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The BRICS Don’t Like the Dollar-Dominated World Economy, but They’re Stuck With It

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Thomas Trutschel—Photothek/Getty Images

The latest summit of the world’s leading emerging markets took more steps toward replacing the U.S.-led global financial system. But change will come very, very slowly

When the BRICS get together for their annual summit — as they did last week in Brazil — they always make a lot of noise about changing the way the global economy works. They have good reason to be frustrated. The BRICS (Brazil, Russia, India, China and South Africa) are gaining in economic power and crave the political clout to match, but standing in the way is a global financial system organized by the West and dominated by the U.S. They’re forced to conduct their international business in the unstable U.S. dollar, making their economies swing back and forth with the winds of policy crafted in Washington, D.C., and New York City. The West has ceded influence in institutions like the World Bank and the International Monetary Fund (IMF) only grudgingly. To them, today’s financial system is out of touch with the changing times, and ill-suited to support the world’s up-and-coming economic titans.

So in their summit, from July 14 to 16, the five BRICS announced two major initiatives aimed squarely at increasing their power in global finance. They announced the launch of the New Development Bank, headquartered in Shanghai, that will offer financing for development projects in the emerging world. The bank will act as an alternative to the Washington, D.C.—based World Bank. The BRICS also formed what they’re calling a Contingent Reserve Arrangement, a series of currency agreements which can be utilized to help them smooth over financial imbalances with the rest of the world. That’s something the IMF does now.

Clearly, the idea is to create institutions and processes to supplement — and perhaps eventually supplant — the functions of those managed by U.S. and Europe. And they would be resources that they could control on their own, without the annoying conditions that the World Bank and the IMF always slap on their loans and assistance. Carlos Caicedo, a Latin America analyst at consulting firm IHS, noted, for instance, that the New Development Bank “has the potential to match the role of multilateral development banks, while offering the BRICS a tool to counterbalance Western influence in international finance.”

In theory at least, the BRICS possess the financial muscle to make that happen. Four of the BRICS — China, India, Brazil and Russia — are now ranked among the world’s 10 largest economies. (South Africa, not a member of the original constellation of BRICs as conceived by Goldman Sachs, comes in a distant 33rd.) Yet the reality is more problematic. The BRICS at this point are simply not committing the resources necessary to make anything but a dent in global finance.

Research firm Capital Economics estimates that the New Development Bank, with initial capital approved at only $100 billion, could offer loans of $5 billion to $10 billion a year over the next decade. Though that’s not an insignificant amount, it’s far lower than the $32 billion the World Bank made available last year. The situation is the same with the currency swaps. Set at a total size of $100 billion, the funds available would be a fraction of those the IMF can muster.

That’s assuming these initiatives ever get off the ground. This sixth BRICS summit is the first to produce anything beyond mere rhetoric, and it remains to be seen if they can cooperate on these or any other concrete projects. Despite their common distaste for the U.S.-led global economy and desire for development, the BRICS share as many differences as similarities. They have vastly diverse levels of development and types of political systems, and the bilateral relations between some of them are strained. India and China, for instance, routinely spar over disputed territory, while Brazil sees China as much as an economic competitor as partner.

Beyond that, all of the BRICS have serious economic problems to deal with at home. The new government in India led by Prime Minister Narendra Modi will be hard pressed to implement the reforms necessary to jumpstart the country’s stalled economic miracle. Growth in Brazil, South Africa and Russia has been even more sluggish. China’s growth has held up, but it suffers from rising debt, risky shadow banking and excess capacity. And now Moscow has to contend with sanctions imposed by the U.S. and Europe over its aggressive policy toward Ukraine. It may soon face even greater isolation as the world probes its connections to the separatists in Ukraine, who reportedly downed Malaysian Airlines Flight 17 with the loss of nearly 300 lives.

Meanwhile, whether they like it or not, the BRICS will be stuck operating by the rules of the U.S.-led world economy for the foreseeable future. There is simply no other currency out there that can replace the U.S. dollar as the No. 1 choice for international financial transactions. China has dreams of promoting its own currency, the yuan, as an alternative, and has made some progress. But the yuan can’t truly rival the dollar until China undertakes some fundamental financial reforms — liberalizing the trade of the yuan and capital flows in and out of the country. That’s far-off. And until then, China’s massive reserve of dollars forces it to continually invest in dollar assets. Even as Beijing bickers with the U.S. over cyberspying and regional territorial disputes, it has been loading up on U.S. Treasury securities — buying at the fastest pace on record so far this year.

