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BW Businessworld

Falling Down Bric By Bric

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Like the much ballyhooed theory of asian economies being ‘decoupled’ from the rest of the world, the fad known as ‘BRIC’ has also bit the dust. If one does not hear much about the ‘fast-growing economies’ of Brazil, Russia, India and China, that is because the brave new grouping created in the mind of a financial analyst has turned out to be as much of a chimera as was the imagined self-sustaining Asia growing in defiance of global trends. The loss of $60 billion in the stock value of Russian companies in a single day following President Vladimir Putin’s aggressive move in Crimea was the latest evidence, if any were needed, that no country is immune from global market forces. 
 
Nearly a decade ago, a Goldman Sachs analyst envisaged that the combination of commodities-driven wealth and manufacturing prowess would propel BRIC to the forefront of the global economy by 2050. It was as if the state of the world economy in which they prospered did not matter.  Inspired by this hype, BRIC leaders met at summits and issued statements about changing the world’s governance model, though the reality has proved rather different. As their deep political and strategic differences have obstructed the path to a common approach, global volatility and mismanagement have conspired to take the shine off their economies. In fact, over the past decade, the BRIC countries’ stock markets have lost close to half their value in dollar terms.
 
The markets were at work again in late February, when in response to Putin’s threat of military intervention in Ukraine, the Russian stock market index plummeted 12 per cent in a day and the rouble fell nearly 2 per cent against the dollar despite the Central Bank’s intervention. Investors recovered a bit when Moscow announced it was returning its troops to their barracks, but the reprieve may be only temporary as investor sentiment sours amid talk of widening US and EU sanctions against Russia for its moves in Crimea. Even China, which has been generally supportive of Russia in its standoff against the West, has quietly expressed its support for Ukraine’s sovereignty; Brazil and India have so far remained silent. One reason for their silence is that they have pressing worries at home. Brazil, shaken by the flight of $12.3 billion in 2013, has been desperately trying to woo foreign investors to meet its widening current account deficit and shore up its free-falling currency. Public anger over corruption and showcase projects at the expense of much-needed infrastructure has added to the government’s woes. Governance in India too has sunk to its nadir, weighed down by corruption, mismanagement and unsustainable levels of public debt. Foreign investors have cut back their exposure in India in anticipation of upcoming elections, which should hopefully bring clarity if not better governance. 
 
The slowdown in China too is worrying investors. The sharp fall in manufacturing, coinciding with fears of another property bubble and growing non-performing loans in state-controlled banks, has prompted economists to lower growth forecasts. This sombre news is dampening market sentiment everywhere, especially in countries such as Australia and Brazil that rely on selling commodities to fuel China’s export engine. Meanwhile, the shocking levels of environmental pollution resulting from decades of unbridled fossil fuel-driven growth are assuming threatening proportions. Indeed, the WHO recently issued a warning about the life-threatening pollution affecting China, with some Chinese scientists warning that if the toxic industrial smog persists, agriculture will suffer conditions “somewhat similar to a nuclear winter”, threatening the country’s food supply.
 
Experience of the supposed winners of BRIC has again shown the futility of assumptions of being immune to global forces. Whether their citizens demand good governance  or not they won’t be spared by the market of an interconnected world.   
 
(This story was published in BW | Businessworld Issue Dated 07-04-2014)