BRIC: The trillion-dollar club

Discussion in 'International Politics' started by LETHALFORCE, Apr 27, 2009.

  1. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    Brazil, Russia, India, China offer IMF financial aid for wider policy role

    Brazil, Russia, India, China offer IMF financial aid for wider policy role | The Australian

    Brazil, Russia, India, China offer IMF financial aid for wider policy role

    Bob Davis | April 27, 2009
    Article from: The Wall Street Journal

    A PUSH by Brazil, Russia, India and China to have the International Monetary Fund issue its first bonds has become part of a strategy by developing nations to gain a bigger say at the IMF.
    At the fund's annual meeting for the northern spring, the four countries said they were willing to contribute to a previously announced quadrupling of IMF resources to $US1 trillion ($1.38 trillion), mostly by purchasing bonds.

    The bonds would be denominated in the IMF's quasi currency, called special drawing rights, have a maturity of about one year, and be sold only to central banks. If the so called nations of BRIC have their way, the bonds could also be sold on secondary markets to make the instruments more liquid.

    The proposed purchase is meant to send a double-message, said Eswar Prasad, a former IMF official who remains close with the Chinese and Indian officials.

    The countries of BRIC are willing to contribute to the IMF, but they won't contribute heavily to longer-term fund resources until the world body increases their voting shares substantially. "They don't want to get locked into providing more money until they get their (shares) increased," Mr Prasad said.

    The issue of voting rights and IMF bonds were at the forefront of the group’s meetings, where discussions also explored the state of the global economy and providing support for low-income countries.

    In a statement on Saturday to the IMF's main advisory committee, Brazilian Finance Minister Guido Mantega said the world body "still has to address its original sin: its democratic deficit".

    Egyptian Finance Minister Youssef Boutros-Ghali, the chairman of the advisory group, said in an interview that he wanted to get national leaders involved in remaking the IMF voting system.

    IMF voting shares are supposed to generally reflect global economic power, but now give far greater weight to countries that were powerful after World War II, especially smaller European ones.

    In March 2008, after lengthy negotiations, the IMF announced that developing nations' voting shares would increase by 5.4 percentage points and the body said it revisit the issue in 2013.

    For Brazil, that meant its voting share increased by 0.3 points to 1.7 per cent. China's voting share was boosted 0.9 percentage points to 3.8 per cent. Even those increases were not yet in effect. (The voting rights for Belgium and the Netherlands equal China's, even though China is a much larger economy.)

    The IMF now is committed to looking into the issue next year. But the BRIC countries believe the IMF's need for funds gives them additional leverage.

    At the summit of leaders of the Group of 20 industrialised and developing nations early this month, British Prime Minister Gordon Brown said China was ready to lend the IMF $US40 billion. But China never committed to that amount and is now balking, said IMF and other finance officials.

    Instead, the Chinese are looking at contributing perhaps half that much, which would be in line with its voting share, and providing additional money through bond purchases, which are seen as less significant by the IMF because they are for a limited time; Brazil, India and Russia were also pushing bond purchases.

    The US generally backs the BRIC effort to get greater representation. But some US officials believe the BRIC bond strategy could backfire because they would be seen to have played politics rather than contributing fully to the IMF during an economic crisis.

    Indeed, Western European countries, which have pledged $US100 billion to the IMF, were now considering boosting that amount to $US160 billion, one official said, in part to help justify Europe's bigger stake in the IMF.

    Nearly every IMF plan to revamp the voting structure foresees a smaller role for European counties, especially smaller ones like Belgium and the Netherlands. In an interview with Reuters, Belgian Finance Minister Didier Reynders said that the country should keep its seat on the IMF's 24-member governing board because European countries contributed heavily to the IMF.
     
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  3. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    India Ready to Buy IMF Bonds - WSJ.com

    India Ready to Buy IMF Bonds



    By BOB DAVIS

    WASHINGTON -- India is ready to buy roughly $10 billion in bonds that may be issued by the International Monetary Fund as a way of boosting the Fund's resources, said Montek Singh Ahluwalia, deputy chairman of India's planning commission.

    "If the IMF can issue the securities, it's an easy way for us to make a contribution," Mr. Singh Ahluwalia said in an interview with the Wall Street Journal.

    The IMF is finalizing plans for its first bond offering and is lining up Brazil, Russia, China and India -- the so-called BRIC countries as purchasers. The bond would be sold to central bank, not to individual investors.

    Even so, some IMF critics worry that IMF bonds could become competition for developing-nation sovereign debt and increase the interest rates those nations would need to pay. The BRIC countries want to make sure the bonds can be sold in the secondary market.

