The term “BRIC” was coined by Goldman Sachs economist Jim O’Neill, who predicted that these four countries would overtake developed states like Britain, Germany, and France by 2050. At that point, O’Neill believed there would be six major economic powers: the United States, Japan, Brazil, Russia, India, and China. While the BRIC nations have been ambitiously building in both economic strength and in their trade potential, they have not held an exclusive meeting until now. The summit today will be an important indicator of their future relationship, and whether or not they will be able to work together in the future by significantly utilizing their growing economic clout and geopolitical outreach.
The BRIC nations are significantly different from one another, which will make progress relatively slow and even painful to achieve. Brazil, which pushed the hardest for the summit to be staged, is the biggest outlier. It has grown more slowly than the other three in the past decade (half the rate of China and India, and two-thirds the rate of Russia), it is the only BRIC state with no nuclear weapons, and in general it is considered to be tilting more towards free trade than the other BRIC members. Moreover, Brazil has become the dominating power in Latin America and unquestioningly will use its new influence as a BRIC power to further enhance its regional heft.
Lula to Change the World
Brazilian President Luiz Inacio Lula da Silva seems proud to be at an economic conference at which major developing nations are attempting to fix the world’s financial woes. He has said, “The good news is that rich countries are in crisis and that emerging countries are making a huge contribution to save the economy and, consequently, save the rich countries…Wealthy countries are no longer the only ones that account for the world’s production capacity and consumption.” He then went on to say that BRICs should “change the political and trade geography of the world.”
China is at the opposite end of the spectrum from Brazil. It has as much GDP as the other three BRICs combined, and Goldman Sachs has argued that China’s economy will overtake that of the U.S.’ by 2030. China also has a more economically positive relationship with the U.S. than Brazil does. Lula’s relationship with Washington was especially hindered by his comment in March that the financial crisis was “caused and encouraged by the irrational behavior of white people with blue eyes, who before the crisis appeared to know everything but are now showing that they know nothing.”
From Dollar Dependency to IMF Bonds
If the issue of new world trading currencies does surface, Brazil and Russia are expected to push for a lower level of U.S.-dollar dependency. Russian President Dmitri Medvedev said this morning, “The existing set of reserve currencies, including the U.S. dollar, have failed to perform their functions…We will not do without additional reserve currencies.” China will probably resist Moscow’s initiative, since it is the world’s largest holder of U.S. Treasuries and it wants to maintain a healthy relationship with the U.S. Thus far today, Chinese President Hu Jintao has remained silent on the issue. Nevertheless, the four emerging powers are considering buying each other’s bonds and swapping currencies in order to reduce dependence on the dollar.
Russia previously said it will move some of its reserves currently in U.S. Treasuries (representing 30 percent of its $400 billion international reserves) into IMF bonds. China and Brazil also have announced plans to move some foreign reserves into IMF bonds.
Russian economic aide Arkady Dvorovich called on the IMF’s SDRs, or international reserve assets, to expand from the dollar, euro, yen, and sterling, to include the yuan, rouble, and Canadian and Australian dollars and gold. The IMF is set to revalue its basket of SDRs in 2010, but the BRICs should be wary of shunning the dollar. Dvorovich was careful to say, “We are not talking about excluding the dollar,” just dividing the economic “pie” in a “fairer way.” This statement was important for the stability of the U.S. dollar, which fell today after Medvedev’s comments that the greenback was failing as a reserve currency.
Earlier today, Hu Jintao and Dmitri Medvedev attended a summit of the Shanghai Cooperation Organization, which also includes Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. Afghanistan, Iran, India, and Pakistan were also at the table. Medvedev called for the Shanghai group members to use each other’s currencies in trade, while Hu promised $10 billion for the group’s members to help them survive the recession.
All four BRIC members will want to discuss potential cooperation in trade. China and India are huge importers of oil; both Russia and Brazil export oil. Brazilian Deputy Foreign Minister Roberto Jaguaribe has said trade protectionism will not solve the world financial crisis, and wants more bilateral treaties between the BRIC nations. Brazil and China have both vowed to increase such bilateral trade.
Although the BRIC countries are not expected to come up with concrete measures today, they will most likely create an agenda for future cooperation. As these four states gain importance on the global stage, the international community increasingly will look to the BRIC nations to stabilize the world’s economic system. If the BRICs can productively work together today, it should bode well for the future economic order.