BRICS turning to rubble

JONATHAN MANTHORPE: International Affairs
March 18, 2016

The leadership chaos in Brazil and South Africa is a timely reminder for emerging economies that unless they also press ahead with political, administrative, judicial and social reform they are doomed.

The presidents of both Brazil and South Africa are clinging to office by their fingernails in the face of accusations of corruption and administrative incompetence. Both Jacob Zuma in South Africa and Dilma Rousseff in Brazil have already taken confidence in their countries’ economies down with them and will probably do more lasting damage to the political institutions before their scandals are resolved.

Brazil's President Dilma Rousseff looks on during a meeting with state governors at the Planalto Palace in Brasilia, Brazil March 4, 2016. REUTERS/Ueslei Marcelino

Brazil’s President Dilma Rousseff looks on during a meeting with state governors at the Planalto Palace in Brasilia, Brazil March 4, 2016. REUTERS/Ueslei Marcelino

In Brazil, millions of protesters in the country’s main cities are demanding the removal of Rousseff, as the long-running scandal over corruption in the state oil company Petrobras flows ever closer to her door. More ground slipped from under her feet on Friday when Congress started the impeachment process against her. This came the day after a judge ruled invalid her attempt to protect her predecessor, Luiz Inacio Lula da Silva, from prosecution for corruption, by appointing him to her cabinet. This ruling was overturned by another court on Friday, which well illustrates the prevailing confusion and chaos.

And in South Africa, Zuma, whose entire political career has billowed with the stench of scandal and corruption, is accused of a deeply suspect relationship with three Indian brothers, Ajay, Atul and Rajesh Gupta. They came to South Africa in the early 1990s, after the end of apartheid, and have built a media, transportation, mining and technology empire that panders to Zuma’s ruling African National Congress (ANC).

The latest allegation is that the Gupta’s have taken effective control of Zuma’s administration, and have even been offering ministerial positions to senior officials, including the critical post of finance minister. On Thursday in parliament Zuma denied the charge, but factions for and against the president are forming within the ANC, whose sliding popularity is likely to be reflected in the results of local elections this year.

Yet in both Brazil and South Africa the current damaging chaos was entirely avoidable. In their own ways both have fallen victim to the triumphalism that came with their inclusion in BRICS club, the five emerging economies that in 2001 Goldman Sachs chief economist Jim O’Neill predicted would soon dominate global commerce.

But 15 years on, the prospects for Brazil, Russia, India, China and South Africa don’t look nearly as rosy, and in every case it is because the governing regimes failed to use their growing economic wealth as a tool to fuel political, administrative, judicial and social reform. They have come to realize, belatedly, that without those other reforms, economic growth and maturity cannot continue. Now, however, they’ve lost the opportunity offered by economic optimism in the early 2000s.

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FORTALEZA, Brazil — Leaders announce a BRICS development bank at Brazil summit. Left to right: President of Russia Vladmir Putin, Prime Minister of India Narendra Modi, President of Brazil Dilma Rousseff, President of China Xi Jinping, President of South Africa Jacob Zuma. Photo: Russian government, public domain

FORTALEZA, Brazil — Leaders announce a BRICS development bank at Brazil summit in 2014. Left to right: President of Russia Vladmir Putin, Prime Minister of India Narendra Modi, President of Brazil Dilma Rousseff, President of China Xi Jinping, President of South Africa Jacob Zuma. Photo: Russian government, public domain

The responses have been different among the BRICS governments to their economic woes since the global recession of 2008-2009, continuing lack of manufacturing demand, and the contributing burden of politically-inspired low oil prices.

Vladimir Putin

Vladimir Putin

Russia and China have fallen back on fascism. Neither Vladimir Putin in Moscow nor Xi Jinping in Beijing is prepared to institute the kind of liberalising political, judicial and administrative reforms necessary to create sustainable economies if it means give up a monopoly on power.