    Brazil and Russia haven't said how much they would likely spend on the bonds. British Prime Minister Gordon Brown said at a G-20 summit earlier this month that China would chip in $40 billion. But there is debate within China about whether that would be too large a purchase.

    Mr. Singh Ahluwalia said buying bonds is a better alternative for India than making the IMF a loan as Japan has done. That's because the Indian central bank could simply purchase the bonds and hold them in its reserves. That wouldn't require separate Indian government approval, he said.

    Separately, Mr. Ahluwalia said that he believes India could grow more rapidly than the 4.5% the IMF forecasts for India this year and 5.6% for next year. He said Indian banks are in relatively good shape –though their lending is still constrained -- and the government stands ready to increase fiscal stimulus, although the amount depends on the outcome of the current Indian elections.

    "We are both capable and interested in doing more stimulus," he said
     
  4. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    India reluctant to join de-dollarisation chorus at BRIC

    India reluctant to join de-dollarisation chorus at BRIC- Policy-Economy-News-The Economic Times

    India reluctant to join de-dollarisation chorus at BRIC


    NEW DELHI: While China and Russia are likely to pitch for the induction of a new global currency to replace the dollar as the world's main
    reserve (de-dollarisation) at the first BRIC summit beginning tomorrow in Yekaterinburg, it is most unlikely that India will join the chorus on this issue, according to government sources.

    Although India has found congruence in the agenda of other BRIC nations on key international issues like the longstanding demand for restructuring and democratization of international institutions like IMF and the World Bank, tackling terrorism, climate change, it so far distanced itself from challenging the supremacy of dollar and is in favor of increasing SDRs' (Special Drawing Rights), which is the IMF's indigenous currency.

    In the face of a deepening economic crisis and the balance of economic power tilting from west to east, Beijing and Moscow are concertedly canvassing for the induction of new currency in the international system. The issue of currency replacement was also raised by Beijing during the G-20 London summit in April this year, but could not find many takers.

    Currently the dollar represents about 65 percent of foreign exchange reserves and both Russia and China have parked huge funds in the US treasury and invested heavily in the US treasury bonds, which is widely used by the administration for bailing out domestic industry.

    According to sources this is the main reason why both Russia and China are ranting for a neutral currency.

    According to the most recent U.S. Treasury Department data Russia holds about 30 percent of its 404.2 billion dollars foreign exchange reserves in treasuries, making it the fifth-largest holder of U.S. government debt.

    China, the world's largest holder of U.S. Treasuries, has 767.9 billion dollars. India has not invested so heavily in the treasury bonds, and therefore, it does not have a reason to worry according to a source.


    Authoritative sources in the government see this issue as more of an ideological one than a substantive one and, officials on condition of anonymity, say that New Delhi would not like to upset Washington by challenging the dollar supremacy at the BRIC summit, especially at a time when the US is pressurizing Pakistan to nail down terrorism and US Secretary of State Hillary Clinton is about to make her maiden visit to India.

    Foreign Secretary Shivshankar Menon has already set the record straight by saying that there will be no America bashing at BRIC and this group of four fastest emerging economies is not directed against anyone.
     
  5. Daredevil

    Daredevil On Vacation! Administrator

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    Good decision by India to not join this bandwagon. China and Russia are asking for de-dollarization (especially China) only because they have heavy exposure to dollar denominated US treasury bonds. Their fear is that dollar can tank in its value (depreciate) any time and so will lose all the value of the treasury bonds they hold and will be only worth of using them as tissue paper to wipe their "whatever":D.

    China can kiss good-bye to at least half the worth of treasury bonds if American economy doesn't recover, which is what most likely to happen, at least, in short-term.
     
  6. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    dollar has already devalued beyond 40% and Chinese have been able to do nothing about it, US Bonds are essentially worthless with no buyers including US institutions and US treasuries pay 0% interest, in reality USA got a lot of free merchandise from China that they may pay for if and when they feel like it.
     
  7. Daredevil

    Daredevil On Vacation! Administrator

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    No LF, AFAIK, dollar has not devalued at least against Euro. I don;t know if it is the same case with a basket of world currencies.
     
  8. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    [​IMG]

    currently the index is at 81 after the dollar strengthened recently.
     
  9. Daredevil

    Daredevil On Vacation! Administrator

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    LF, I was talking about recent depreciation of dollar value after the onset of economic recession in US.
     
  10. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    During the recession the dollar has maybe a bit of a comeback and strengthened.
     
