The inaugural summit of the BRIC group of countries – Brazil, Russia, India and China – took place in Yekaterinburg in Russia, the site being of more historic importance than the outcome of the actual summit suggested.

Copywriters were quick to notice that the summit took place in the same site where the Russian communists murdered the last czar and his family, suggesting a plot from Shakespeare’s Julius Caesar: four ambitious nobles conspire to bump off the Roman ruler on the pretext that he had pretensions to monarchy. In much the same way, the CNBC-generation warns us, these four countries plan to murder the world’s sole superpower, the United States, and usher in its stead a multi-polar world.

What actually transpired though was more comedic than serious, topped as the whole show was with a bland statement that hardly touched on any of the real challenges to the world economy, let alone suggest new measures. To be sure, this wasn’t for want of intention, but rather the complete absence of internal cohesion that practically ensured a sticky end result to proceedings.

For example, the summit statement with respect to reforming the international financial system pointed the following:

We are committed to advance the reform of international financial institutions, so as to reflect changes in the world economy. The emerging and developing economies must have 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. We also believe there is a strong need for a stable, predictable and more diversified international monetary system.

Superficially, this statement addresses the concerns of the “Global South”, namely that the current financial system architecture appears outdated for the needs of a changing world. Then again, does it? Reading the statement closely reveals the basic gist to be one of an intended reallocation of seats rather than a complete overhaul of the system itself.

Or put in different terms, the BRIC statement merely reads as a polite request that one of their nationals be appointed as head of the International Monetary Fund (IMF) or the World Bank, rather than the usual reservation of such jobs for Europeans and Americans, as is the current status.

For how else does one explain “… must have 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” or indeed the fact that three of these countries (Brazil, Russia and China) have quickly accumulated some US$70 billion equivalent of the IMF’s Special Drawing Rights (SDRs) in recent days?

“Please sir, I want some more,” as Oliver Twist pleads in the Dickens novel of the name. Rather than stopping at the demand for their citizens to be made heads of the IMF and the World Bank, the motley crew also stated the following with respect to the need for reform of the United Nations:

We express our strong commitment to multilateral diplomacy with the United Nations playing the central role in dealing with global challenges and threats. In this respect, we reaffirm the need for a comprehensive reform of the UN. … We reiterate the importance we 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.

At this point, your humble author had to stop reading, and go away clutching his stomach while laughing uproariously. Since when did the followers of Mao Zedong and Vladimir Lenin ever acknowledge the need for dialogue over brute power? That is only the case when they have no power or at least have no confidence in such power.

Neither fish nor fowl

The primary reason for the summit descending into a farce is the unfortunate presence of Russia. In some ways, Russia is unique – as a member of both the “established economic power” group of the Group of Eight – supposedly the world’s leading industrialized nations – and the “rising power” group of the BRIC, the country can be arguably positioned as a perfect bridge between the recent past and imminent future.

All that talk is misplaced, as Russia is more akin to a country with neither a glorious past nor a promising future. While resource-rich, the Russian state lacks both the demographic impetus and systemic integrity to ensure any sustained profits from these activities. Instead, under the influence of Prime Minister Vladimir Putin, the Russian state appears headed towards another bout of political turmoil; like a creature forever chasing its own tail in circles.

In other ways too Russia differs from its group members in BRIC. Unlike the diligence of the Chinese, the resourcefulness of the Brazilians or the innovation of the Indians, the country is seen as heavily trapped in its own history. A country that cannot quite decide whether it will play well with its neighbors or simply go out to bomb them, in other words. This confusing agenda of the Russians has been encouraged by the feckless Europeans (see Utterly pointless Europe, Asia Times Online, August 19, 2008), and a confused state of affairs that persists in Washington.

Also, unlike those of the other three countries in the grouping, the Russian economy contracted by almost 10% in the beginning of the year. The swift rise in oil prices towards $70 per barrel will do wonders for growth in the second half of the year, but even that could well be cold comfort given the mountains of debt that need to be refinanced by Russian companies and banks in coming months.

The collapse of various neighbors in Eastern Europe presents economic losses for Russian oligarchs and banks, while the strategic situation for the country remains in flux against a resurgent Georgia and the current “people power” revolution in Iran that could see the Russian acolyte president being removed in favor of the more American-friendly reformer.

Given all this, it is unlikely that the Kremlin will have much ammunition, and even less interest, in doing anything for a nascent multilateral body where the benefits, if any of acting together are likely to accrue to other members before itself, and what percolates down will only do so over the very long term.

Internal tensions

Added to the nonsensical position of Russia in this meeting, tensions between India and China have also increased in recent days over the issue of trade tariffs. Specifically, Indian companies have demanded that the new government (the reelected Congress party led government in Delhi) impose tough anti-dumping sanctions on Chinese-made products. In an article in the Financial Times dated June 14, 2009:

India’s small and medium enterprises have warned that they are suffering because of cheap imports from China. They are urging New Delhi to accelerate anti-dumping investigations and impose tougher safety and quality checks on Chinese products. The appeal for greater government protection came amid rising tensions between New Delhi and Beijing over trade, after a high-profile dispute over an Indian ban on Chinese made toys.

India’s Federation of Chambers of Commerce and Industry said on Sunday that a survey of 110 small and medium-sized manufacturers found that about two-thirds had suffered a serious erosion of their Indian market share over the past year because of cheaper Chinese products.

In its statement, FICCI said the Chinese imports were between 10 and 70% cheaper than comparable Indian products, a price differential that it said was “huge and difficult to explain”. Amit Mitra, the FICCI’s secretary-general, said Indian industries were being hurt by “typical Chinese predatory pricing” intended to drive rivals out of business so that Chinese companies could capture the market – and then raise prices to more normal levels.

The bite was felt by companies in a range of sectors, including processed food, light engineering, building materials and heavy engineering, chemicals and textiles, FICCI said. Indian manufacturers face serious competitive disadvantages in comparison with China, including poor infrastructure and rigid labor laws, that perversely discourage companies from growing and instead promote inefficient fragmentation.

The answers to India’s plight are in the story above: poor infrastructure, the need for industrial and labor reform and the relative inefficiency of investments into the country.

Still, what is at stake between the two countries often presents its own dynamic of how far away is the point at which these economies can actually rely on each other rather than those in Europe or the United States for growth. It is not inconceivable that at some point Brazil and China could have a spat over the price of steel (a point of tension in the not-too distant past as Brazilian steel was sold cheaper than locally made products in China at the turn of the century) or indeed that Russia and China have another period of tension over energy exports to China from Russia’s neighbors.

We can conclude that the first BRIC summit was a much-needed first step in a journey that could well overhaul global economic architecture in decades to come. However, as things stand now, internal dissent within that group, the lack of common interests and any vision towards achieving longer-term sustainable growth implies that future meetings could easily descend into the farce in which the first one ended.

https://web.archive.org/web/20090723225136/http://atimes.com/atimes/Global_Economy/KF20Dj02.html

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