First BRIC Summit by R K Pandey of upscportal.com

First BRIC Summit

Developing World Rendered New Power

By R.K.Pandey (upscportal.com)

Brazil, Russia, India and China ended the first BRIC summit at Yekaterinburg in Russia by calling for an increased role in global financial institutions by emerging economies and developing nations. At the conclusion of the first BRIC summit on June16,2009 BRIC countries issued a joint statement calling for increased economic reform. The four nations, representing emerging economic powers, demanded that developing economies have a greater voice and representation in international financial institutions, and their heads and senior leadership should be appointed through an open, transparent and merit-based selection process. BRIC countries said that they also believe there is a strong need for a stable, predictable and more diversified international monetary system, it showed a warning against the global domination of the US dollar as the world’s standard reserve currency.

Russian President Dmitry Medvedev had voiced similar sentiments before the summit, saying the current reserve policies have not managed to perform their functions. Chief economic aide, Arkady Dvorkovich, suggested that the International Monetary Fund (IMF) should revise the basket of currencies used to value its financial products to include the Russian ruble and Chinese Yuan. At the moment the currencies included are the dollar, euro, yen and sterling.

The range of topics on the agenda and the line-up of presidents attending showed the growing economic and political power of the world's emerging nations, including India and China, and their desire to forge new levers of influence. Host president Dmitry Medvedev of Russia hailed the Urals city of Yekaterinburg as the epicenter of world politics.

BRICs New Affirmation
The so-called BRIC nations of Brazil, Russia, India and China called for reform of international financial institutions, sweeping changes to the United Nations to give a bigger role to Brazil and India and a stable and predictable currency system. Iran's president, re-elected in a disputed vote, fired a salvo at the United States, the leaders of India and Pakistan had their first one-to-one meeting since the Mumbai attacks and the four top emerging market economies held their first summit.

A common thread running through the Shanghai Cooperation Organisation (SCO) summit and a separate meeting between Brazil, Russia, India, and China (BRIC) was discussion of a new world order less dependent on the United States. President of Russia told that existing reserve currencies, including the U.S. dollar, had not performed their function and said it was time for change and countries should use their national currencies more for trade. The BRIC summit ended with a statement by Medvedev and a communique which demanded more power for developing nations. It did not mention two key Moscow initiatives a smaller role for the U.S. dollar and a supranational reserve currency.

The Kremlin's top economic aide, Arkady Dvorkovich, said the International Monetary Fund (IMF) should expand the basket of its Special Drawing Right (an international reserve asset) to including the Chinese yuan, the Russian rouble and gold. The dollar fell 0.9 percent against a basket of major currencies on world markets after Medvedev's comments. Since the four BRIC nations represent around 40 percent of the world's population and 15 percent of its GDP. Russia and China lead the SCO, a security and economic co-operation forum which also includes four Central Asian states, plus Iran, Mongolia, India and Pakistan as observers. It can be say that such a type of coordination will allow developing nations to better explain their positions to each other and work out a novel path to resolving international financial problems and the reform of international financial relations.

Underlining its growing economic influence abroad, Chinese President Hu Jintao offered Central Asian states $10 billion of credit support to help counter the global economic slump, though he did not mention the proposals for diluting dollar dominance. In another ignore to the West, the SCO leaders welcomed Iranian President Mahmoud Ahmadinejad, making his first foreign trip to attend the summit since his disputed re-election. Ahmadinejad arrived a day late in Yekaterinburg after mass protests against his disputed victory in Tehran but the SCO presidents had congratulated Ahmadinejad on his victory.

On the sidelines, Indian Prime Minister Manmohan Singh met Pakistani leader Asif Ali Zardari for the first time since the Mumbai attacks and asked him to ensure that Islamist militants could not operate from Pakistani territory. His tough words offered little hope for a breakthrough in relations between the two nuclear-armed Asian powers.

