IMFSurvey Magazine: What readers say
EMERGING MARKET ECONOMIES
BRICs Drive Global Economic Recovery
July 22, 2009
Dear IMF Survey:
The L’Aquila summit might well have been the last G-8 summit of its kind. You’d never guess (thanks to long-standing arrogance and Western egocentricity), but L’Aquila also hosted the heads of government of the emerging nations known as the BRICs (Brazil, Russia, India, and China).
From now on we should talk about the G-20 and actually mean what we say, and not simply pay lip service to the idea. Shifting balances of power, economic importance, and geopolitical strategies make this imperative.
The BRICs, with 40 percent of the world’s population spread out over three continents, already account for 25 percent of global GDP. Last June 16, the BRIC leaders met in Yekaterinburg (Russia), and their meetings also included representatives of the governments of the Shanghai Cooperation Organization (SCO), whose members include not just China and Russia, but also Kazakhstan, Kyrgyz Republic, Uzbekistan, and Tajikistan, in addition to India, Pakistan, Iran and Mongolia as observers. Sooner or later, the economic importance of the BRICs and the SCO will have to be taken adequately into account.
In its June 20 issue, The Economist took note of this situation in an article entitled “Not Just Straw Men,” and asked if we were not witnessing a kind of separation—a “decoupling”—of emerging markets from the “advanced” Western economies.
The article recognizes that significant trends in this direction were already present and are re-emerging in the wake of the global financial shock. These trends are not simply reflected in growth rates that exceed those of the industrial countries. This phenomenon also implies that to some extent the two groups “dance to different tunes, with emerging markets growing or shrinking autonomously, not just under the influence of rich ones.”
For one thing, the BRICs are less dependent on exports. (In Brazil and India, exports are less than 15 percent of GDP. China, too, exports less than many people think.)
The presence of a sizable domestic market, industrial and technological diversification exceeding normal expectations, major government programs of investment in infrastructure, and smoother handling of the liberalization of their own financial systems in the wake of the devastating Asian crisis in 1997-98, are all hallmarks of the BRICs’ increasing autonomy.
By November 2008, China had launched a program involving $600 billion of investment in the sectors of the real economy. Despite a 25 percent decline in exports, the Chinese economy in the first half of 2009 grew by 6 percent. Today, the Chinese automobile market has surpassed the U.S. market, whereas only three years ago it was at 50 percent. India too, with 4 percent growth, is performing well not just in textiles and cheap electronics but is also forging ahead in shipbuilding, chemicals, steel, and communications.
Conversely, Russia has suffered greater fallout from plunging commodity prices. Brazil’s own economy is undergoing consolidation. Unquestionably, the global crisis is bound to cause adverse effects everywhere; however, the BRICs enjoy greater potential for stability and recovery.
With respect to the financial crisis, the BRICs are pursuing a four-pronged approach: decisive regulation of global financial markets; an orderly move away from the existing global monetary system based solely on the dollar; reorganization of the IMF, including a more important role for Special Drawing Rights as a transitional instrument in international reserve facilities; and the longer-term creation of a new multipolar monetary system based on a basket of currencies.
In all of these initiatives, the BRICs are no longer simply being carried along by the industrial countries. Nor are they waiting for the United States to call the shots. Instead, they are operating with a high degree of independence in an effort to consolidate their relationships with one another as a group. Trade among the BRICs is surging and is often now settled in local currencies rather than in dollars. Who would have guessed five years ago that China would become the primary trading partner of Brazil and India?
The BRICs have figured out that the engine of growth and development—including for heavily indebted countries—lies in the execution of major infrastructure projects, investment, and technological innovations carried out in an environmentally conscious fashion. Europe should take note.
Mario Lettieri, Former Undersecretary for Economy
Paolo Raimondi, Economist