  11. Pintu

    Pintu New Member

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    http://www.nytimes.com/2009/06/16/world/europe/16bric.html?ref=global-home

    Seeking Financial Clout, Emerging Powers Prepare to Meet in Russia

    By CLIFFORD J. LEVY
    Published: June 15, 2009

    MOSCOW — Leaders of some of the world’s most powerful economies are gathering on Tuesday to plot how they can exert more control over the global financial system as it takes its first wobbly steps toward recovery.

    Yet not an American or Western European will be in the bunch.

    The first summit meeting of the so-called BRIC group — Brazil, Russia, India and China — is intended to underscore the rising economic clout of these four major developing countries and their demand for a greater voice in the world. And Russia, the group’s host and ideological provocateur, is especially interested in using the summit to fire a shot across Washington’s bow.

    All four countries have expressed varying degrees of discomfort with Washington’s financial stewardship, and are particularly concerned about the value of the dollar at a time of rapidly mounting indebtedness in the United States. At the same time, most economists say the BRIC countries can do little to change the current architecture of the global financial system, and that the outcome of this meeting will be largely symbolic.

    The BRIC countries comprise about 15 percent of the world economy and, perhaps more important, have about 40 percent of global currency reserves. Brazil, India and China have also weathered the financial crisis better than the world as a whole.

    While they are far from a monolithic group, they are generally united in their frustration with the dollar’s status as the world’s reserve currency, which enables Washington to run budget deficits without fears of facing the kind of budgetary day of reckoning that other countries risk.

    The excess dollars fill up in foreign central banks, leaving those countries with a difficult choice: reinvesting the dollars in United States securities or holding them and facing an increase in the value of their own currencies, making their products less competitive in world markets.

    While there have been periodic complaints about the dollar through the years, the criticisms from the BRIC countries have become more frequent and more acerbic lately, and have included calls for a supranational currency to replace the dollar.

    In March, the prime minister of China, Wen Jiabao, expressed concerns about United States budget deficits, suggesting they might lead to inflation, a weaker dollar and rising yields on Treasuries, any one of which would hurt China’s $1 trillion investment in American government debt. Later that month, the head of the Chinese central bank called for a new international currency to replace the dollar.

    For the Kremlin, undermining the dollar as the prevailing medium of exchange reflects a broader Russian belief that the United States exercises a dominance in global affairs that exceeds its diminishing power.

    “What we need are financial institutions of a completely new type, where particular political issues and motives, and particular countries, will not dominate,” Russia’s president, Dmitri A. Medvedev, said this month.

    Senior officials in most of the BRIC governments — India, which does not depend as much on trade, is something of an exception — assert that while the United States has acted irresponsibly over the last 30 years by amassing too much debt, they will be the ones who suffer.

    “The world economy should not remain entangled, so directly and unnecessarily, in the vicissitudes of a single great world power,” said Roberto Mangabeira Unger, Brazil’s minister for strategic affairs. “The developing countries should not have to see painfully accumulated hard-currency reserves fall under the shadow of major devaluations.”

    China, Brazil and Russia have said recently that they will purchase notes from the International Monetary Fund to begin diversifying their reserves.

    Still, the reality is that even many forceful critics of the dollar see no immediate alternative to it as the vehicle for international trade. No other markets in the world have the depth and liquidity of those in the United States, experts say.

    And the four BRIC countries, while newly emboldened, have starkly different economies and relationships with the United States, complicating their attempts to unite. Each of the four also has a currency that either has been historically unstable or is not easily convertible.

    “Between the BRIC countries, there is really little in common,” said Yevgeny G. Yasin, head of research at the Higher School of Economics in Moscow. “Each of them has its own destiny, its own special character, and it will be much more difficult for them to agree among themselves than separately with Western countries.”

    China, whose economy dwarfs those of the other three, depends on the export of manufactured goods to the United States and Europe. Russia sells oil, natural gas and other natural resources abroad. Brazil focuses on agricultural exports, while India’s growth has been largely based on its domestic market.

    The four countries do not necessarily do much business with one another. Only two percent of China’s trade last year was with Russia, though the countries are neighbors, according to official statistics.

    At the same time, Brazil announced this year that China had surpassed the United States as its largest trading partner, and said last month that they would look for ways to finance their trade without the dollar.

    The very notion of the BRIC nations was conceived in 2001 by an economist for Goldman Sachs, and only then embraced by the countries themselves. Their leaders have conducted informal discussions before, but the event on Tuesday in the central Russian city of Yekaterinburg will mark their first formal gathering, officials said.

    Russia has sent somewhat mixed signals recently regarding how determined it is to confront the dollar. Last week, it announced that it would purchase bonds from the International Monetary Fund, but then the finance minister, Aleksei L. Kudrin, acknowledged that the world was not yet ready for another reserve currency.