Still, the steps taken during this latest BRICS summit point to what may be the future of the global economy. Though their initiatives may be small and tentative now, they signal an intent to remake the global financial system in their own interest as they continue to grow in economic power. Perhaps one day it’ll be the U.S. that does the complaining.

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TIME BRIC

BRICS Nations Agree to Create Own Development Bank

Vladimir Putin, Jacob Zuma, Narendra Modi, Dilma Rousseff
Russia's President Vladimir Putin, left, India’'s Prime Minister Narendra Modi, second left, and Brazil’'s President Dilma Rousseff, right, greet South African President Jacob Zuma, second right, after his speech during the BRICS 2014 summit in Fortaleza, Brazil, Tuesday, July 15, 2014. Silvia Izquierdo—AP

The New Development Bank will have an African regional branch in South Africa and eventually other nations would be able to participate

(FORTALEZA, Brazil) — The leaders of five emerging market powers said at a summit Tuesday that they gave final agreement to creating their own development bank worth $100 billion that will have its headquarters in China.

The first president of the New Development Bank will be from India and the position will rotate every five years among Brazil, Russia, India, China and South Africa — the so-called BRICS nations, a joint statement from the leaders said.

BRICS leaders conferred in a closed session earlier in the day at their conference in northeastern Brazil, then announced concrete plans for the bank at an afternoon session open to the press.

The new bank is seen as a strong push by the BRICS against the World Bank and the International Monetary Fund, which the developing world has long complained it far too U.S.- and European-centric.

“Based on sound banking principles, the NDB will strengthen the cooperation among our countries and will supplement the efforts of multilateral and regional financial institutions for global development,” the statement said.

Russian Foreign Minister Sergey Lavrov told the Russian news agency ITAR-Tass that the decision “confirmed that BRICS members, while speaking against unilateral actions in the world economy and politics, are not seeking confrontation but propose working out collective approaches toward the resolution of any problems.”

The New Development Bank will have an African regional branch in South Africa and eventually other nations would be able to participate.

The statement also alluded to Brazil’s and India’s longstanding quest to overhaul the United Nations Security Council, of which China and Russia are two of five permanent members with veto power. Those nations have in the past proved reluctant to endorse Brazil’s and India’s ambitions, but Tuesday’s statement said the BRICS nations “support their aspiration to play a greater role in the U.N.”

Though exhaustive, the joint statement largely steered clear of potentially divisive issues, like the conflict in Ukraine between pro-government and pro-Russia factions.

It touched only briefly on the matter, saying the five countries expressed their “deep concern” with the situation in Ukraine and urged “comprehensive dialogue, the de-escalation of the conflict and restraint from all the actors involved, with a view to finding a peaceful political solution, in full compliance with the U.N. Charter and universally recognized human rights and fundamental freedoms.”

TIME World Cup

Messi’s Legacy Debate Continues

Lionel Messi 2014 World Cup
Lionel Messi of Argentina reacts during the 2014 FIFA World Cup match against Germany on July 13 in Rio de Janeiro, Brazil. Mike Hewitt - FIFA—Getty Images

Messi missed the free kick in the 120th minute of play against Germany, sealing Argentina's fate

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By Brian Straus

RIO DE JANEIRO – Time was slipping away, yet Lionel Messi still had plenty.

Germany’s Bastian Schweinsteiger, who committed the 120th-minute foul that offered Messi the opportunity for one last look at goal, was receiving treatment a few feet away. The Argentine maestro took advantage of the pause. He stood quietly for a moment then bent over and pressed his fingertips into the ball, testing the air pressure.

On Top of the World: Germany Tops Argentina, Claims 4th World Cup Title

Messi was calm and deliberate, as if he hoped the measured pace of his movement would help clear his mind and calm any nerves. He was about 25 yards away and to the left of Germany goalkeeper Manuel Neuer. Argentina trailed, 1-0, in the dying seconds ofthe World Cup final at the Estádio do Maracanã and its fading hopes for a third title rested where they always had – at Messi’s feet.

