Next week brings the confluence of the BRICS Summit in Kazan, Russia and the IMF/World Bank Annual meetings in Washington. The timing seems unlikely to be coincidental but will make for a lot of global macro and geopolitical headlines. As I’ll be watching for news from the first and attending the latter (reach out if you’re in DC and want to meet), it seems a good time to put together a very partial and biased list of some things I’m watching. What are you watching?
I’d expect a lot of rhetoric from the BRICS meeting as the expanded group agrees more on the problems they see in the international trading and financial system rather than on solutions. The BRICS countries are united in their dislike of broadening US/G7 financial and trade sanctions in energy and technology but have struggled to create meaningful broad alternatives. Instead, I continue to believe that the BRICS countries are more likely to partner bilaterally in smaller groups than as a whole due to competition, diversity and and wealth disparities. Such smaller group initiatives could be quite important.
By contrast the IMF meetings will provide the chance to check in on global growth more generally, the latest state of consensus. I’d expect a lot of concern in light of possible policy changes in the US, continued growth challenges in many regions as rates remain high and policy space limited. While trade conflict in some regions may help others, overall, the pathway towards new industrial policy means many tradeoffs, some of which have yet to be realized.
Things I’m watching at the BRICS meeting:
Who turns up: Saudi Crown Prince MBS has already reportedly sent his regrets, although he did attend the EU-GCC summit this week. While Saudi Arabia remains committed to keeping Russia in OPEC+ and making sure that consumer restrictions like the Price cap don’t restrict their future earnings, its been somewhat ambivalent about the BRICS. By contrast, the UAE has been more gung-ho, seeing the grouping as a place to increase its role in emerging economies/champion of the global South and a test case for its friends to all policy. Still, recent negotiations between the UAE and US on high-level chips access highlight the difficult balancing act the country faces as it tries continued partnership with both China and the US and tries to balance permissiveness with Iran/Russian trade with US partnerships. Relatedly, will other countries send their top leaders or will they be wary of standing with Putin and which of the many invited guests will turn up. NATO members like Turkey too are poised to put in an appearance, again trying to balance.
Any new members?: After expanding the group in 2023, the BRICS could extend more invitations at this meeting, but doing so could only add to coordination issues in the group. Brazil has already reportedly vetoed Venezuela and Nicaragua, the former because of worsening ties following Maduro’s latest round of election stealing. However, there is a long and growing list of applicants to the BRICS, suggesting that BRICS membership or at least application is becoming a status symbol, perhaps like having a strategic investment fund (Sovereign fund) was a few years ago. Who the new members are, how the group integrates its recent new members, some of whom have real bilateral irritants with other members (Egypt and Ethiopia), some of whom are heavily sanctioned (Iran)
Payment Systems/Currency Progress: The BRICS working groups had pledged to report back on progress on new payment channels between the countries at this meeting along with other deliverables. I’m not optimistic about major cross-BRICS coordination here, not least due to the many different systems being created by major economies, but would watch for developments on CBDC wholesale markets (such as the expanded but still piloting mBridge) and other details not just pronouncements on payment pathways, joint debt or other agreements. I don’t expect to see much on actual BRICS currency given convertibility issues and other limits, but the desire to create some channels that are some steps removed from US/G10 financial system is real. The more that some BRICS members liquidify these channels the more likely other dodgy activity also goes on in these channels. Also I’ve written in the past about the ways in which sanctions enforcement especially the price cap and energy is creating some smaller parallel systems in which smaller banks and companies are insulated while larger ones seek to maintain global links.
Note that the recent rounds of secondary sanctions threats on banks supporting Russian military and dual use trade have reduced direct trade between Russia and some of its trading partners and despite interests, BRICS countries have yet to scale up investment or trade with Iran. China, the UAE, Brazil, India all in different ways want to develop systems for the longer term and maintain some scope to reduce reliance on US dominated financial channels, but while still maintaining the predictability of the dollar. Overall, the institutionalization and development of working groups for the BRICS will need to report on progress, but building new institutions might be slow.
Will the NDB expand scope?: the New development Bank (BRICS Bank) should want to expand its capital and get the cash-rich new members to contribute (GCC), but it remains to be seen how terms will evolve as many member states prefer to act directly on bilateral terms. The NDB cut off investments in sanctioned jurisdictions in 2022 (Russia) and has yet to come up with a solution.