    Vladimir A. Mau, rector of the Academy of National Economy, a government advisory organization in Moscow, said Russia and the other BRIC countries had legitimate worries that the United States was piling up too much debt. But Mr. Mau said that at this point, he doubted that the Kremlin had any recourse.

    Mr. Unger, the Brazilian minister, agreed, saying that the BRIC countries do not see replacing the dollar with “heavy-handed, bureaucratic machinery,” such as a global, European-style Central Bank.

    In China, popular sympathies are with Russian and Brazilian demands for a robust challenge to American control, analysts said.

    Yet there has been no consensus on what a new financial system should look like, and China’s dependence on exports and enormous holdings of dollar-denominated assets give it a vested interest in the status quo, leaving China’s leaders reluctant to pursue far-reaching changes.

    While China’s official news media often give sizable attention to coming international gatherings, they have offered little coverage of the BRIC summit meeting.

    Xu Xiaonian, an economist at the China Europe International Business School in Shanghai, said the silence reflected a desire not to raise hopes for the meeting. “What can they agree on? So little,” Mr. Xu said. “This meeting is more symbolic than of real effect.”

    Vikas Bajaj contributed reporting from New Delhi, Alexei Barrionuevo from Rio de Janeiro, and Keith Bradsher from Hong Kong.
     
  12. ZOOM

    ZOOM Founding Member

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    The Country which is the most worried about consistent depreciation in Doller value is China and not all other participants of BRIC. Since, their justification pertaining to their overall holding in Tresuary of Federal Reserve of America which is second most in the world after Japan doesn't hold any water. If this was really the case, then Japan may have been first nation in the world to do such outcry, but despite all depreciation in value of doller, they have complete faith in its currency value.

    All this exercise by china is only to create clout in the world by bringing in Yuan currency and make it international currency for under developed nation through trade and commerce.
     
  13. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    India's demographic growth may be maximum among BRIC peers

    http://economictimes.indiatimes.com...mum-among-BRIC-peers-/articleshow/5629356.cms

    India's demographic growth may be maximum among BRIC peers


    NEW DELHI: India is likely to see a much favourable demographic trend in the

    next three decades than neighbouring China, boosting the
    country's economic
    growth prospects in the coming years.

    A growing population of young people and resultant changes in the savings and investment pattern would be advantageous for the Indian economy going forward, according to a study by DB Research.

    "Brazil and India are demographically in a substantially more favourable position than China and Russia... India, by contrast, will enjoy a very favourable demographic momentum for another three decades.

    "This will impact not only economic growth prospects, but also savings and investment behaviour and potentially - if somewhat difficult to quantify - financial market growth prospects," DB Research, a part of the German banking major, Deutsche Bank, has said.

    Going by the United Nations, the working-age population in India would shoot up by 240 million over the next two decades, equivalent to four times the total population of the UK.

    "The demographic developments in the BRIC (Brazil,Russia, India and China) over the next 10, 20, 30 years will vary greatly," the report noted.

    "The differences in projected change in the working-age population - the economically relevant variable - are very significant in both absolute and relative terms," it added.

    In terms of the demographic transition model, India is at the beginning of stage three (declining fertility, population growth), Brazil and China are at stage four (low mortality and fertility, population trending towards stability), while Russia is already at stage five (sub-replacement-rate fertility, declining population).

    Stage one refers to a pre-industrial society wherein death and birth rates are high and roughly in balance. While, in stage two (that of a developing country), the death rates drop rapidly due to improvement in food supply and sanitation, which increase life spans and reduce diseases.

    The working-age population in Brazil is expected to rise by 20 million, in contrast, in Russia it would decline sharply by almost 20 million, as per the UN projections.

    Moreover, economic policies can help buffer the negative demographic impact on per-capita growth by, for example, encouraging urbanisation or greater labour participation.

    This would be especially relevant in relatively rural China and India, the DB Research report said.

    Thus, the demographically challenged among the BRIC nations, have significant scope to offset intensifying demographic 'drag' by way of technological progress and capital accumulation.

    This would be especially relevant in relatively rural China and India, the DB Research report said.

    Thus, the demographically challenged among the BRIC nations, have significant scope to offset intensifying demographic 'drag' by way of technological progress and capital accumulation.
     
  14. amoy

    amoy Senior Member Senior Member

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    Indian population is bound to surpass that of China in years. But despite 'technological progress and capital accumulation'
    ? Will agriculatral growth be sustainable for the population (India is supposed to feed xx% of world's population with x% of arable lands in the world )
    ? Will job opportunities be created in proportion to the increase in working-age population (such as, x% of GDP growth will generate x% of incremental employment)
    ? Education (how wil the demographic trend be translated to qualified workforce)
    ? Ecological impacts

    Here in China urban families are reluctant to have more kids mostly not because of 'one-chile' policy, but because of changed mindset and lifestyle, and life pressure.
     