Instead, they are relying on ever more brutal repression to keep their citizens in line. Putin’s regime is sustained by the very public murder of dissidents who get too far out of line. In China dissidents simply disappear, are locked up on manufactured criminal charges, or are paid visits by triad gang fighters armed with meat cleavers. In both China and Russia, mass demonstrations are broken up by armed police, commonly assisted by local thugs wearing no uniform or identification.

To divert attention from the economic ills, both Moscow and Beijing are feeding their peoples dangerous gobs of intense nationalism to create the illusion that their countries are still great powers.

For Putin, patriotism is fed by his exploits in eastern Ukraine, Georgia, the Caucasus and, most recently, Syria. For Xi, it’s chest thumping at old enemy Japan and his highly volatile imperial expansion into the South China Sea. These adventures seem destined to end in conflicts, either with littoral states such as Vietnam and the Philippines, or the United States, or both.

The only member of the BRICS which has not gone off the rails is India. This is in part because expectations of an economic miracle in India were always much lower than among the others. And while India had and has much to reform, it also has some structural strengths that the others lack. India has been a democracy since 1947, albeit one with many faults and inconsistencies for much of the last 60 years. But Indian democracy has become far more vigorous, vibrant and responsive in the last decade or so.

India was cursed by its government’s adherence to quasi-Marxist economic policies for the first decades after independence. This burden was compounded by corruption and an unbelievably debilitating administrative system, known as “the licence raj,” that choked every economic activity with red tape.

Since the 1990s, much has been done to reform and liberate the Indian economy. But huge challenges remain, especially confronting the lack of essential infrastructure for further economic development, and a society still riven by the destructive caste system.

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By Marc Shandro - Flickr, CC BY 2.0, https://commons.wikimedia.org/w/index.php?curid=1117594

The only member of the BRICS which has not gone off the rails is India. Above, a spice market in India. Photo: Marc Shandro, Flickr, Creative Commons

At the height of the BRICS fantasia the American economist Robert Kagan set out a picture of traditional, western free market economic being challenged by the apparently more effective “authoritarian capitalism” of the emerging nations. That’s not a phrase one hears much these days, and for good reason. Authoritarian capitalism only works up to the point where further market liberalisation challenges the ruling classes. Then the shutters come down.

This can be clearly seen in the recent histories of the Asian Tiger economies, whose dramatic expansion and development in the 1980s and 1990s was seen with more legitimacy than the BRICS as a vision of things to come. Those tigers that have embraced political, administrative and social reform, such as South Korea and Taiwan, have also enjoyed continued economic development. (Though Taiwan has experienced serious setbacks since the current government, whose term ends in May, was foolish enough to seek commercial links with China.) On the other hand, the tiger economies Thailand and Malaysia, where crony capitalism thrives and genuine reform has been blocked, are seeing their prospects wither.

Former Brazil's President Luiz Inacio Lula da Silva gives a statement to the media after being detained for questioning in a federal investigation of a bribery and money laundering scheme in Sao Paulo, Brazil, March 4, 2016. REUTERS/Paulo Whitaker

Former Brazil’s President Luiz Inacio Lula da Silva gives a statement to the media after being detained for questioning in a federal investigation of a bribery and money laundering scheme in Sao Paulo, Brazil, March 4, 2016. REUTERS/Paulo Whitaker

Brazil’s problems stem from the rank foolishness of thinking that the commodities boom of the early 2000s that fuelled its economic take-off would go on forever. Commodity booms always go in cycles of five years or so. But President Lula ignored this and seems to have allowed to go to his head all the praise for economic sagacity that was lavished on him. He did little or nothing to utilise Brazil’s boom moment to prepare the economy for in the inevitable downturn. That included his failure to reform the bureaucratic nightmare that shackles anyone attempting to do business in Brazil.

Lula left in a cacophony of cheers in 2010 and, in essence, handed the presidency to his chief of staff, Rousseff. She, it turns out, has few political skills and has become deeply unpopular as the economy has gone into decline. She has continued to spend like a sailor on shore leave, apparently blind to the reality that the good times no longer roll.

