:: Paranjoy Guha Thakurta

Bric cribs about doing business only in dollars

By Paranjoy Guha Thakurta

Jun 21 : Reports in the media about the first meeting of the heads-of-state of Brazil, Russia, India and China (Bric) at Yekaterinburg, Russia's third largest city located in the picturesque Ural mountains, that took place after a meeting of the Shanghai Cooperation Organisation (SCO), focussed mainly on the meeting between India's Prime Minister Manmohan Singh and Pakistan's President Asif Ali Zardari. In the process, what was underplayed is the geopolitical and economic significance of the Bric summit itself as well as Dr Singh's decision to attend the SCO meeting.

Nearly half the world's population lives in the four Bric countries, which account for more than a quarter of the total land area of the planet and a similar proportion of the total value of global output. The ongoing international recession has adversely impacted Russia and Brazil far more than China and India, particularly on account of the fall in commodity prices, especially the prices of oil, gas and metals. China's gross domestic product (GDP) is greater than the combined GDPs of the three other Bric nations while its exports as well as its foreign currency reserves are more than twice those of Brazil, Russia and India put together. The Bric nations are not only among the fastest growing large countries in the world, it should be noted that the first two countries (Brazil and Russia) are major suppliers of raw materials like oil, gas and metal ores that are consumed by last two (India and China).

The joint statement issued after the June 16 meeting (of Bric leaders Dmitry Medvedev, Hu Jintao, Luiz Inacio Lula de Silva and our own Dr Singh) reads: "We 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. We also believe that there is a strong need for a stable, predictable and more diversified international monetary system".

Much of the rest of the statement contained platitudes about support for a "just multi-polar world order" and the imperatives of energy-efficient development strategies. It pointed out that the "poorest countries have been hit hardest by the financial crisis" and called on the "international community… to step up efforts to provide liquid financial resources for these countries". Developed countries were urged to remember their commitment to provide 0.7 per cent of their national incomes as aid.

Russia and China have for long been expressing their dissatisfaction at the pre-eminence of the US dollar as a "reserve" currency. The Bric statement did not specifically mention the dollar but the message was clear. The Bric countries are among many others who, faced with terrible recessionary conditions, are frustrated at their powerlessness in influencing the exchange rate of the dollar while remaining vulnerable to the fluctuations in the value of the American greenback. Before the summit, Mr Medvedev remarked: "There can be no successful global currency system if the financial instruments that are used are denominated in only one currency…"

At the end of March, China reportedly held US Treasury bonds worth nearly $770 billion, Russia held securities worth $139 billion and Brazil had $127 billion worth of official American paper. The Reserve Bank of India does not provide a currency-wise break-up of foreign currency reserves but this country's total foreign exchange assets are currently in the region of $250 billion. There is no unanimity as yet, within the Bric nations and elsewhere, about how the dollar could be replaced as an international benchmark currency. Still, the debate on whether "special drawing rights" issued by the International Monetary Fund could become the new reserve currency has certainly heated up.

Till a few days before he left for Russia, it was unclear whether Dr Singh would attend the SCO meeting since India (together with Pakistan, Iran and Mongolia) has only observer status in the body that comprises China, Russia and four Central Asian republics (Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan). This is the first time an Indian Prime Minister has attended a meeting of the SCO that was set up in 2001. In the past, India sent only ministers to attend SCO meetings. Clearly, the fact that a Bric meeting was scheduled at the same venue made Dr Singh's decision to attend the SCO gathering much simpler. At another level, India clearly recognises the importance of the East and the South in evolving global power balances.

Jim O'Neill of Goldman Sachs, who had coined the Bric acronym and used it first in 2001, was once jocularly asked if the grouping should not have been called "CRIB". He reportedly remarked that the second acronym would have a wrong "childish" connotation. In regular reviews of his position, he brought forward his projection of Bric becoming bigger than the original Group of Six (G-6) countries (the US, Japan, Germany, France, Italy and the UK) by nearly a quarter century, from 2050 to 2027.  

In December 2006, an article in the Financial Times of the UK contained a sarcastic suggestion that Bric should be called "CEMENT" (or "countries in emerging markets excluded by new technology"). Mr O'Neill and many others had thought that all the Bric nations had changed their political and economic systems to embrace free market capitalism and were hence growing fast. But history deemed otherwise. And capitalism is going through its biggest crisis in a generation, as notions of "public" and "private" get turned upside down.

More and more countries may now want to join the Bric club. Here's a new alphabet soup. Bric can become "BRICS" (with the addition of South Africa), "BRICK" (South Korea), "BRIMC" (Mexico), "BRIIC" (Indonesia), "BRICET" (East Europe and Turkey) or "BIRCA" (to include the Arab countries of Saudi Arabia, Qatar, Kuwait, Bahrain, Oman and the United Arab Emirates) or all of the above. The planet is changing faster than what many anticipated.

Paranjoy Guha Thakurta is an educator and commentator based in New Delhi