Russia is now as totalitarian as is China. On
24th February, Putin´s Russia has invaded Ukraine, resorting to murderous shelling
while Ukraine was fighting for its freedom. This followed upon Russia´s
invasion of Crimea and the seizure of Ukrine´s Eastern Donetsk and Luhansk
regions in 2014.
For at least a decade, Putin has built his
country´s food self-sufficiency by doubling its grain production since 2012.
The two inputs you need to sustain a long war are grains and energy - of which
Russia has plenty. The current account balance was switched from negative to
positive during that period, resulting in a built-up of a war chest at Russia´s
Central Bank, with foreign exchange held in China (12%) and gold reserves (22%)
vaulted at home; just 6.5% of Russia´s FX reserves were recently held in the US.
Xi Jinping has been the paramount leader of
China since 2012; he has hardened his grip ever since. He has suppressed
democracy movements in Hong Kong, threatened Taiwan and other neighbours. Last
not least, he forced internments, mass sterilisations, forced assimilation,
"re-education", and coercion of detained Uyghurs to work in
factories.
In 2022, geopolitical rupture looms. Global
governance is disintegrating into an American-dominated bloc and a
Chinese-dominated bloc, with Russia and the EU countries as junior partners.
Such hypothesis was pronounced by Clemens Fuest (IFO Munich) and by Martin Wolf
(FT)[1].
Will economic divisions follow? The link between geopolitical and economic
division will be calibrated by sanctions, to the extent they are effective.
The BRICS and much of the “Global South”, a
risk overlooked by Western observers, might opt for the China-dominated bloc. With
a deep and prolonged division between the west and a bloc centred on China and
Russia, economic divisions will follow. Lack of mutual trust and humanitarian
concerns call for disintegration of the world economy after four decades of
intense globalisation. Military buildup will shrink the peace dividend for the
world; just as it did in Putin´s Russia except for the super rich oligarchs
over the past two decades.
Both China and Russia are important drivers
of the BRICS (official website)[2],
joint with Brazil, India and South Africa. The BRICS, except South Africa, lead
the
list of countries with the highest foreign exchange (FX) reserves, ahead of
Germany. Combined, they have built up official FX reserves worth round $ 6 trn,
mostly over the last two decades. Approved at the 2014 BRIC summit in Brazil, the
BRICS Contingent Reserve Arrangement (CRA) provides protection against global
liquidity pressures. Since the 2015 BRICS summit in Russia, a BRICS payment
system conceived as an alternative to the SWIFT system has been established and
largely backed by China: Cross-Border
Interbank Payment System (CIPS).
Despite a growing membership, the OECD
share in world GDP expressed in Purchasing Power Parities (PPPs) stabilised
around 50% between 2011 and 2017 (latest benchmark year), according to the
International Comparison Program (ICP). Similarly, the share of large emerging
economies (China, Brazil, India, Indonesia, the Russian Federation and South
Africa) also stabilised at around 30% of world GDP[3].
Political scientist Rachel S. Salzman (SAIS,
Johns Hopkins U) has documented in a fascinating study Russia´s leadership in
establishing the BRICS group[4].
The desire to end US hegemony, rewrite rules and build new institutions is a
shared commitment of the group. In a time of alienation from the Euro-Atlantic
world, BRICS provides both China and Russia with international support.
Sanctions will drive geopolitical rupture
and economic division on a global scale. To which extent is less certain than
our own propaganda wants us to believe.
Notably the exclusion of Russian banks from SWIFT was hailed by
banner-waving economists and politicians as the ´nuclear´ sanction to bring
Putin quickly down. However, Alistair Milne, Professor of Financial Economics
at Loughborough University (UK) has convincingly explained that throwing Russia
out of SWIFT will be quite ineffective, unlike freezing the reserve ssets of
the Central Bank of Russia that include gold reserves held at home[5].
The UN General Assembly Resolution against
Russia on 2nd March was an eye opener for many. To be sure, the “world wants an
end to the tremendous human suffering in Ukraine” (UN SG Antonio Guterres).
Only 141 of the total 198 UN member states of the UN General Assembly adopted a
resolution demanding that Russia immediately end its military operations in
Ukraine. Five countries - Belarus, North Korea, Eritrea, Russia and Syria -
voted against it, while 35 abstained. Africa´s voting behaviour must be a special
downer for DAC donors. Half of the (too) many African countries did not condemm
Russia´s attack on Ukraine. They rather preferred to abstain, go to be absent,
and Eritra was one of the very few countries to vote against the UN resolution.
The West may have thought that the
atrocities commited in Ukraine might entirely isolate Russia. However, it may
have overlooked to what extent non-Western countries have intensified economic
links aside from the West and how that may have created political ties,
supported by new institutions not ruled by the US. In short, the West has
ignored Shifting Wealth[6].
[1] Clemens Fuest (2022), “Economic
Consequences of the Russian Invasion of Ukraine”, ifo Viewpoint 234, 4th
March: Martin Wolf (2022), “Putin
has reignited the conflict between tyranny and liberal democracy”, FT, 1st
March.
[2] The official website by mid March prominently displayed ´breaking
news´ such as “Russian Banks Turn to Chinese Payment Solution in Wake of
Sanctions”, or “Dr Reddy's (Indian pharmaceutical major) Plans 'Business
Continuity' in Russia”.
[3] https://www.oecd.org/sdd/prices-ppp/oecd-share-in-world-gdp-stable-at-around-50-per-cent-in-ppp-terms-in-2017.htm
[4] Rachel S. Salzman (2019), Russia,
BRICS, and the Disruption of Global Order, Georgetown University Press.
[5] https://www.france24.com/en/tv-shows/people-profit/20220303-fortress-russia-has-putin-built-a-sanctions-proof-economy
[6] OECD, Perspectives on Global
Development 2010: Shifting Wealth, OECD Development Centre.