Rousseff’s incompetence might be contained if Brazil had a functioning legislature. It does not. The lower house, Chamber of Deputies, has 513 members from 28 parties. Brazil uses a proportional representation system, allocating seats on the basis of the population of each of the country’s 26 provinces. The result is that parties are tied to geography rather than political ideology. Last year Rousseff and her Workers’ Party (PT) won the support of only 75 deputies in 90 per cent of the votes.

Politics, like nature, abhors a vacuum. In Brazil, the political vacuum is being filled by the judiciary. Since the economy went into tail-spin two years ago and Rousseff’s ineptness became evident, judges have gone well beyond the limits of their functions and have begun making policy decisions with far-reaching implications.

Nowhere is this more evident than in the pursuit of political corruption. This was traditionally addressed by Parliamentary Inquiry Commissions, but, like Congress, these have become ineffectual and the public has lost all confidence in them.

In 2014 judicial investigators led by federal judge Sergio Moro uncovered what is being billed as massive web of corruption in Probras, the state oil company. The case is known as “lava jato,” Portuguese for car wash, involves the equivalent of $US8 billion being diverted from Petrobras. It was a simple scheme by which companies bribed senior Petrobras officials to overbill them on contracts with the state oil company. Dozens of construction company officials have already been detained, but investigators are now hunting in the political arena. The federal public prosecutor has asked the Supreme Court to investigate Vice-President Michel Temer and opposition leader Aecio Neves. Then, a week ago, former president Lula was arrested and taken in for questioning over the scandal. Moro’s men questioned Lula about allegations of money laundering, fraud and his secret ownership of a multi-million dollar beachside penthouse. Lula denies the allegations.

Early this week Rousseff apparently offered Lula the job of chief of staff in her office. The position would give Lula cabinet minister status, and thus immunity from prosecution from anyone except the Supreme Court. Her officials say, however, she wanted Lula at her side because of his proven record as a financial manager.

Well, Moro and his hound dogs weren’t buying that. Late on Wednesday they released results of a phone tap made earlier in the day in which Rousseff is heard telling Lula to use the document confirming his cabinet appointment “only if necessary.”

After the recording was broadcast on radio and television thousands of protesters took to the streets in at least 16 cities demanding Rousseff’s removal. That is now in the hands of Congress and her PT party.

By Official White House Photo by Lawrence Jackson - http://www.flickr.com/photos/statephotos/3950142700, Public Domain, https://commons.wikimedia.org/w/index.php?curid=7966696

United States President Barack Obama and First Lady Michelle Obama pose for a photo during a reception in 2009 at the Metropolitan Museum in New York with Jacob Zuma, President of the Republic of South Africa, and one of his wives. Official White House Photo by Lawrence Jackson

In South Africa the ruling ANC has a similar problem with President Jacob Zuma.

It is an indictment on the ANC’s inability so far to make the transition from revolutionary movement to government of South Africa that Zuma ever became president. Zuma’s trail has been littered with corruption and scandal from the start. What he has in his favour, at least in the eyes of the ANC, is a hero’s record of joining the party’s armed wing, Umkhonto we Sizwe (Spear of the People) in 1962, and the South African Communist Party (SACP) in 1963. The same year he was arrested, convicted of attempting to overthrow the state, and sentenced to 10 years in prison, which he served with Nelson Mandela in what is now the pilgrimage site of Robben island off Cape Town. After his release, Zuma went into exile, ending up in the ANC headquarters in Lusaka, Zambia, where he rose through the ranks of the ANC and the SACP.