  15. Yusuf

    Yusuf GUARDIAN Administrator

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    Indias urban population too has a changed mindset. Some don't have kids at all. Both husband and wife working. They don't even have time for sex.
    The growth in population will come from the rural areas. As the economy grows, it will provide job ops to all. Technology will play a major role in increasing food supply to feed the billion plus population. Already their is a GM brinjal that has been in the news quite a bit.
    Also as other countries population declines, it will look at india to and its population to come and work there. That will be a major source of foreign exchange as it is now. Most of europe is on a decline and they need work force and more so in the coming decades. The US will always remain an attractive destination. Maybe someday if problems between india and china are resolved, we might see indians migrate to china!!!
     
  16. Neo

    Neo Senior Member Senior Member

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    High demographic growth is no longer considered as a burden but could be an asset if you improve HDI ranking as the population grows. Biggest challenge may not be employment but water. That's an huge challenge.
     
  17. Yusuf

    Yusuf GUARDIAN Administrator

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    Yes, it is an asset, esp as it gets you more hands and legs working. What it also means is that it will get greater foreign investment as a burgeoning middle class means bigger market for the west in particular.
     
  18. amoy

    amoy Senior Member Senior Member

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    It's happening now! especially women from Vietnam and Burma, and even Russia. In Hong Kong a big Indian community (or Pakistani?? I couldn't tell apart?). And even in the interior city Chengdu (West China) I had a lunch in an INdian restaurant called Tandoori.
    But CN government was heartless - on TV news wives were repatriated even already having kids (but kids stayed). Actually it's a great idea - Mingle for Peace, and for eugenics

    True. But above all there has to be sufficient medicare, education and welfare that enable them to be elegible as assets, or to afford as consumers or even for emigration IN A LARGE NUMBER, yet with least ecological impacts (water...)

    India or China is very different from Brazil or Russia - Look at their territory, resources and current population size - certainly they can afford a big room for demographic growth within itself. In contrast it doesn't sound upbeat if that growth is mostly in underdeveloped rural areas.
     
    Last edited: Mar 3, 2010
  19. nandu

    nandu Senior Member Senior Member

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    BRIC ministers sign food security declaration news

    BRIC ministers sign food security declaration news

    Agriculture ministers of Brazil, Russia, India and China (BRIC) on Friday signed a global food security declaration in Moscow. The countries also agreed to pool resources to combat famine that affects more than a billion people globally, the Voice of Russia reported.

    The declaration was signed by Brazil's agrarian development minister Guilherme Cassel, Russian agriculture minister Elena Skrynnik, Indian agriculture minister Sharad Pawar and Chinese agriculture minister Han Changfu.

    The Moscow summit, which was held on 25-27 March, is the successor of last year's BRIC forum held in Yekaterinburg, which discussed multilateral cooperation.

    "Our partnership in this forum must be anchored in the fundamental principles of equality, mutual trust and common good," the ANI reported Pawar as saying at the meeting.

    "We must strive to work out common approaches and strategies on pressing global issues such as food security, impact of climate change on agriculture, energy security, pandemics and other related subjects," he added.

    The ministers in a joint statement said they consider famine as a serious threat to humanity and resolved to address the problem of food production and hunger through resolute action by governments and relevant international agencies.

    The ministers also agreed on cooperation in the agricultural sector with particular attention to family farming, the development of which will not only help long-term interests of the four states, but also contribute towards global food security.

    http://www.domain-b.com
     
  20. AkhandBharat

    AkhandBharat Regular Member

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    Brazil, Russia, India and China matter individually. But does it make sense to treat the BRICs—or any other combination of emerging powers—as a block?

    IN ANY global gathering, the American president is usually seen, at a minimum, as primus inter pares: the one who can make or break the final bargain and select his favoured interlocutors. So in Copenhagen last December, as negotiations for a new climate-change treaty were entering their final hours, a hastily convened meeting between Barack Obama and China’s prime minister, Wen Jiabao, looked as if it would be the critical moment when a deal might be struck. But when the president turned up, he found not only Mr Wen but the heads of government of Brazil, South Africa and India. This was unexpected. The Americans even thought the Indians had already left the summit. What was conceived as a bilateral talk turned instead into a negotiation with an emerging-market block. As an additional sign that things were changing in the world, the president got a finger-wagging from one of Mr Wen’s hangers-on. But at least Mr Obama was in the room; Europeans were shut out while the emerging powers and America put the final touches to their deal.

