The ninth Annual Summit of Governors of the New Development Bank (NDB) of the countries BRICSheld in Cape Town, South Africa at the end of August, focused on the problem of global public debt and the need for a new financial architecture international. These are the two fundamental aspects of the future of global political and economic stability.
In his introductory speech, Dilma Rousseffpresident of the NDB and former president of Brazil, highlighted how the global public debt bubble, particularly that of developed countries, is a heavy burden and a real block on the development of emerging and poorer countries.
“It seems unlikely to mobilize more investment for sustainable development without addressing the issue of debt,” he said. “According to World Bank estimates, the ten developed economies of the planet have a total debt of about 87 trillion dollars. The financing of such high public debts drains a significant part of the enormous liquidity available on international markets”he added. Liquidity that could otherwise be used to finance investments in emerging countries as well.
For developing countries, debt has become an even heavier burden. Their debt is growing too much, too fast. Over the past decade, interest payments for these countries have increased faster than government spending on infrastructure, health, education and housing.
Dilma warned that “external shocks, such as increases in interest rates in international markets and excessive depreciations of emerging market currencies, end up fueling a vicious cycle of indebtedness. The discrepancy between hard currency debt and income generated by local projects creates a barrier to investment in developing economies.”. The African Development Bank says Africa’s external debt interest has nearly tripled in less than 15 years, from $61 billion in 2010 to $163 billion in 2024.
The right emphasis on the public debt problem by the NDB clashes sharply with the attitude of the governor of the American Federal Reserve, Jerome Powell, that at the recent conference in Jackson Hole, Kansas he completely ignored the debt issue. The word “ is never uttereddebt”, in an attempt to obscure the fact that the US not only has the largest amount of debt, but that debt has literally exploded in the last two years.
To address the issues mentioned, Dilma argues that “We need to take two actions: first, we need to channel international liquidity to developing countries and reduce the burden of high interest rates; second, we need to develop alternatives such as local currency financing to provide a larger fiscal space for investment.”
Per diversify funding sources it is thought to use a broader basket of currencies which could improve economic resilience against shocks associated with monetary policy decisions and strengthen the fiscal position to allow for the financing of all necessary infrastructure.
Using local currency is therefore a strategic option for the NDB which aims to provide 30% of its total funding in the local currencies of member countries. The availability of credit in local currency would help address exposure to exchange rate risks and interest rate changes.
The NDB notes that the dollarthe hegemonic currency, has two roles: an international one and a domestic one. When the United States faces inflation, monetary policy is used to increase interest rates, creating many problems for emerging economies. If the US economy needs it, it can use a strong dollar, which can cause an increase in debt for other countries whose debt is in US currency. As a result, volatility becomes the rule, not the exception.
During the Cape Town summit, some major projects were financed, such as the water network in South Africa for the equivalent of over 1 billion dollars and the 5 billion South African rand to the Transnet company to improve the national freight transport system.
The NDB reported that Many BRICS banks are already granting loans in local currencies. She is experimenting the issuance of bonds, called “panda bonds”, in yuan on the Chinese market.
The use of is also being promoted local ratings in financing programs, thus bypassing the nefarious interference of the “three sisters” americane del rating.
The conference decided to admit Algeria also in the New Development Bank. Previously, the following had become members of the bank: BangladeshThe United Arab Emirates and theEgyptIt is a perspective that many other emerging countries seem to want to follow.
*former Undersecretary of the Economy **economist