It was an opportunity he’d surely rehearsed countless times – maybe as a boy in Rosario, where he was born the year after Diego Maradona carried Argentina to its second world championship. It became more realistic as Messi’s own star ascended in Barcelona, where he won every team trophy there is,along with a record four FIFA World Player of the Year awards. This was supposed to be Messi’s World Cup, the tournament where the sport’s most spectacular player, in his prime at 27, would end any debate about his place in soccer’s pantheon and in the hearts of his countrymen.

The free kick missed by miles, soaring over Neuer and into the crowd. Messi looked up toward the sky with an ironic, resigned smile on his face. That was it. The sport’s greatest goal scorer would be shut out for a fourth consecutive match, one he called “the most important of our lives” in a Facebook post. Argentina would lose the final and Messi, perhaps, his place alongside Pelé and Diego, if that ever was at stake.

Diego Maradona: Lionel Messi unworthy of Golden Ball

It could have been so much simpler. Messi already has accomplished at the club level what Maradona never could, and he played this World Cup under a spotlight that his predecessor couldn’t have imagined 28 years ago. Win it, dominate it, and the argument is over.

Maradona was regarded as supremely gifted – Barcelona bought him from Boca Juniors for a world record $7.6 million in 1982. But he hardly was a legendwhen that fateful World Cup rolled around in ‘86. He’d escaped the slums of suburban Buenos Aires andwon a couple of South American player of the year awards, one Argentine league title and a FIFA World Youth Championship. But he’d struggled with injuries and chemistry at Barcelona and hadn’t yet lifted Napoli to glory. No one expected or demanded a title when La Albiceleste arrived in Mexico. At 25, he wasn’t chasing immortality.

Messi was playing under a different sort of pressure here in Brazil and he rose to the occasion during the group stage. He scored in the opener versus Bosnia-Herzegovina, beat Iran with a stoppage-time goal then tallied twice against Nigeria. Messi then turned playmaker, setting up Ángel di María’s gorgeous game-winner in the round-of-16 matchup with Switzerland.

But as the tournament wore on and the opponents got tougher, Messi’s impact waned.Under manager Alejandro Sabella, Argentina has focused first on defense, starting with goalkeeper Sergio Romero and inspired by midfielder Javier Mascherano, who remains the squad’s soul if not its captain. Argentina’s soccer is far from the rhythmic, high-pressure, possession-based sort that Messi enjoys at Barcelona. Argentina had only 40 percent of the ball on Sunday, a statistic that might cause a riot at the Camp Nou.

Brazil Falls Short, but its World Cup Provides Unforgettable Theater

Messi’s contributions in the knockout rounds were intermittent and tactical. Set up to stymie Argentina’s primary threat, opponents made sacrifices in the attack. Games tightened up and scoring chances were at a premium. Sabella oftendeployed Messi in a deeper position. Hemight find the ball a bit easier there, but he was further from goal once he had it. In the semifinal against the Netherlands, Messi was shadowed effectively by Nigel De Jong and then Jordy Clasie.

On Sunday, he started behind one forward rather than two but still had lots of ground to cover when the ball came his way. And there were significant stretches when it didn’t. None of his four shots was on target, he was late arriving on a couple of counterattacks and he saw two promising first-half crosses cleared from danger after runs down the right. Messi’s best chance came in the 46th, but his left-footed shot whizzed across the face of the German net and past the far post.

Sabella refused to respond directly to a post-game question concerning Messi’s fitness, saying that he thought his captain had an “extraordinary” tournament and deserved the Golden Ball award handed by FIFA to the World Cup’s top player. Indeed, Messi led the competition in scoring chances created (21) heading into the final, a testament to his skill and efficiency. But that’s hardly a statistic they’ll be singing from the stadium terraces in Buenos Aires, and the glum look on Messi’s face as he accepted that trophy was clear indication that his dream had been dashed.

He described it in Saturday’s Facebook post.

“My dreams and my hopes are being fulfilled due to the hard work and sacrifice of a team that has given everything from match one,” he wrote. “We want to win, and we are ready.”