    This week the same developing countries are meeting again, in Brasília. On April 15th Brazil, India and South Africa—rising powers that are also democracies—put their heads together. The next day South Africa will drop out and Russia and China will join the party, to create a meeting of the so-called BRICs.

    For this group, it is a second summit; last June their leaders met in Yekaterinburg, in Russia. That inaugural summit, which produced almost nothing concrete, appeared to be a one-off event and could be ignored. But the foursome is starting to establish a record. BRIC foreign ministers have met annually since 2006. Finance ministers and central bank heads meet frequently. This week, in addition to the leaders’ summit, there are gatherings in Brazil of BRIC commercial banks, BRIC development banks, and even BRIC think-tanks.

    The term itself was coined by Jim O’Neill of Goldman Sachs, a Wall Street bank, and is sometimes written off as just a gimmick aimed at tempting punters. But is it now the case that life, in a serious way, is imitating investment analysis? Are the BRICs developing a momentum of their own? If so, what difference might that make to the rest of the world?

    Life imitates Goldman Sachs
    The BRICs matter because of their economic weight. They are the four largest economies outside the OECD (Organisation for Economic Co-operation and Development, the rich man’s club). They are the only developing economies with annual GDPs of over $1 trillion (Indonesia’s is only half that). With the exception of Russia, they sustained better growth than most during the great recession and, but for them, world output would have fallen by even more than it did. China also became, by a fraction, the world’s largest exporter. Meanwhile, the BRICs are also increasing their trade with one another: Chinese-Indian trade has soared and is likely to reach $60 billion this year. China has also become the largest market for the fast-industrialising countries of East Asia. Less happily, China has become the largest spewer-forth of carbon dioxide, emitting 6.5 billion tonnes of CO2 in 2008, or 22% of the world’s total. Russia is third and India fourth on this particular roll of shame.

    The most striking sign of the BRICs’ significance to the world economy, though, is probably their share of foreign-exchange reserves. All four are among the ten largest accumulators of reserves, accounting for 40% of the world’s total. China is easily the largest, with a staggering $2.4 trillion, enough to buy two-thirds of all the NASDAQ-quoted companies. It is the world’s second-largest net creditor after Japan (the net credit position takes account of equities as well as debt). Russia’s foreign-exchange reserves were virtually zero when it began market reform in 1992; now they stand at $420 billion. If the BRICs were to set aside one-sixth of their reserves, they could create a fund the size of the IMF.

    Foreign assets provided cushions against the great recession and helped turn the BRICs into financial powers as well as economic ones. Even as most Western countries struggle to rein in record budget deficits and soaring debts, the BRICs’ public-debt levels are mostly modest and stable (India is a partial exception). Most investment banks offer BRIC funds. The world’s top two banks are Chinese.

    This macro performance is being translated into different sorts of influence. Perhaps the most important is an intangible one: that of reputation. In some respects, the BRICs share a distinctive view of the world. They have large domestic markets with substantial numbers of poor people, so growth and anti-poverty programmes are higher up their list of concerns than in Western countries (this is even true in Russia, though to a lesser extent). They are trying to diversify their economies. They are innovating (though Russia is much better at producing guns than civilian goods) and challenging received notions about globalisation (see our special report). All have become far more entwined with the world economy. But the BRICs have opened up without the full market liberalisation championed by the “Washington consensus”. In the aftermath of the great recession, this mongrel position commands respect in other developing countries, which want to know how the BRICs did it. “The BRICs aren’t exactly an alternative to the Washington consensus,” says Mathias Spektor of the Getúlio Vargas foundation in Brazil, “but they provide other models to emulate and are effective at expressing something distinctive in economic affairs.”

    An acronym in search of a role
    Wealth may produce market power and even soft power. But it does not necessarily generate geopolitical heft. Rich Japan and Germany deliberately adopted a “big Switzerland” policy of hiding their light under a bushel for decades. Even now, they throw their weight about reluctantly.

    But there are several reasons for thinking that the BRICs might be different. Germany and Japan had a golf-sized American security umbrella for shelter. But international institutions are now in flux. Robert Hormats, America’s under-secretary of state for economic affairs, compares the 2010s to the late 1940s: “The post-war period was so different from the pre-war one that it needed new institutions. The turn of the 21st century is similar, especially after the financial crisis.” He argues that “you can’t go back to having the system run by a few rich economies. Our big challenge is to work out how large emerging economies integral to the financial and trading system take some responsibility for maintaining it.”