Trade and investment: Will there be group or more likely bilateral investment/trade agreements to publicly offset the trade restrictions and tariffs now coming into place. Perhaps, the UAE has been going around the world signing bilateral CEPA agreements, most recently with Malaysia, which respond to lack of progress of GCC-wide agreements and tend to be with countries where it has strong govt-govt links. Many BRICS members including Brazil and India are still quite closed markets for trade, looking to boost domestic production. Will they succeed in bringing in capital?
Russia will likely use the meetings as a chance to highlight its resilience and to rail against unfriendly countries. Sanctions are having an effect but the war economy and creation of some new illicit payment and shipping channels is making a lot of money for intermediaries, some of them Russian and creating new enforcement challenges for the future where the US and others will need to think about tradeoffs.
Things I’m watching at the IMF/annual meetings:
The Annual meetings of the IMF and World Bank will again be an opportunity to check in on global growth, especially given concerns about key regions including China where market actors have wisely begun to question the depth of the ‘stimulus’ announced which is more about putting a floor rather than more meaningful rebalancing. I’d expect to hear a lot about debt service costs, the limited investment in transition and mitigation for energy transition and of course questions about trade and investment. While energy costs haven’t risen much, food prices have, though not back to 2022 highs, which raises a concern for some. And the expanding fronts of battle and humanitarian cost in the Middle East will likely cast an appropriate pall and bring questions about the limits of coercive power and large evental reconstruction costs in the region – and in Ukraine.
US policy under next admin may overshadow other discussions: With the US election a few weeks away, a lot of talk and speculation will be around the next steps that the next admin either Harris or Trump would take, especially on trade. Trump has signalled comfort with ever larger broad tariffs that are envisioned to pay for many many things, while Harris is likely to use a mixture of incentives and disincentives. Also what will be the terms of investment into and out of the US? Will CFIUS scope be expanded? There are many many more questions.
Meanwhile even before the next admin, the Biden administration is rushing to roll out new rules including on technology, hoping that these won’t be overturned. New rules on high level chips and manufacturing are expected, perhaps via the newly announced verified rules for data centers, which would give the USG a veto on security rules in countries that receive the chips. how will this reshape technology and trade. Trading partners are getting ready and seeing where and how they might strike new deals and what they might be allowed to invest in with the US. Of particular focus are narrow trade agreements which might allow for investments and partnerships in critical minerals. These have been hard to strike.
The fiscal and monetary outlook: The Fed has finally turned, following many other central banks and providing some ballast to the Emerging economies that had tightened monetary policy. Trade policy uncertainty could reshape that path. Will emerging economies like Turkey be able to ease? What about others like Mexico that continue with fairly orthodox monetary and fiscal policies but are raising questions after judicial changes.
How are frontier markets doing amid the recent rounds of debt restructuring? While several frontier markets have yet to make progress on their debts, the test cases have emerged at least with private creditors. There doesn’t yet seem to be progress on how to reset the common framework or have a more extensive involvement of Chinese creditors who tend to be public or private actors when it benefits? But I’ll look forward to hearing from sovereign debt expert friends and others. I’d expect more talk about recent plans to reduce IMF loan surcharges and how much that will help.
Will there be good news? One potential area of good news comes from expansion of new power capacity in EM/developing economies, especially in places suffering from outages like South Africa and Latam. despite higher costs of capital, there is additional capacity being added. New refinery capacity (Dangote in Nigeria and in West Asia) has relieved refined fuel shortages. additional power capacity has yet to meet existing demand in many places, especially with data center needs and electrifiction shifts. Investments from sovereign funds at home and abroad have in some cases helped to develop this infrastructure. Can it continue? Relatedly, will digitalizaton of remittances help to reduce costs and facilitate this important capital flow.
What happens with Ukraine funding and loans? This meeting is one of the last chances to secure the loan from Russia’ immobilized assets and to provide more capital to Ukraine.
What about Venezuela? The fund and many of its member states doesn’t recognize Venezuela and there is a limbo about dealing with debt as well as efforts to bring Venezuela back into the global system. Doing so would be important for meeting energy transition and climate goals avoiding migration and humanitarian crisis.
Ziemba Insights 