After the end of apartheid in 1990, Zuma, a Zulu from Natal Province, returned to South Africa. Zuma led the bitter and bloody war in KwaZulu-Natal against the hereditary Zulu chief, Mangosuthu Buthelezi and thus became the ANC’s indispensable voice among the powerful Zulu minority. Because of this, he was appointed a Deputy President of South Africa in 1999, but quickly became involved in scandal when his financial adviser, Schabir Shaik, was charged with corruption and fraud. It was alleged that Shaik solicited bribes – including 500,000 Rand a year (about $50,000 a year at the time) for Zuma – from the French defence contractor Thomson CSF over the purchase of frigates for the South African navy. Shaik got 15 years in prison, but somehow Zuma never faced trial. President Thabo Mbeki was forced, however, to remove Zuma from the Deputy Presidency.

While Zuma faced only corruption charges he retained strong support within the ANC and especially in the Youth League. The feeling was that after half a century of white minority rule, it was legitimate for black South Africans to get their hands on whatever they could.

That attitude towards Zuma began to change in December 2005 when he was charged with raping a 31-year-old woman. Scepticism about Zuma was especially strong among his Communist Party colleagues. The trial was a bizarre piece of theatre from the start, but became even more so when Zuma, the head of the National AIDS Council at the time, admitted he had not used a condom despite knowing the woman was HIV-positive. He had, he said, taken a shower after the encounter to minimise the risk of infection.

Zuma maintained throughout the trial that the sex was consensual, and in the end the court agreed with him. This cleared the way for Zuma to successful challenge Mbeki for the leadership of the ANC in December 2007 and to win the Presidency of South Africa in May 2009.

The whiff of financial scandal has continued to hang around Zuma since he achieved the presidency. Most persistent have been questions about the multi-million dollar upgrades made to his private home at Nkandla in KwaZulu-Natal. The defence for these improvements has been that they were necessary to enhance the security of the Zuma family kraal, or compound. Critics, however, have pointed out that what is claimed to be a reservoir for water in case of fire looks suspiciously like a huge swimming pool. The security use of a new, large amphitheatre, nor for the chicken run or the enclosure for cattle are not immediately evident either.

In February this year Zuma finally agreed to pay back part of the costs of the improvements, though as of today he has not done so and the matter is still before the Constitutional Court.

Not least of the problems Zuma presents is, who is South Africa’s First Lady? Zuma has been married at least six times, and he has at least four current wives and perhaps one or more fiancees. Although polygamy is legal in South Africa, senior members of the ANC have complained about the state support, equivalent to nearly $3 million a year, paid for the upkeep of Zuma’s family. He has at least 20 children, most with his wives, but seven or more with other women.

One of Zuma’s sons and one of his daughters work for the Guptas, who are at the centre of the new scandal now engulfing the President. And his most recently acquired wife – so far as is known – Gloria Bongekile Ngema, who he married in 2012, worked for one of the Gupta’s mining companies.

Copyright Jonathan Manthorpe 2016

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Jonathan Manthorpe is the author of “Forbidden Nation: A History of Taiwan.”

Contact: jonathan.manthorpe@gmail.com. Please address queries about syndication/republishing this column to jonathan.manthorpe@gmail.com

From F&O’s archives:

BRICS Bank a Game Changer. By Ali Burak GüvenJuly 22, 2014

Crumbling of the BRICs. By Jonathan Manthorpe, April, 2014

Manthorpe B&WJonathan Manthorpe is a founding columnist with Facts and Opinions and is the author of the journal’s International Affairs column. Manthorpe has been a foreign correspondent and international affairs columnist for nearly 40 years. Manthorpe’s  nomadic career began in the late 1970s as European Bureau Chief for The Toronto Star, the job that took Ernest Hemingway to Europe in the 1920s. In the mid-1980s Manthorpe became European Correspondent for Southam News. In the following years Manthorpe was sent by Southam News, the internal news agency for Canada’s largest group of metropolitan daily newspapers, to be the correspondent in Africa and then Asia. Between postings Manthorpe spent a few years based in Ottawa focusing on intelligence and military affairs, and the United Nations. Since 1998 Manthorpe has been based in Vancouver, but has travelled frequently on assignment to Asia, Europe and Latin America.

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