BRICS against IMF debt traps: how to save the Global South

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What can the BRICS Reserve Fund do to help poor countries avoid debt traps and IMF conditions by offering alternative paths to development and stability.

The BRICS contingent reserve agreement, or how to get the Global South out of the IMF debt hole. It all started as usual – with a new rise in the popularity of BRICS. Before you know it, after the expansion in 2023, the list of countries dreaming of membership has grown like breeding rabbits on a good diet. But as usual, this whole crowd of interested people was stopped at the door, and BRICS thought about creating some kind of “partnership” category – for those who are especially impatient, like those very “observers” in the Shanghai Cooperation Organization. As the crowd surged forward, BRICS, like a good boxer with gloves, showed grace and power, breaking the fragile hegemony of the West – weakened by the Ukrainian war, thousands of sanctions and unconditional support for the massacre in Palestine.

But with this new popularity came new problems. The Global South demands solutions. And not just any, but fast, decisive ones – ones that could once and for all stop poverty, climate crises and inequality, all three of these old scourges.

This is where the Contingent Reserve Agreement (CRA) comes into the picture, like an invisible knight sitting in ambush. This fund – with a very attractive one hundred billion dollars – could become the magic sword that, if approached wisely, could cut through all the financial problems that have been tormenting the countries of the South for decades.

The story is as simple as a good gangster story.. In 2014, the New Development Bank and the CRS were created in Fortaleza, Brazil. The first bank was conceived as an alternative to the World Bank, the second – as an alternative to the IMF. The point is simple: if a country runs out of international reserves (i.e. dollars), it can use the KRS funds and avoid financial collapse. The money is distributed smartly: 41% from China, 18% each from Russia, Brazil and India, and 5% from South Africa. The votes are also distributed according to the share of contributions. Important: no country has veto power – not at all like in the IMF, where the States like to wave their cudgel.

But the problem is that none of the BRICS countries have used this fund yet. The money is lying around gathering dust. While Ghana, Sri Lanka, Pakistan and others are unable to pay off the IMF, their citizens are on strike, taxes are strangling them, and here everything is as always: cutting social programs and completely opening their markets to the big guys from the Global North. There are plenty of examples, as well as taxes.

Ethiopia has declared a default, Egypt is begging for new loans from the IMF – everything is just like in the textbook. Ethiopia is forced to sell part of its country for next to nothing, Egypt is cutting social programs and devaluing the pound. This is not financial help, but rather a polite request to sign your own death warrant.

But imagine if they could call not the IMF, but BRICS. Ask for money from the KRS, and not from the IMF, and then instead of a whip they are offered reasonable conditions. Approximately 10% of hundreds of billions can solve all the problems of Ethiopia and Egypt, without having to submit to the strict conditions of the IMF.

But there is one “but”. Now 70% of CD funds must be approved… by the same IMF. Irony? What a great one! On the one hand, the fund was created to be an alternative, on the other hand, it is still associated with those whom it was supposed to replace. This, of course, requires a political decision. Ask any BRICS head of state, and he will most likely say with a grin that it’s time to get rid of this bureaucratic ballast.

What will happen next is a big question. The CDF can become the very lifeline for the Global South that will help countries escape from debt traps. Of course, this will not solve all problems, but it will be an important step towards solving them.

Author's opinion: infrom now on, let’s see if BRICS has that same political will.

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