt restructuring has been done historically, and how China might safeguard its interests by participating with others in a multilateral forum.
Finally, geopolitical tensions affected negotiations over debt relief and allowed Chinese stakeholders facing losses to argue that pressure from the United States was an effort to “take advantage of China”.
Download the paper here.
Indonesia taxi’s are BYD
BYD will be the main supplier of Indonesia's largest taxi operator's electric vehicle (EV) fleet, as the Chinese new energy vehicle (NEV) giant continues to expand in overseas markets. PT Blue Bird will buy 80 percent of its EVs from BYD while reviewing its Tesla orders as lower-cost models win out in the country, Bloomberg said in a report today.
Most of the 500 EVs to be delivered to Blue Bird this year will be filled by BYD, especially the E6 and T3 models, because they are better suited to the Indonesian market, its President Director Sigit Priawan Djokosoetono said in an interview.
"If the price is too expensive, it would be unreasonable for us to then charge it to customers, so we need to consider this," he said, adding, "We use a lot of imported BYD models as the price is supportive for us to operate in Indonesia."
It is worth noting that this is not the first time BYD has supplied EVs to Blue Bird. On April 22, 2019, Indonesia released an electric taxi trial program in which Blue Bird first introduced the BYD E6 as its all-electric taxi, according to a previous BYD press release.
BYD sold 210,295 NEVs in April, up 98.31 percent from 106,042 units in the same month last year and up 1.55 percent from 207,080 units in March, according to data released earlier this month.
The company stopped production and sales of vehicles powered entirely by internal combustion engines in March last year and switched to focus on producing plug-in hybrids and pure electric vehicles.
In April, BYD sold 14,827 NEVs in overseas markets, up 11.38 percent from 13,312 units in March. From January to April, BYD sold 53,550 units in overseas markets, according to data monitored by CnEVPost. The company first announced its overseas sales figures for NEVs in July 2022.
On May 25, BYD signed a memorandum of understanding with Indonesia at its Shenzhen headquarters aimed at exploring the potential for investment in Indonesia, particularly in the EV sector, according to a statement from the Southeast Asian country.
"The signing of this MoU reflects the importance of future steps in realizing the ambition for electric vehicles in Indonesia. We want to develop the electric vehicle ecosystem in Indonesia to become the largest automotive market in Southeast Asia, and we appreciate BYD's initiative to further explore these opportunities," said Luhut B. Pandjaitan, Indonesia's Coordinating Minister for Maritime Affairs and Investment.
Read more here.
MBS: Saudi state capitalism
Companies backed by Public Investment Fund have risen to prominence as the kingdom’s day- to-day ruler asserts control. As Saudi Arabia enjoyed an unprecedented oil boom in the 1970s, the monarchy turned to a handful of merchant family companies to build the nation’s infrastructure. But almost 50 years and another oil windfall later, many have been sidelined by a rising cadre of businesses that have one thing in common: the state Public Investment Fund has taken a stake in each.
The growing dominance of the US$650 billion sovereign wealth fund, chaired by Crown Prince Mohammed bin Salman, underscores the extent to which the country’s day-to-day ruler has upended the old order as he robustly asserts his control over the economy and seeks to diversify it away from oil revenues.
“There’s definitely a change in the guard,” said Monica Malik, chief economist at the Abu Dhabi Commercial Bank and author of a book on the Saudi private sector. “Development is being driven by government-led entities, it’s very much more a centralised and public sector-led growth.”
In February, the sovereign wealth fund announced it was investing US$1.3 billion in four companies that have risen to prominence in recent years: Nesma & Partners Contracting Company, El Seif Engineering Contracting Company, Albawani Holding Company and Almabani General Contractors.
They have all been around for decades, but have come to the forefront as rivals that once secured the biggest contracts lost Riyadh’s support. El Seif was founded by the Riyadh-born Khaled El Seif in 1975. Abdul Moeen Al Shawaf, also from the capital, founded Albawani in 1991. Almabani was founded in 1972 in Jeddah by the late Saudi businessman Kamal Adham.
Several of those formerly favoured, such as Saudi Binladin Group, were forced to hand over US$100 billion worth of what the government described as ill-gotten assets, after an anti-corruption drive was launched less than a year after Prince Mohammed’s 2017 appointment as crown prince. About 300 businessmen, princes, and bureaucrats were detained in the Saudi capital’s Ritz-Carlton Hotel as part of the anti-graft campaign, sending shockwaves through the business community.
Saudi Binladin came under the control of a government-appointed committee, with an almost 40 per cent stake transferred to a state- owned company. Officials from the PIF argue that some companies had grown accustomed to receiving government contracts and subsidies and so were reluctant to take risks or innovate. This meant the private sector could not be relied upon to steer the country’s economic transformation alone.
“There’s an idea among [Prince Mohammed] and some of his advisers that the old merchant class were leeches, unproductive rent seekers, and they want to rear a new business class,” said Steffen Hertog, a Gulf expert and associate professor in comparative politics at London School of Economics (LSE). Some businesses never recovered from the anti-graft drive, while others have since kept a low profile. A regional banker said: “It’s not just that they lost out — they lost confidence and disappeared. They were marginalised. Their bank accounts were monitored.”
The ostensible anti-corruption purge was popular among many Saudis, but came amid a wider crackdown on dissent. Observers saw it as a statement by the crown prince, who had sidelined opponents within the royal family and their business supporters.