Campaigning for Economic Modification
Those divisive issues are mainly political in nature which is why most observers correctly predicted that the BRIC summit would focus predominantly on economic issues. Combined, the BRIC countries currently have a 15-percent share of the world economy and a 42-percent share of global currency reserves. Their increased economic power was underscored when Brazil and Russia joined China in announcing they would shift some $70 billion (50 billion euros) of reserves into multicurrency bonds issued by the International Monetary Fund. The move was interpreted by some as an attempt to topple the dollar in part because the Russian president said at the time that his proposal to create a new world currency could be discussed at the summit.

But fiscal experts said that BRIC will tread carefully where the dollar is concerned, as triggering a dollar crisis would be akin to shooting themselves in the foot. The BRIC’s are putting the US on notice that there has to be a cutback on spending and that they need to get their house in order any attack on the dollar will hurt them. But they want to make sure this kind of mess doesn't happen again. Clearly though, BRIC is using its new influence to put pressure on the IMF to reshape its voting structure to better reflect the shift in economic power. Brazil, for example, is the world's 10th largest economy, but has just 1.38 percent of the IMF board's votes, compared to 2.09 percent for Belgium, an economy one-third the size.

Joint Statement of the BRIC Countries’ Leaders
Leaders of the Federative Republic of Brazil, the Russian Federation, the Republic of India and the People’s Republic of China, have discussed the current situation in global economy and other pressing issues of global development, and also prospects for further strengthening collaboration within the BRIC.

BRIC have arrived at the following conclusions:
» BRIC stressed the central role played by the G20 Summits in dealing with the financial crisis. They have fostered cooperation, policy coordination and political dialogue regarding international economic and financial matters.

» BRIC called upon all states and relevant international bodies to act vigorously to implement the decisions adopted at the G20 Summit in London on April 2, 2009. BRIC shall cooperate closely among them and with other partners to ensure further progress of collective action at the next G20 Summit to be held in Pittsburgh in September 2009. BRIC countries are committed to advance the reform of international financial institutions, so as to reflect changes in the global economy. The emerging and developing economies must have greater voice and representation in international financial institutions, whose heads and executives should be appointed through an open, transparent, and merit-based selection process. BRIC also believe that there is a strong need for a stable, predictable and more diversified international monetary system.

» BRIC countries are convinced that a reformed financial and economic architecture should be based, inter alia, on the following principles:

• Democratic and transparent decision-making and implementation process at the international financial organisations;
• Solid legal basis;
• Compatibility of activities of effective national regulatory institutions and international standard-setting bodies;
• Strengthening of risk management and supervisory practices.

» BRIC countries recognise the important role played by international trade and foreign direct investments in the world economic recovery. BRIC countries call upon all parties to work together to improve the international trade and investment environment. They urge the international community to keep the multilateral trading system stable, curb trade protectionism, and push for comprehensive and balanced results of the WTO’s Doha Development Agenda.

» The poorest countries have been hit hardest by the financial crisis. The international community needs to step up efforts to provide liquid financial resources for these countries. The international community should also strive to minimise the impact of the crisis on development and ensure the achievement of the Millennium Development Goals. Developed countries should fulfil their commitment of 0.7% of Gross National Income for the Official Development Assistance and make further efforts in increasing assistance, debt relief, market access and technology transfer for developing countries.

» The implementation of the concept of sustainable development, comprising, inter alia, the Rio Declaration, Agenda for the 21st Century and multilateral environmental agreements, should be a major vector in the change of paradigm of economic development.

» BRIC countries stand for strengthening coordination and cooperation among states in the energy field, including amongst energy producers and consumers and transit states, in an effort to decrease uncertainty and ensure stability and sustainability. They support diversification of energy resources and supply, including renewable energy, security of energy transit routes and creation of new energy investments and infrastructure.

» BRIC countries support international cooperation in the field of energy efficiency. They stand ready for a constructive dialogue on how to deal with climate change based on the principle of common but differentiated responsibility, given the need to combine measures to protect the climate with steps to fulfill our socio-economic development tasks.

» BRIC countries reaffirmed to enhance cooperation among our countries in socially vital areas and to strengthen the efforts for the provision of international humanitarian assistance and for the reduction of natural disaster risks. They take note of the statement on global food security issued today as a major contribution of the BRIC countries to the multilateral efforts to set up the sustainable conditions for this goal.