2018 World Cup odds: United States 33/1 to win tournament

He could have made it easier for the public and the pundits by scoring a couple goals on Sunday and carrying the more important hardware back to Buenos Aires. There’d be a three-way tie for GOAT. But it already was pretty simple for Messi, who’s famously shy and the polar opposite of the outspoken, effervescent Maradona. He doesn’t play for the history or the trappings. He’s been known to sulk when benched at Barcelona, which can happen during a game that’s out of hand or meaningless. He simply wants to be on the field.

“The only thing that matters is playing. I have enjoyed it since I was a little boy and I still try to do that every time I go out onto a pitch. I always say that when I no longer enjoy it or it’s no longer fun to play, then I won’t do it anymore. I do it because I love it and that’s all I care about,” he told ESPN’s E:60 in an interview prior to the World Cup. “I want to be world champion but not to change the perception of others towards me or to achieve greatness like they say, but rather to reach the goal with my national team, and to add a World Cup to my list of titles.”

Some Argentines feared his loyalty lay with Barcelona, or even Spain, where he moved at 13. His goalless 2010 World Cup (when Maradona was the coach) didn’t help. Messi suffered from a growth hormone deficiency as a child, and his family was unable to find an Argentine club willing to pay for his treatment, which cost more than $10,000 per year. The Catalans offered, so he left. He owes Argentina nothing but has continued to profess his love for his country. He’s already been capped more than Maradona and still has years left to play.

“I believe he’s in that pantheon. But he was there before,” Sabella said Sunday. “He’s been there for quite a while already, in the pantheon of the big ones.”

Germany coach Joachim Löw said he told substitute striker Mario Götze during the brief break before extra time, “Show the world that you’re better than Messi and that you can decide the World Cup.” Götze decided it, scoring the game’s only goal on a brilliant volley in the 113th minute.

Germany’s World Cup Title a Result of Revamped Development, Identity

But no one believes he’s better than Messi. He’ll never come close. Lifting theWorld Cup is about far more than a given shot, a single game or the bounces during a month-long tournament. Champions are forged in the long term through persistent work at the grassroots and league levelsand a focus on culture and player development.

Löw said Sunday that Germany’s route to the trophy started in 2004, the year he and Jurgen Klinsmann took over Die Mannschaft and Messi made his senior pro debut. The talent and depth on display in Rio was a decade in the making. As Germany accepted the trophy, Götze held up the jersey of injured winger Marco Reus, who many considered the team’s most dangerous player.He missed the tournament. Götze was a substitute. The man who passed him the ball, Andre Schürrle, also was a reserve. He’d relieved Christoph Kramer, who was the replacement for late scratch Sami Khedira. Messi has nowhere near that reservoir of talent with which to work. His silver medal is the reflection of a whole lot more than his (in)ability to master the moment.

Messi will move on. The next game will be the most important of his life. His legacy may be murky for some, but that’s the fun of sports. Those who want to debate it can do so. Those who are happy to let it go and are able to relax — or sit on the edge of their seat — and enjoy the remaining years of one of soccer’s most transcendent, exciting careers alsocan do so.

Messi will keep on motoring.

This article originally appeared on SI.com.

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This weekend, the 2014 FIFA World Cup Trophy will go from the current holder of the gold statue, Spain, winner of the 2010 World Cup, to either Argentina or Germany. But this is not the first time the two countries have faced each other in a World Cup final.

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Harry Potter and his crew cheer on once-rival Viktor Krum's Bulgaria

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Viktor Krum, Hermione, and Neville Longbottom all make appearances in the updates from Pottermore, where J.K. Rowling released Tuesday a new story about Harry and his friends. While Ginny Potter (who has apparently chosen to take Harry’s name after their marriage) focuses her commentary on the skilled Brazilian chasers, Skeeter’s commentary strays more towards gossip about Dumbledore’s Army.

“Neville Longbottom is already on his feet cheering, even though nothing has really happened yet. Is he drunk?” Skeeter ponders.

And Ron doesn’t seem to have let go of the hard feelings about his now-wife Hermione once dating the Bulgarian seeker Viktor Krum. “Harry Potter is cheering every well-hit Bulgarian Bludger, whereas his supposed best friend Ronald Weasley appears to be gnashing his teeth in chagrin,” Skeeter notes.

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