    One reason the BRICs matter is that the world’s most important country thinks they do, and is willing to rope them into decision-making. America’s means of doing this is the G20. It pushed for the group’s expansion to include the BRICs and declared the club the chief forum for dealing with international economic issues. The BRICs and the original group of seven rich countries (G7) form natural blocks within the G20. So far, the clearest expression of a coherent BRIC agenda—for reform of the international financial system and more domestic stimulus programmes—came on the eve of a G20 meeting in 2008.

    A second reason why the BRICs matter is that all four giants have reasons for creating a new club of their own. China’s leaders know their time has come. They want to enhance their own influence and reduce America’s. But at the same time their leaders hew to Deng Xiaoping’s dictum that “China should adopt a low profile and never take the lead.”

    The BRICs, which the Chinese calls jinzhuan siguo, or four golden brick nations, are a way to square that circle. By teaming up with others (which are anyway attractive as raw-materials suppliers), China can hide its national demands behind a multilateral façade. And a meeting of the BRICs looks slightly more like a collection of equals than do most gatherings involving China (though China’s economy is still larger than those of the other three combined). China sees climate-change diplomacy as a way of boosting its soft power, and as part of its bilateral relationship with America (its stubborn behaviour in Copenhagen notwithstanding). But it does not want to break with the rest of the developing world on climate issues. Co-ordination with other “emerging” polluters helps it to succeed on all these fronts.

    This balancing act applies to the other BRICs. All want to soften the impact of China’s rise. The BRIC forum is an alternative to what they all (perhaps even China itself) regard as a nightmare: a G2 of America and China. They all also want, in the words of Brazil’s foreign minister, “to increase, if only at the margin, the degree of multipolarity in the world”.

    India has been profoundly disappointed by traditional multilateral diplomacy. Years of pushing for a permanent seat on the UN Security Council have got it nowhere. The BRICs can hardly be worse. President Luiz Inácio Lula da Silva has been trying to expand Brazil’s diplomatic influence beyond Latin America. The BRICs help him fulfil these geopolitical ambitions. (Whether Lula’s successors will share his taste for the world stage is an open question: at the moment, both likely successors seem more concerned about domestic matters.) As for Russia, association with some of the most dynamic economies in the world may perhaps divert some attention away from its own decline. More important for Russia, as for all the others, the BRICs are a way of telling America that the largest developing countries have their own options and that not all roads lead to Washington.

    Because of this, some members of America’s Congress look on the BRICs with trepidation. The main focus of their concern is China’s currency. But there are other reasons why the BRICs might damage the global economic system, rather than buttress it. They might, for example, undermine the role of the IMF and World Bank, abandon attempts to expand free trade or even just ride roughshod over aid conditions in poor countries. But Mr Hormats thinks they will not. “They understand,” he argues, “that the openness and smooth functioning of the system is vital to them and so far there has been very little evidence that they want to change it dramatically.” When world output was plummeting last year, the BRICs’ economic stimulus programmes did a lot to stabilise it. And on the question of reforming the international financial institutions, America and the BRICs find themselves on the same side.

    Without straw
    A more compelling reason for doubting the BRICs’ chances of changing anything fundamental is that they are not capable of it. They lack coherence. They compete as much among themselves as they do with America or Europe—and hence the BRICs as a club seem unlikely to match the force of their individual ambitions.

    Two are authoritarian; two are noisy democracies. Three are nuclear powers. Brazil is not, though it had a nuclear-weapons programme which it abandoned in the 1980s; in 2009 the vice-president said he personally thought Brazil should build its own bomb and the country plans a nuclear-powered submarine to patrol offshore oilfields. Two have permanent seats on the UN Security Council; two (to their immense frustration) do not.

    When Mr O’Neill first coined his term, people wondered why Brazil was in the group but not Mexico. Now Russia looks like the odd man out. Its population is falling. Its fertility rate is catastrophically low, at around 1.35, compared with 1.8-2.8 for the others (the fertility rate measures the number of children an average woman can expect to have during her lifetime). The working-age populations of India, China and Brazil will all rise between now and 2030 (enormously in India and Brazil, marginally in China). Russia’s working-age population will fall by 17m. In general, uncertainty about who belongs in the group casts doubt on its coherence. Should South Africa join? Mexico? Indonesia? If they did, what would happen to the group?

    A more important obstacle to coherence is strategic rivalry. True, BRIC countries co-operate on a bilateral basis. There have been joint military exercises between Russia and China, Russia and India, and China and India in recent years. Russia and China also have a mutual-security body, called the Shanghai Co-operation Organisation, which includes Central Asian countries. The big problem, though, is India’s rivalry with China.