» BRIC countries reaffirmed to advance cooperation among our countries in science and education with the aim, inter alia, to engage in fundamental research and development of advanced technologies.

» BRIC countries underlined their support for a more democratic and just multi-polar world order based on the rule of international law, equality, mutual respect, cooperation, coordinated action and collective decision-making of all states. BRIC countries reiterate their support for political and diplomatic efforts to peacefully resolve disputes in international relations.

» BRIC countries strongly condemn terrorism in all its forms and manifestations and reiterate that there can be no justification for any act of terrorism anywhere or for whatever reasons. They note that the draft Comprehensive Convention against International Terrorism is currently under the consideration of the UN General Assembly and call for its urgent adoption.

» BRIC countries expressed their strong commitment to multilateral diplomacy with the United Nations playing the central role in dealing with global challenges and threats. In this respect, They reaffirmed the need for a comprehensive reform of the UN with a view to making it more efficient so that it can deal with today’s global challenges more effectively. They reiterated the importance that attach to the status of India and Brazil in international affairs, and understand and support their aspirations to play a greater role in the United Nations.

» BRIC countries have agreed upon steps to promote dialogue and cooperation among our countries in an incremental, proactive, pragmatic, open and transparent way. The dialogue and cooperation of the BRIC countries is conducive not only to serving common interests of emerging market economies and developing countries, but also to building a harmonious world of lasting peace and common prosperity.

» Russia, India and China welcomed the invitation of Brazil to the next BRIC summit where it will host in 2010.

Cooperation Within BRIC
BRIC is a loose group of countries including Brazil, Russia, India and China, the largest economic growth and political influence centres among emerging economies. These countries have a substantial integration potential in their respective regions. The global problems of international terrorism and multinational crime, environmental degradation and climate change, plus food and energy security cannot be effectively solved without the involvement of the BRIC countries. BRIC partnership is becoming increasingly important amid the global economic and financial downturn, when the four countries should coordinate their efforts with the international community to weather the crisis on global financial markets and reform the world financial system.

Political dialogue within the BRIC format began in New York in September 2006, when their foreign ministers conferred during the 61st UN General Assembly. Since then, the BRIC foreign ministers have met four times, including at a full-scale meeting in Yekaterinburg on May 16, 2008. The joint statement adopted as a result of the latter meeting formulated common approaches to crucial issues on the international agenda.

Ties between the BRIC foreign ministers were completed by the meetings between their finance ministers in Sao Paulo, Brazil, on November 7, 2008 and in London on March 13, 2009. The finance ministers adopted joint statements on their meetings, which reflected common views of global economic problems, including the reasons for and ways to weather the global financial crisis.

At the initiative of Russia, the four leaders had a short meeting on July 9, 2008, during the G8 summit in Japan, to agree on drafting a full-scale BRIC summit. Official contacts in the BRIC format have been buttressed by interaction between the respective regional authorities and public organisations.

Russia would like the cooperation between the BRIC countries to become a major factor of multilateral diplomacy and to make a substantial contribution to promoting the nascent multipolarity and development of collective leadership by the world’s leading countries. By some predictions, the four nations, Brazil, Russia, India and China, a group referred to as the BRIC group, will surpass the current leading economies by the middle of this century, a tectonic shift that by this reckoning will eventually nudge the United States and Western Europe away from the center of world productivity and power.

Russia’s president, Dmitri A. Medvedev, said the main point of the meeting was to show that the BRIC should create conditions for a more just world order. The four countries produce about 15 percent of the world’s gross domestic product and hold about 40 percent of the gold and hard currency reserves, but they are not a unified bloc and do not do enough business among themselves to justify a trade alliance. Russia and Brazil export natural resources, China exports manufactured goods and India bases its growth primarily on domestic demand. As such, India is not as concerned with the status of the dollar and is by no means as intent on scoring ideological points against the United States as is Russia.

