Why did Brazil’s President Lula build the Brics bloc?

It’s been more than a year and a half since Brazil’s Luiz Inácio Lula da Silva returned to the presidency of the country, coming back from political death after his corruption conviction was spectacularly overturned.

At the time, President Lula’s return reinvigorated one of the world’s most unlikely economic alliances — Brics, a grouping that includes Brazil, Russia, India, China and South Africa.

During his previous presidency from 2003 to 2010, Lula played a key role in efforts to cement the Brics into a geopolitical entity and emerging counterweight to the West.

Now the bloc has momentum again. It is called Brics Plus, after the original members agreed at a landmark summit in Johannesburg last August. to accept a small number of new entrants, including Saudi Arabia and Iran.

Not bad for a group that was originally formed solely for a lofty financial idea, brainchild by economist Jim O’Neill, who sees it as an investment opportunity rather than a new group of countries.

“When the Brics were formed, it was almost an asset class,” said Monica de Bolle, a senior fellow at the Peterson Institute for International Economics in Washington.

“But it was well received in Brazil because it spoke directly to Lula’s aspirations in foreign policy.”

At the meeting in Johannesburg, Lula was particularly optimistic about the group’s long-term economic prospects.

“We have surpassed the G7 and account for 32% of global GDP in purchasing power parity terms,” he said.

“Forecasts show that emerging and developing markets will be the fastest growing markets in the coming years,” he added.

“This shows that the engine of the economy is in the global South and Brics is the driving force.”

But that, at least, was Lula’s lie. As the founder of the Bric acronym, who now enjoys the title of Baron O’Neill of Gatley, has pointed out, all the economic growth in the group has actually come from Xi Jinping’s China and Narendra Modi’s India.

“No other Brics country has done as well as these two,” he said. in an article written in response to block expansion.

“Brazil and Russia account for the same share of global GDP as they did in 2001, and South Africa is not even the largest economy in Africa. [Nigeria has surpassed it]”

He also pointed out that China “dominates the Brics group by being twice the size of all the other countries combined,” similar to how the United States dominates the G7 group.

So what does slow-growing Brazil gain by being pulled into China’s economic vortex?

Rodrigo Zeidan, a Brazilian economist working at New York University Shanghai, China, told the BBC that both Brazil and China see Brics as a “hedge” in terms of global alliances, rather than a top priority.

“Brics right now, for Brazil, costs almost nothing,” he said. “So if the benefits are not high, that’s okay. They’re not a big benefit, nor are they a hindrance.”

Because China is its largest trading partner, Brazil feels comfortable maintaining close ties with Beijing, even if the Brics group offers it some “strange companions,” as Mr. Zeidan puts it.

Lula has certainly maintained An Ambiguous Position on Russia’s War in UkraineBut that is more due to Brazil’s traditional neutrality in foreign policy than a desire to support another Brics country.

For Monica de Bolle at the Peterson Institute, herself a Brazilian economist, President Lula has shown “great naivety” in committing to Brics because he believes in promoting relations between major countries in the so-called global South.

As a result, Brazil is now “dependent on China,” she said, and this could harm the country’s other foreign policy relationships.

“If you are in the United States, you know that the United States’ stance on China will not change. [whoever wins the presidential election in November]”, she added.

“In both cases, the situation is moving towards increasing anti-Chinese sentiment. At some point, that will generate additional reactions from China, which could put Brazil in a very difficult position, because it is seen as aligned with China.”

One tangible benefit for Brazil from the alliance comes from the New Development Bank (NDB), a multilateral lending institution created by the Brics group and described by Lula as “a milestone in effective cooperation between emerging economies.”

The agency is currently headed by former Brazilian President Dilma Rousseff, who was a political protégé of President Lula and succeeded him in 2011. But her tenure ended in turmoil when she was impeached in 2016 for violating budget laws.

Not only did NDB bring her back into public life, but because the bank’s headquarters are in Shanghai, she played a key role in maintaining ties between Brazil and China.

“Dilma certainly has a big influence in terms of political image. Dilma’s presence in Shanghai is very important in strengthening Brazil-China relations,” said Mr. Zeidan.

Brazil has also benefited directly from NDB money. In June, Ms Rousseff and Brazilian Vice President Geraldo Alckmin signed a loan agreement worth more than $1.1bn (£880m) to help pay for reconstruction after the Widespread flooding in Rio Grande do Sul state.

Regarding NDB and Russia, the bank suspended all transactions related to the country in March 2022, shortly after Russia invaded Ukraine. And NDB has complied with international sanctions against Russia.

But Russia is expected to take over the bank’s rotating presidency in mid-2025 and it remains unclear what will happen after that.

Meanwhile, Ms Rousseff has not shied away from attending financial meetings in Russia and shaking hands with Russian President Vladimir Putin, who has praised her work leading the NDB.

President Lula is a staunch supporter of Brics as a means of reforming global governance and giving developing countries a greater voice.

He criticised the “paralysis” of global institutions, while hailing the expansion of the Brics group as a move to strengthen the fight for more diverse views.

But other observers counter that the Brics countries themselves are paralyzed by internal conflicts, with Russia at war in Ukraine, while China and India are also having their own disagreements.

Ultimately, according to Ms. de Bolle in Washington, Brics is “a heterogeneous group of countries that have nothing in common, except that they are all big.”

“The Brics countries don’t have a clear agenda that has any real weight,” agreed Mr Zeidan in Shanghai.

“Currently, China does not ask much from Brazil. However, whatever China asks, Brazil does.

“Being part of Brics is fine when the risk is low. But what if the risk increases?”

In other words, the impact of Brics on Brazil and the world may be negligible for now. But if China decides to become more assertive, that could change quickly — and Brazil could face some tough choices.