    China and India fought a war in 1962. China has taken control of a slice of Kashmir which India says was ceded illegally by Pakistan. China also disputes India’s title to the state of Arunachal Pradesh. In 2009 it tried to stop the Asian Development Bank from lending money to India because the loans would have financed a flood-control project there. India has been trying to limit the numbers of skilled Chinese workers. Some Indians fear that China wants to strangle their country with a “string of pearls”: the imagined necklace consists of Pakistan, India’s longtime rival; Nepal, where China backs the Maoist opposition; and Sri Lanka, where it is financing the country’s big post-civil-war reconstruction projects.

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    The BRICs have also stepped up competition between one another in third countries. Although the flow of aid and investment from rich countries to poor has been faltering, China promised $10 billion of cheap credit to Africa in 2009-12 and Brazil has invested $10 billion in the continent since 2003. The BRICs have also dramatically increased their purchases of exports from poor countries. Rather as America and the Soviet Union vied for influence through economic and military aid, the BRICs do now (though their competition is less fierce than the cold-war version).

    Even where BRIC countries agree in general, they often disagree in detail. Climate change is a good example. The emerging giants all argue that Western industrialised nations should take the largest share of the burden of cutting greenhouse-gas emissions. They criticise absolute emission caps for developing countries and argue for limits based on population or intensity of use. They all want to keep questions of trade and climate change separate, opposing things like carbon duties.

    However, for the purposes of climate change, the BRICs are actually BASICs (Brazil, South Africa, India, China): Russia is an industrialised country under the Kyoto accords, with obligations the others do not have. Even on a specific matter such as forestry, their records differ. Brazil is the world’s biggest deforester, albeit one committed to slowing the pace; China is the world’s biggest afforester (now planting 4m hectares of forest a year)—though some complain that its trading partners’ trees are being felled to stoke its economic growth.

    Lastly, the BRICs differ economically. Obviously, their incomes range widely, from Russia’s $15,000 per head per year to India’s $3,000 (these are IMF figures using purchasing-power parities). Brazil and India define themselves as non-aligned developing economies. Russia does not. China sometimes does, and sometimes thinks of itself as sui generis. China and Russia have more open economies, with exports accounting for around a third of GDP. India and Brazil are more closed, with exports less than a fifth of GDP. Perhaps most important, China and Russia are both running huge current-account surpluses; Brazil and India, small current-account deficits. That reflects fundamentally different approaches to economic management. China is suppressing domestic demand and encouraging jobs in export industries. India and Brazil look askance at this form of mercantilism and suffer from China’s resulting currency undervaluation.

    Marriages of inconvenience
    The BRICs’ divisions do not paralyse the group. The countries got together to propose reforming the IMF, for instance. But they do limit the block’s effectiveness. There is no sign of military co-operation within the organisation, and nothing much on trade. As Mr Spektor puts it, the BRICs merely have to be something, not do anything.

    Paradoxically, this makes it easier for the group to flourish since co-operation within the BRICs is in essence free: no one need sacrifice anything, so, however tiny the potential gains, they are worth pursuing. Emerging giants are able to criticise the management of the world economy without having to do anything about it (for example, deploring the failure to complete the Doha round of world trade talks without offering to break the logjam). As Agata Antkiewicz of the Centre for International Governance Innovation puts it, “even though the BRICs group has always been incoherent, the tag seems to have permeated the public domain and become synonymous with change, emerging markets and growth.” But this could end if ever BRIC membership required trade-offs.

    Meanwhile, the BRICs face rivals. East Asian countries are cobbling together something that might one day become a coherent emerging-market group. In January a free-trade agreement linking China and the Association of South-East Asian Nations (ASEAN) came into force. In March ASEAN nations, China, Japan and South Korea set up a pool of foreign-exchange reserves giving them a small element of monetary-policy co-ordination. Such a group leaves out Brazil, Russia and India. But Fred Bergsten of the Peterson Institute for International Economics, a think-tank in Washington, DC, reckons the West ought to be thinking about how to respond to this regional group, rather than the global club of BRICs.

    Eswar Prasad of Cornell University points out that as an organisation (as opposed to a clever acronym), the BRICs are a product of the great recession. They are noticed because of the recessionary debate about rebalancing the world economy. As that debate evolves, so will ideas about the BRICs. But that is no reason for writing them off. There have also been endless numbers of Gs: starting in the 1960s with a G10, then G5, G6, G7, G8—and now G20.

    The BRICs cannot claim legal, historical or geographical coherence, in the way the European Union can. They are not facing a common security threat, as NATO originally did. But events in Copenhagen, messy as they were, are surely proof that new and improbable combinations of large, emerging countries can play a role on the world stage. The BRICs’ begetter, Mr O’Neill, does not regret his creation: his “overriding conclusion is that [they] are a good mechanism for pressing rich countries to change their role in managing the global economy more radically.”

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