The acronym BRIC was coined by a Goldman Sachs economist in 2001 to describe the four countries that were expected to surpass today’s largest economies by 2050, owing to their faster growth rate. A communiqué issued after the meeting highlighted the common goals of a greater voice in international financial institutions and a more diversified global monetary system. They agreed to meet again in 2010, in Brazil. The gathering was the second of back-to-back summit meetings sponsored by Russia in this city in the Ural Mountains on the divide between Europe and Asia.

The Shanghai Cooperation Organization, a regional security alliance intended loosely as a counterweight to NATO, met in an expanded format with many Eurasian nations holding observer status. It even included a brief appearance by the president of Iran, Mahmoud Ahmadinejad, whose disputed re-election last week has touched off street demonstrations in Tehran. In a sign of regional economic integration, China’s president, Hu Jintao, pledged $10 billion in aid to Central Asian nations in the group, which consists of China, Russia and four former Soviet states: Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. Mr. Hu and Mr. Medvedev then met separately with India’s prime minister, Manmohan Singh, and the Brazilian president, Luiz Inácio Lula da Silva.

Mr. Medvedev encouraged China, the world’s largest holder of dollar reserves, and other nations to put their money in some other currency or financial mechanism. He also urged members of the Shanghai Cooperation Organization to use their national currencies in conducting bilateral trade.

There can be no successful currency system, and particularly a global system, if the financial instruments that are used are denominated in only one currency, Mr. Medvedev said. A top economic policy aide to Mr. Medvedev, Arkady Dvorkovich, said Russia would like to diversify its currency reserves away from dollars by buying bonds from Brazil, China and India, but only if they bought Russian rubles as a reserve. The dollar fell slightly against the euro and other currencies on Tuesday, though some traders quoted by Bloomberg News cited a more workaday cause: good results on new American housing starts were encouraging investors to move out of Treasury bonds and into equities.

The Path To 2050
The BRIC dissertation (defended in the paper Dreaming with BRICs: The Path to 2050) recognizes that Brazil, Russia, India and China have changed their political systems to embrace global capitalism. Goldman Sachs predicts China and India, respectively, to be the dominant global suppliers of manufactured goods and services while Brazil and Russia would become similarly dominant as suppliers of raw materials. Cooperation is thus hypothesized to be a logical next step among the BRICs because Brazil and Russia together form the logical commodity suppliers to India and China. Thus, the BRICs have the potential to form a powerful economic bloc to the exclusion of the modern-day states currently of "Group of Eight" status.

Brazil is dominant in soy and iron ore while Russia has enormous supplies of oil and natural gas. Goldman Sachs' thesis thus documents how commodities, work, technology, and companies have diffused outward from the United States across the world. Following the end of the Cold War or even before, the governments comprising BRIC all initiated economic or political reforms to allow their countries to enter the world economy. In order to compete, these countries have simultaneously stressed education, foreign investment, domestic consumption, and domestic entrepreneurship.

According to the study, India has the potential to grow the fastest among the four BRIC countries over the next 30 to 50 years. A major reason for this is that the decline in working age population will happen later for India and Brazil than for Russia and China.

Analysis
The Economist published an annual table of social and economic national statistics in its Pocket World in Figures. Extrapolating the global rankings from their 2008 Edition for the BRIC countries and economies in relation to various categories provides an interesting touchstone in relation to the economic underpinnings of the BRIC thesis. It also illustrates how, despite their divergent economic bases, the economic indicators are remarkably similar in global rankings between the different economies. It also suggests that whilst economic arguments can be made for linking Mexico into the BRIC thesis, the case for including South Africa looks considerably weaker.

A Goldman Sachs paper published later in December 2005 explained why Mexico wasn't included in the original BRICs. According to the paper, among the other countries they looked at, only Mexico and perhaps Korea have the potential to rival the BRICs, but they are economies that they decided to exclude initially because they looked at them as already more developed. According to that paper, Mexico becomes the fifth-largest economy by 2050, ahead of Russia.

A criticism is that the BRIC projections are based on the assumptions that resources are limitless and endlessly available when needed. In reality, many important resources currently necessary to sustain economic growth, such as oil, natural gas, coal, other fossil fuels, and uranium might soon experience a peak in production before enough renewable energy can be developed and commercialized, which might result in slower economic growth than anticipated, thus throwing off the projections and their dates.

