Southeast Asia has its reasons for pivoting to BRICS
ASEAN countries are lured by access to financing and a political movement independent of Washington’s influence
Southeast Asia’s sudden pivot toward the BRICS nations is a global game-changer that few in Washington saw coming.
In recent days, Malaysia detailed its ambitions to join Brazil, Russia, India, China and South Africa. Thailand and Vietnam are also among the Association of Southeast Asian Nations members expressing similar interest.
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In Indonesia, there’s growing awareness that Argentina, Egypt, Ethiopia, Iran, United Arab Emirates, Saudi Arabia and other “Global South” nations have a point in vying to join this burgeoning intergovernmental organization.
During an interview with Chinese media ahead of Li Qiang’s visit to Malaysia, Prime Minister Anwar Ibrahim declared his intention to join the bloc after it doubled in size over the last year. That dynamic is luring Global South nations — partly by offering access to financing but also by offering a political movement independent of Washington’s influence.
The Southeast Asia wrinkle could prove particularly problematic for US President Joe Biden. A hallmark of the Biden era since 2021 has been creating a regional bulwark against China’s rising influence and efforts to replace the US dollar in trade and finance.
What we’re seeing is a clear rupture in relations between the US and many ASEAN members. This, at a time when Saudi Arabia is looking to phase out the “petrodollar.” Riyadh is intensifying de-dollarization efforts as China, Russia and Iran line up against old alliances.
“A gradual democratization of the global financial landscape may be underway, giving way to a world in which more local currencies can be used for international transactions,” says analyst Hung Tran at the Atlantic Council’s Geoeconomics Center. “In such a world, the dollar would remain prominent but without its outsized clout, complemented by currencies such as the Chinese renminbi, the euro and the Japanese yen in a way that’s commensurate with the international footprint of their economies.”
Tran notes that “in this context, how Saudi Arabia approaches the petrodollar remains an important harbinger of the financial future.”
Malaysia’s journey tells the story. Prime Minister Anwar Ibrahim made his global mark as a pro-Western finance minister. That was in the late 1990s, back when Anwar’s reformist leanings clashed with the views of then-Prime Minister Mahathir Mohamad.
Mahathir shut Anwar down. Deputy Premier Anwar was shown the door and later imprisoned. Anwar’s efforts to increase competitiveness and level playing fields were also reversed. Mahathir imposed capital controls and circled the wagons around Malaysia Inc.
Now it’s Anwar who’s turning away from the Adam Smith-inspired policies he once championed — and toward the BRICS.
“We have made our policy clear and we have made our decision,” Anwar tells Chinese media outlet Guancha. “We will start the formal process soon. As far as the Global South is concerned, we are fully supportive.”
Anwar gave a shoutout to Brazilian President Luiz Inacio Lula da Silva, who is determined to end the dollar’s dominance.
“Last year, Malaysia had the highest investment ever, but the currency was still attacked,” Anwar explains. “Well, it has eased in the past few weeks. But it doesn’t make sense, it goes against basic economic principles.”
Anwar notes that the question is: Why? “A currency that is completely outside the trade system of the two countries and is irrelevant in terms of economic activities in the country, has become dominant, purely because it is used as an international currency,” he says.
Among the many reasons for Anwar’s ideological reversal is China’s emergence on the global scene, providing a regional growth engine. Another: the “Western narrative” surrounding events like Hamas’s October 7 attack on Israel.
“People keep talking about October 7, which annoys me,” Anwar says. “Do you want to erase 70 years of history by harping on one event? This is the Western narrative. You see, this is the problem with the West. They want to control the discourse, but we can no longer accept it because they are no longer a colonial power and independent countries should be free to express themselves.”
In late May, Thailand announced it’s applying for BRICS inclusion in part to boost its presence on the world stage. If approved, Bangkok would likely become the first ASEAN economy added.
“Thailand views that BRICS has an important role to play in strengthening the multilateral system and economic cooperation between countries in the Global South, which aligns with our national interests,” notes Foreign Ministry spokesperson Nikorndej Balankura. “As for economic and political benefits, joining BRICS would reinforce Thailand’s role on the global stage, and strengthen its international cooperation with emerging economies, especially in trade, investment and food and energy security.”
Soumya Bhowmick, an associate fellow at the Observer Research Foundation think tank, says Thailand’s bid supports Beijing’s broader strategic goals of expanding Chinese economic influence in Southeast Asia.
“For China,” Bhowmick notes, “Thailand’s membership represents an extension of its regional influence, complementing its Belt and Road Initiative. This aligns with China’s strategic interests of fostering closer economic ties and infrastructure development in Southeast Asia.”
The initial BRIC grouping was coined in 2001 by then-Goldman Sachs economist Jim O’Neill. The members formally joined forces in 2009. A year later, they added the “S” when South Africa joined. In 2023, the BRICS doubled in size by luring more Global South nations.
Today, BRICS+ nations account for half the world’s population and two-fifths of trade, including top energy producers and importers. BRICS+ nations also account for 38% of global petroleum imports, led by China and India.
