Reconstructing the World Economic Order Brick by BRIC

Brazil, Russia, India and China, also known by the group name BRIC, have been in the news quite frequently as of late. But, why not? The four countries have just had their first-ever heads of state summit meeting and seem like they may be the first economies to crawl out of the current economic mess. The United States and the rest of the world must be watching to see if they can hold together their loose interests long enough to rearrange the current order of the world's financial hierarchy. The following is an examination of the brief history of BRIC and where it may or may not be headed and which country will be the world economic leader when all is said and done. 

The acronym "BRIC" was first allegedly coined in a thesis by Goldman Sachs investment bank to lump together the rapidly growing economies of Brazil, Russia, India and China. The crux of the paper, which was published in 2003, dropped the bombshell of a statement that by their estimates, the rapidly developing BRIC nations' economies would surpass those of the current world's richest by 2050. Reason being, it was viewed that the BRIC nations had such large economic potential that they would be able to become the world's largest economies within five decades. The paper also predicted that the nations would also make-up around 40 percent of the world's entire population by that time. 

By 2006, investor shares in BRIC countries had skyrocketed. Critics at the time, however, stated that there were three important market basics that needed to be heeded. First, there was the fact that developing markets are not always the most stable, which makes investments risky. Secondly, some financial experts at the time recommended investments to look further down the road than for the quick gain, given the propensity for developing markets to fluctuate, but in the long run to come out on top. While finally, something that should have been a secret to nobody, is the fact that the BRIC countries have so few things in common other than being up-and-comers that there was bound to be differences of opinion on issues and anything but a group-think mentality. 

Brazil, at the time, was seen as very dependent on commodity prices, which accounted for 40 percent of its exports. Russia was like Brazil as far as commodities were concerned, but even more so. Also, there were other problems with the Russian market at the time being so dependent on oil prices, not to mention the stormy political situation that was always menacingly creeping in the background with its cohorts, repression of freedom and corruption. It was India and China who were seen as the more fruitful of the 'fab four' upon the start of piling the BRICs together. Both economies had been on a tear, kicking down the doors to prosperity and had been receiving huge amounts of foreign direct investment. China, although building great infrastructure as it modernized its cities, also faced potential problems in its rural areas, namely Tibet and the Xinjiang. It was hoped that the up-and-coming Olympics would continue to fuel the unequaled soaring Asian dragon. India, the world's largest democracy, witnessed its companies doing very well, but also was seen as week vis-à-vis infrastructure.

Financial experts' views of 2006, albeit only three years ago, were far different from those which have emerged post credit crisis. The run from 2003 to 2008 for BRIC nations was tumultuous. Their growth rates and capital inflows were the envy of many a nation. Even as the downturn started, on the whole, they still fared well. Once the BRIC economies started to suffer from world economic events, they were the first to hit bottom and seem to be recovering faster than other nations. For the Chinese, they ran into a bit of trouble, spanning a couple of months, but after a stimulus of 17 percent of their gross domestic product, they appear to be on the mend. This year's projected growth for the Chinese economy has been set at 7 percent, a number that western nations don't even see during economically fruitful periods. The Chinese have also lowered their dependency on exports while boasting over US$2 trillion in foreign exchange reserves. India came out of the dust storm strong and tremendously helped by the election victory of the Indian National Congress Party, which is set to spend much more money on infrastructure. Russia took a big hit from the downturn along with the drop in oil prices, falling far from its highs. That said, the country is also on the rebound, yet many investors are still leery. Finally, Brazil seems like it has weathered the storm just fine. 

Can another "I" be added next to India's in the BRIC acronym? That seems to be the question that Indonesia has been asking of late. Its economy is expected to double within the next six years mainly thanks to the profits it has reaped as the world's largest power exporter. Much of the power it generates gets sent to two of its potential new teammates, China and India. For those two countries, as they grow in wealth, they also grow in terms of consumption, and there are many countries including Indonesia that want to profit from what is almost guaranteed to be a lucrative relationship of supply and demand. Indonesia's economy currently stands at $433 billion and as it expands, so will the wealth and prosperity of Indonesians. A big problem with the country is its roads, which are anything but new and overly crowded with traffic. Another boogeyman, common in almost every developing nation, is corruption. Many believe that Indonesia is ready to be part of a new "BRIIC," but only time will tell. 

As Indonesia waits for an invitation to the party, the BRIC nations held their first-ever summit of heads of state in June. At the summit, leaders looked at ways to curb and reduce their reliance on the United States and how to cohesively aid in the repairing of the world economy. They also met to discuss the post-crisis economic paradigm and how they could ensure they play a more important future role. The four nations currently sit on 40 percent of the world's gold and currency reserves, while together they produce 15 percent of the globe's GDP. So when this group decides to act, there is a good chance that other countries will listen.

As an aside at the meeting, Indian Prime Minister Manmohan Singh and Pakistani President Asif Ali Zardari met to discuss nuclear issues. There was also a meeting of the Shanghai Cooperation Organization (SCO), which is a Central Asian, Russian and Chinese group. The members of SCO also stated the need for China and Russia to stand up to the United States. China also pledged US$10 million for Central Asian nations that were hit hard by the crisis. Upon the summits culmination, the countries made a group statement calling for a "multipolar world order," in essence rejecting U.S. superpower status once the economy has recovered. There was also agreement between members on how to approach the upcoming G20 meeting in September. Russian President Dmitri Medvedev, while adding to the group's joint statement, said that BRIC wanted "to create the conditions for a fairer world order," and added that the summit was a "historic event." 

Many say that it is China who will be the strongest out of the BRIC nations in the coming years. That may well be true, but as the Chinese battle unrest and repeated scandals, whether it be food or infrastructure related, it would be imprudent to overlook India as a serious contender for the title. Since the Indian elections, the country has experienced a boost of confidence toward its ability to continue much-needed reforms. The country isn't up to its eyeballs in debt while consuming hand over fist, and it's not the world's goods manufacturer, dependent upon the jobs and sales of what it manufactures. Also, regardless of what else is going on, India still has a high growth rate. It grew 6.7 percent last year during the biggest crisis since the Great Depression, a figure that was down from 9 percent the previous fiscal year. Experts have said that the deceleration has stopped and that it is now time to start the recovery. Chief economist at Bank of Baroda in Mumbai was quoted saying, "The GDP growth number justifies the claim that India is dealing with the global crisis from a position of strength." It certainly does seem that way and if it plays its cards right, It could be the Bengal tiger that climbs higher than the Chinese dragon in the years to come. 

Do marriages based on finances alone last? That is the question that needs to be asked to the members of BRIC. They have very little in common except for their economies and a desire for a bigger piece of the world economic pie. Will they expand and allow other countries to join in order to increase influence and prosperity, as did similar groups, or will their separate ambitions drive them apart? As the world emerges from a mess largely blamed on the United States, there seems to be room for BRIC nations to accomplish the immediate goals of decreasing their reliance on the United States and increasing their roles on the world economic stage. After that is achieved, it is anyone's guess, as it's more than just physical distance that may keep these powerhouses apart. There are also those who are warning of current problems that must not be overlooked either.