The BRICs Their importance as a trading group? Copenhagen Summit Obama had to negotiate with all four together about new climate change treaty – Europeans weren’t even in the room. Starting to meet annually since 2006 – government officials, banks, think tanks. Term coined by Glodman Sachs analyst Jim O’Neill 2001
Why they matter?
Economic Weight – 4 biggest economies outside the OECD. – GNP /capita varies widely – Russia $15K, India $3K.
Only developing countries with annual GDPs of over $1tr.
Got through the recession reasonably well (except Russia) – without them world output would have fallen by even more that it did.
China now the worlds largest exporter.
They are increasing their trade with each other.
All four are among the 10 largest accumulators of foreign reserves (40% of total)
China $2.4tr – second largest net creditor after Japan.
If BRICs would set aside 1/6 of their reserves they could create a fund the size of the IMF.
Why they matter
Their large foreign assets provided cushions against the great recession – becoming financial as well as economic powers.
Their deficits are mostly modest and stable (India is partial exception) – world banks offer BRIC funds. Top 2 world banks are Chinese.
Their sound macro performance is giving them a reputation.
They share large domestic markets with substantial numbers of poor people
They have opened up to the world economy without the full market liberalisation of the ‘Washington Consensus’.
A new world order
Post financial crisis – some have compared to the late 1940s – in that the post war/crisis period was so different that the pre war/crisis period that new institutions needed to be formed.
The system can no longer be run by a few rich economies.
How do large emerging economies who are integral to the financial and trading system take some responsibility for maintaining it?
Why they matter
Because the worlds most important country thinks they do. America within the G20 – pushed for BRICs to be part of it and for the club to be the chief forum for dealing with international economic issues .
BRICs get advantage – they can pursue national objectives under the umbrella of a larger group. BRI can also soften the impact of China’s rise and avoid a G2 – America and China.
Could damage the global economic system by undermining the role of the IMF and WB, abandon attempts to expand free trade or ignore aid conditions to the 3 rd World.
BUT – not as coherent as name suggests – still intergroup rivalry and differing agendas – India’s rivalry with China – India fear of being ‘strangled by a string of pearls’ of Pakistan, Nepal and Sri Lanka backed by China.
Competing with one another in third countries e.g. in the delivery of cheap credit and FDI to Africa, and in purchasing exports from poor countries. Like US / USSR rivalry for influence in Global South.
Coherent Grouping ?
Difference in GNP/capita
Difference in openness of economies (exports)
RC running large current account surpluses, BI running small deficits
Thus very different approaches to economic management. China suppressing domestic demand and encouraging exports – BI suffering from China’s currency undervaluation.
Russia looking like an odd man out – population is falling – working age population will fall by 17m by 2030 – other countries increasing.
Should South Africa/Mexico/Indonesia join?
Chinese moving into even the farthest parts of Africa. In rural Lesotho petrol stations, supermarkets, ironmongers etc all Chinese owned.
But also Chinese Government paying for infrastructure like parliament buildings (built by Chinese companies).
Chinese Diaspora to Africa could by up to 1m.
Tai Lake – China’s 3 rd largest freshwater body – sits in one of the most highly developed areas of the country, producing 10% of GDP – hard to keep clean.
Introduced algae eating carp – died.
Algae barriers in the water, sewerage works.
Spending on green technology has risen in China but less care on environmental protection.
Local officials fixated on the need to boost GDP, indiscriminate lending by state owned banks.
Funds poured into new infrastructure and buildings boosting some of the most polluting industries.
43% of state monitored rivers have been classed as unsuitable for human contact.
A stimulus encouraged car buying spree increased congestion and smog.
Record levels of steel and coke production. 70% of China’s energy comes from coal.
Diminishing share of grade 1 (excellent) air quality days since Beijing Olympics.
China Economy – blueprint for future
Mar 2011 – 5 year plan
Growth target of 7% a year for 2011-5. But past experience shows it can often go much above that.
Need to balance development – too reliant on investment, swallowing natural resources and too little consumer spending.
Need to address unequal distribution of income between rural/urban, rich/poor, profits/wages, coast/inland
Have failed to make services a bigger part of the economy. State sector dominated. Need to deregulate. Transport, power, municipal utilities.
But this happening in the context of slowing down the economy – achieving more sustainable growth rates…
Brazil - Employment
Labour laws are costly – hard to fire – even laziness or bankruptcy is not just cause.
Inflexible time periods for annual leave.
Courts rarely side with employers.
High payroll taxes.
Brazil has two big weaknesses – high job turnover and low productivity growth.
High redundancy rates because labour laws do not allow negotiating of terms and conditions.
Generous severance packages encourage employees to move frequently.
Brazil – Economy
Grew at 7.5% in 2010. Overtook Italy as 7 th biggest economy.
Government worried about overheating – budget cutting and raising interest rates. Aim to ease growth to 4.5 – 5%.
If take ppp into consideration Brazil is the 5 th largest economy in the world.
BUT using ppp is useful for comparing leaving standards – using GDP in current dollars shows an economy’s international clout.
Even with modest 4.5% growth – greater than France or Britain – and interest rates and commodity export prices rising – no sign of currency (real) weakening – that would give it higher GDP figures as measured in current Dollars. It might well break into the top 5 in 2011/2