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BRICS: the "Bricks" of the world economy cracks
Material posted: Publication date: 06-06-2013

The world economic system has changed dramatically with the onset of the global financial crisis. On the background hardly come in developed countries clearly gain developing, traditionally present in the image of younger sisters and brothers. Like a child, which eventually changes the shovel in the sandbox RC car, they began to claim a bigger role than was inherent in them before. Willy-nilly the developed West have to put up with the new realities. Moreover, he is forced to adapt to the developing world.

The tone of forward movement in developing countries is largely set by the group of five countries: Brazil, Russia, India, China and South Africa. It is no coincidence that in 2012. former Chairman of the PRC Hu Jintao called them defenders of the interests of the third world and the force that needs to "harmonize" international relations.

Reduction of BRIC was first introduced in turnover analyst, U.S. investment Bank Goldman Sachs Jim O'neill in November of 2001. After joining the BRIC of the South African Republic in February 2011. the group became known as BRICS. Symbolically, the acronym is very similar to the English word, which translates as "bricks". The countries belonging to the BRICS, and indeed become the building blocks of framework of the world economy, on the strength of which will depend largely on global sustainable development.

By 2050. the BRICS States, according to experts of the auditing company Pricewaterhouse Coopers, together with three other giants of the developing world — Mexico, Indonesia and Turkey — in terms of aggregate GDP will surpass the "Big seven" (UK, Germany, Italy, Canada, USA, France and Japan) 1.7 times. At the same time, the number of problems in the economies of the countries in the BRICS has declined in the course of rapid development is not as considerable as could have been expected. In many areas they do worse.


Impressive progress

Doubt expose any events and phenomena. However, it is very difficult to challenge the statistics. In the situation with the BRICS countries it is a litmus test of the progress that Brazil, Russia, India, China and South Africa have managed to achieve for a small by the standards of the history of the period. At the moment the total volume of the gross domestic product of five countries over 21% of global GDP. And for the last 15 years the rate of BRICS countries grew more than three times.

The plight in which the global crisis plunged the developed West, was a good lesson in how important it is to skillfully use and maintain the fruits of rapid economic growth. To date, the total volume of currency reserves of the BRICS countries reached 4.4 trillion dollars, which is more than 4 times higher than the United States and the Eurozone combined. In this case the largest developing countries accumulate reserves, but also actively lend to the rest of the world. So, in 2013. China became the largest creditor of the U.S. with the total number of bonds us Treasury's $ 585 billion.

Improvement of the macroeconomic situation in the BRICS countries will inevitably lead to growth of welfare of the population. According to Forbes magazine, in March 2011. China, India, Brazil and Russia for the first time managed to get around Europe by total number of billionaires. Economic growth group affects the increase of welfare of the population as a whole. Of course, in terms of one person's performance remains (and will for a long time to stay) more than modest, but positive dynamics are evident. 2000. to 2011. GDP per capita in China has increased 2.4 times and amounted to 8.5 thousand dollars., in India — in 1,7 times, up to 3.7 thousand dollars, in Brazil — in 1,6 times, up to 11.9 thousand dollars, in Russia — 2.2 times, up to 17 thousand dollars. and in South Africa — in 1,3 times, to 11.1 thousand USD.

The BRICS countries differ from the developed West not only that they have the richest mineral reserves, but also acquiring in the modern world the increasing influence of human capital. In China, India, Brazil, Russia and South Africa in total represent 43% of the world population. This "inexhaustible" number of potential buyers makes developing countries tasty morsel for investors from the West. The volume of foreign direct investment in the BRICS economies has already exceeded $ 270 billion., what is one fifth of the global flow of foreign direct investment.

Commonplace today was the fact that all the major issues of the world economy invariably discussed in the format of "Big twenty", a good half of which presents the developing world, including by all BRICS members. Recognition of the increased role of the group was the appointment this year to head the world trade organization, the Brazilian Roberto azevêdo. And despite the fact that for more than 60-year history of the WTO, its Director-General before that only once was the representative of a developed Western country.