The economic emergence of the BRICs will have unpredictable consequences for the global environment. Indeed, proponents of a set carrying capacity for the Earth may argue that, given current technology, there is a finite limit to how much the BRICs can develop before exceeding the ability of the global economy to supply.

Academics and experts have suggested that China is in a league of its own compared to the other BRIC countries. BRIC are the one with the big reserves. They are the biggest potential market. They are the U.S. partner in the G2 (imagine the coverage a G2 meeting gets vs. a G8 meeting) and the E2 (no climate deal without them) and so on. Deutsche Bank Research said in a report that economically, financially and politically, China overshadows and will continue to overshadow the other BRICs. It added that China's economy is larger than that of the three other BRIC economies (Brazil, Russia and India) combined. Moreover, China's exports and its official forex reserve holdings are more than twice as large as those of the other BRICs combined.

Another criticism is the understatement of GDP growth in China over the next 45 years; which predicts growth falling far below normal development. This contradicts the rapid economic growth that has already taken place in the country and the experience of countries like South Korea catching up with western GDP per capita, which China has been growing faster than in a similar period of development. There are many uncertainties and assumptions in the BRIC thesis that could mean that any or all of these four countries will not live up to their promise. The preeminence of China and India as major manufacturing countries with unrealised potential has been widely recognised, but some commentators state that China's and Russia's disregard for human rights and democracy could be a problem in the future, as is the possibility of conflict over Taiwan in the case of China.

Likewise, the population of Russia is steadily declining and aging, and Brazil's and China's populations will begin to decline in several decades, and with their demographic windows closing in several decades as well. This may have implications for those countries' future, for there might be a decrease in the overall labor force and a negative change in the proportion of workers to retirees.

Brazil's economic potential has been anticipated for decades, but it had until recently consistently failed to achieve investor expectations. Only in recent years has the country established a framework of political, economic, and social policies that allowed it to resume consistent growth. The result has been solid and paced economic development that rival its early 70's miracle years, as reflected in its expanding capital markets, lowest unemployment rates in decades, and consistent international trade surpluses - that led to the accumulation of reserves and liquidation of foreign debt (earning the country a coveted investment grade by the S&P and Fitch Ratings in 2008). How long such positive factors will stay in place remains to be seen.

Finally, India's relations with one of its neighbors, Pakistan, have always been frosty. In 1998, there was a nuclear standoff between Pakistan and India. Border conflicts with Pakistan, mostly over the longheld dispute over Kashmir, has further aggravated any economic ties. The BRIC countries have enormous populations of extremely impoverished people. This impedes progress by limiting government finances, increasing social unrest, and limiting potential domestic economic demand. Factors such as international conflict, civil unrest, unwise political policy, outbreaks of disease and terrorism are all factors that are difficult to predict and that could have an effect on the destiny of any country.

Other critics suggest that BRIC is nothing more than a neat acronym for the four largest emerging market economies, but in economic and political terms nothing else (apart from the fact that they are all big emerging markets) links the four. Two are manufacturing based economies and big importers (China and India), but two are huge exporters of natural resources (Brazil and Russia). Two have growing populations (Brazil and India), and two have shrinking populations (China and Russia). The Economist, in its special report on Brazil, expressed the following view: In some ways Brazil is the steadiest of the BRICs. Unlike China and Russia it is a full-blooded democracy; unlike India it has no serious disputes with its neighbors. It is the only BRIC without a nuclear bomb. The Heritage Foundation's Economic Freedom Index, which measures factors such as protection of property rights and free trade ranks Brazil (moderately free) above the other BRICs (mostly unfree).

In a not-so-subtle dig critical of the term as nothing more than a shorthand for emerging markets generally, critics have suggested a correlating term, CEMENT (Countries in Emerging Markets Excluded by New Terminology). Whilst they accept there has been spectacular growth of the BRIC economies, these gains have largely been the result of the strength of emerging markets generally, and that strength comes through having BRICs and CEMENT.