“As more big emerging markets join the BRICS+ nations, the grouping could give the Global South a greater voice in world affairs and challenge the domination of existing institutions,” says Daniel Azevedo, an analyst at Boston Consulting Group.
BRICS+, Azevedo adds, “creates a forum that, at minimum, gives emerging markets the opportunity to align on global topics and new opportunities to promote mutual economic development and growth. And it’s evolving steadily.”
Azevedo notes that as the BRICS build political and financial institutions and a payment mechanism for executing transactions, “there are important potential implications for the future of energy trade, international finance, global supply chains, monetary policy and technological research.”
As a result, Azevedo says, “global companies will need to factor these new geopolitical and economic realities into their investment strategies. They should also strengthen their capacity to capture the opportunities and to mitigate risk that they engender.”
The BRICS haven’t always proved to be a viable economic bloc. Here are five core countries with little in common other than the imagination of some economists. Often, the BRICS seem all about gaining better access to China’s rapidly-growing economy and little else.
Paul McNamara, investment director at GAM Investments, speaks for many when he observes that the BRICS is still an acronym in search of cohesive economic argument. Without China at the core, McNamara asks, would most current global elites care about the BRICS?
As such, says Ian Bremmer, president of Eurasia Group, the “impotence of BRICS” makes joining the group “a low-stakes gambit with some potential upside. It might help Thailand curry favor with China, its largest trading partner and most worrying military threat. But, if not, what has Bangkok really lost?”
Earlier this month, Vietnam sent a delegation to Russia to attend the BRICS summit. There, Deputy Minister of Foreign Affairs Nguyen Minh Hang said Hanoi is keen on collaborating with like-minded developing countries.
All this against the backdrop of deteriorating American finances – and at a moment of maximum political dysfunction. As the national debt approaches US$35 trillion – on the way to US$50 trillion – Biden’s Democrats and Donald Trump’s Republicans are barely on speaking terms.
This augers poorly for funding the government in the short run or implementing upgrades to increase innovation and productivity in the long run. It also means the threat of another Capitol Hill insurrection of the kind that happened on January 6, 2021.
That event played a direct role in the August 2023 move by Fitch Ratings to revoke Washington’s AAA credit grade. Extreme polarization, explains Fitch analyst Richard Francis, “was something that we highlighted because it just is a reflection of the deterioration in governance, it’s one of many.”
The question now is how Moody’s Investors Service, which still grades Washington AAA, responds to election-year chaos as Trump angles for a return to power. And as Biden tries to out-Trump Trump with new trade sanctions.
This puts US Treasury securities at grave risk. Japan and China alone hold a combined US$2 trillion of US government debt. Any sudden run on the dollar could trigger a fire sale, sending US yields skyrocketing.
Here, the Federal Reserve’s reluctance to cut interest rates as had been widely expected ups the risk of a policy mistake. Historically, one of the most notorious Fed errors was missing the level of distress in credit markets in 2007 amid the subprime crisis.
As Fed Chairman Jerome Powell’s team prolongs the “higher for longer” era for yields, developing economies are increasingly in harm’s way. That’s especially so as the dollar’s surge hoovers up global capital.
Such concerns are playing into the broader BRICS goal of pooling more than US$100 billion of foreign currency to act as a financial shock absorber. The funds can be tapped in emergencies, allowing members to avoid going to the International Monetary Fund. Since 2015, the bank that the BRICS created has approved tens of billions of dollars of loans for infrastructure, transportation and water.
The BRICS currency project has been gaining traction since mid-2022, when the 14th BRICS Summit was held in Beijing. There, Russian President Vladimir Putin said the BRICS were cooking up a “new global reserve currency” and were open to expanding its usage more widely.
Brazil’s Lula also has thrown his support behind a BRICS monetary unit. “Why can’t an institution like the BRICS bank have a currency to finance trade relations between Brazil and China, between Brazil and all the other BRICS countries?” he asks. “Who decided that the dollar was the trade currency after the end of gold parity?”
Lula’s Finance Minister Fernando Haddad has been highlighting the increased use of local currencies in bilateral trade instruments like credit receipts. The focus, he says, must be phasing out the use of a third currency.
“The advantage is to avoid the straitjacket imposed by necessarily having trade operations settled in the currency of a country not involved in the transaction,” he says.
Economist Vikram Rai at TD Bank notes that, within the next decade or two, “there’s great potential for regionally dominant currencies and a multipolar international regime to emerge, with the roles filled now by the dollar shared with the euro, a more open yuan, future central bank digital currencies, and possibly other options we have yet to see.”
Analysts at Moody’s warn that the Americans going overboard on tariffs, concerns about default and weakening institutions are threatening the dollar’s reserve currency status.
“The greatest near-term danger to the dollar’s position stems from the risk of confidence-sapping policy mistakes by the US authorities themselves, like a US default on its debt for example,” Moody’s argues. “Weakening institutions and a political pivot to protectionism threaten the dollar’s global role.”
Now, as Southeast Asia leans toward the BRICS, it’s hard not to think that America risks losing far more than just the economic plot.