However, the emergence of a new cohort of PIF-backed companies has led to accusations that the state has replaced one set of preferred businessmen with another. An official familiar with the fund said the PIF invested in such businesses because they were well-run and experienced.
Nesma was founded in 1979 by Saleh Al-Turki, who stepped down as president and chair in 2018 when he was appointed mayor of Jeddah, the commercial capital, by royal decree. He enjoys good ties with Prince Mohammed, a person familiar with the matter said.
“Before it used to be state socialism, now it’s state capitalism,” said a Saudi analyst who requested anonymity. “There’s a lot of bitterness . . . You’re just giving all the contracts to the PIF and you created a [new] class of bureaucrats who are young, ambitious and greedy.”
But other analysts say the dynamics are very different now, with favoured companies getting smaller margins from contracts than would have been normal in the past. “It’s all PIF-led, but they’re all being offered narrow margins. The PIF is negotiating hard,” said the banker.
Some of the old Jeddah merchant companies, such as Almunajem Foods and retail giant BinDawood, have been able to grow their businesses in recent years. But many others have fared poorly after energy subsidies were curbed as part of Riyadh’s economic reform drive and fees were increased for companies hiring foreign workers.
“Most of those businesses were drugged with the subsidies . . . the cheap energy, the labour, the corruption,” said an executive of a Jeddah-based family company who requested anonymity.
“You need to have relationships when you’re taking any project, but it’s not entirely dependent on that,” the executive said. “In the end, if it’s not adding value economically, I won’t get [a contract] just from my connection. [The government] needs to do a stress test, it needs to know I can deliver.”
“The PIF acquires stakes in companies to create national champions,” said Hertog, of the LSE. “There’s a form of displacement, but I don’t see large-scale rent-seeking. I don’t think that the management of those state-owned firms take huge cuts, I don’t see large-scale corruption.”
Read more here.
Saudi Arabia to join BRICS bank
By Matteo Giovannini
Over the last few months, BRICS has gained prominence on mainstream media, in part for the reopening of China to the rest of the world as well as a convergence of interests that could lead to significant global repercussions. According to news reports, the New Development Bank (NDB), which aims at "mobilizing resources for infrastructure and sustainable development projects" in emerging markets and developing countries, has been in concrete talks with Saudi Arabia regarding the possibility of membership.
If successful, the country would become the ninth member to be admitted by the multilateral development institution after a first batch of nations — United Arab Emirates, Egypt, Bangladesh, and Uruguay — joined the founding members Brazil, Russia, India, China, and South Africa.
The addition of this Middle Eastern country, which is the world's second-largest oil producer after the United States, cannot be underestimated as it could help to raise the status of the NDB on international capital markets becoming a serious alternative, alongside the Asian Infrastructure Investment Bank, to a group of Western-led institutions represented by the International Monetary Fund and the World Bank.
The inclusion of Saudi Arabia to the NDB could also secure the bank new avenues of funding at a time when the organization is finding it hard to mobilize its own resources due to the impact of Western sanctions on Russia. In this sense, the participation of the Kingdom could serve as a way to hedge the Russian geopolitical risk by leveraging the growing economic and financial influence of a well-off additional shareholder.
Considering that multilateral banks' business depends on a mix of high credit ratings and low financing costs in order to be able to lend money for development projects at a cheaper rate, the acceptance of a country characterized by a strong balance sheet such as Saudi Arabia could boost the NDB's overall financial strength while improving the bank's creditworthiness on global markets.
Timing is key to understanding the move, as it can be seen as the result of a combination of China's diplomatic efforts in the Middle Eastern region and Saudi Arabia's aspiration to deepen its ties with some of the world's largest developing economies in the Global South.
It is no coincidence that last week, the Industrial and Commercial Bank of China opened a new branch in the Saudi city of Jeddah, with the intent of increasing financial cooperation between the two nations, in a bilateral trade that in 2022 hit a record high of $116 billion, while promoting the utilization of the Chinese currency, the yuan, in trade and transactions.
As BRICS nations are ramping up de-dollarization efforts to utilize local currencies to settle cross-border trade, the inclusion of Saudi Arabia, which is a heavyweight in global energy markets, could have impactful effects on the international currency exchange system. A gradual but irreversible reduction in the level of oil and gas deals made in U.S. dollars among BRICS nations will pave the way for China's yuan to become a go-to currency for energy trade settlements.
Taking into account that the Kingdom has the most oil reserves of any nation in the world, a stronger financial cooperation with BRICS nations could lead to a polarization of power in the energy industry with the opportunity for BRICS to have a greater say in terms of policies, production quotas and pricing.
In other words, Saudi Arabia's decision to tie its destiny to that of the countries belonging to BRICS might result in a power rebalancing in both Asia and the Middle East and in a shift in the geopolitical landscape as we know it, with the European Union that could be forced to make the historical decision of dumping the U.S. dollar in energy sector transactions in favor of yuan-priced oil contracts.
Economic factors and geopolitical considerations might have had a meaningful role in the decision of Saudi Arabia, a country that has historically maintained strong alliances with Western powers, to request admission to the Shanghai Cooperation Organization in the past and to become part of BRICS in the near future.
The resolution to join the NDB could reveal itself as a key milestone within a broader strategy that marks the beginning of a new financial order where global influence is rapidly shifting from the West to the East.
Read more here.