Underestimation of the BRICS is rooted in the past. Most Western economists, previously skeptical of the prospects of the group, today recognize that by 2016. China should become the largest economy in the world, beating the unchallenged leader – the USA. The progress in China is so impressive that, according to a survey by the American Institute of Gallup, about 50% of the United States today called China a leading economy in the world. By 2050, according to analysts PwC, America may fall to third place, behind second place India. Experts believe in the potential of the Russian economy, which, in their view, by 2020. to become the largest in Europe, ahead of Germany.


The problems are the same

Statistics, demonstrating the strength of the BRICS, and at the same time illustrates the weaknesses of the giants of the developing world. While still the envy of the developed West, the economic growth of these countries currently significantly slowed compared with the period of the "Golden decade" in which the world was from the beginning of 2000. So, China's economy in 2012. increased by 7.8%, the worst result since 2000. although during 2003-2007. The country's GDP each year added at least 10%. Can't boast the best situation and other BRICS members.

Acute and the inflation problem. And if the PRC consumer prices, according to the International monetary Fund, in 2012. rose by 2.6%, which is comparable to indicators of the developed countries, in India, inflation last year reached a whopping 9.3 percent. According to the IMF forecast, this year is absolutely all members of the BRICS the rise in consumer prices will accelerate. And it is unlikely in the foreseeable future the leaders of the BRICS will be able to find an effective cure for this "disease" of the developing world.

Price volatility influences the policy of the Central banks of the BRICS, which will avoid further price increases have to hold high interest rates. At present the refinancing rate in South Africa is set at 5%, China 6%, India was 7.25 percent, in Brazil by 7.5% and in Russia — at the level of 8.2%. For comparison among all developed countries according to this index Australia leads with more than a modest indicator of 2.75%. "Stiffness" of inregulation BRICS has a negative impact on local small and medium businesses, which, in fact, deprived of resources for systematic and effective development.

Failed BRICS countries and completely avoid problems caused by the financial storm that has subsided, but not stopped for five years. Of course, the fate of the West they passed, but struck the world economy problems have affected the developing world. The slow growth in developed countries hurts the BRICS, all participants of which are export-oriented. In the new realities are especially vulnerable, Russia, Brazil and South Africa — the country most dependent on price fluctuations on raw. Of the Indian economy and, primarily, China diversified to a much greater extent.

Another vulnerable developing countries for a long time is the difference in incomes. Rapid economic development in the BRICS improves the well-being of people living in these countries, but it happens very slowly. Moreover, the income of one part of the country's population is growing at a faster pace relative to the other. Thus, according to the head of emerging markets investment Bank Morgan Stanley Wealth Management Ruchira Sharma, Russian billionaires own state, which is approximately 20% of the country's GDP. By this indicator Russia is far ahead of any of the major world economies.

In addition, for the current and future well-being of the BRICS will have to find answers to a very difficult demographic questions. According to the UN, a high proportion of the economically active population serving one of the main factors of growth of developing countries, will continue to decline. The exception in this case just India, while Russia according to the rate of decrease workers will be ahead of all other BRICS countries. This demographic change will inevitably entail a change of social state model, the increased tax burden and increased migration. It is easy to see how it could hurt economic and political stability of States.


Lion and Buffalo in one cage

At the last BRICS summit in Durban, Russian President Vladimir Putin compared the countries with so-called "big five" mammals, which are revered more than the rest of the African hunters. It is unlikely the Russian leader implied the differences between China, India, Brazil, Russia and South Africa, but, except for the rapid economic growth of recent times, these countries shared exactly the same as the lion, rhinoceros, Buffalo, leopard and elephant.

Group members develop their economy by means and methods that are not just complementary, but also often involve rivalry. For example, such raw power, like Russia and Brazil, are interested in the growth of prices of minerals, while China or India, as the world's leading consumer of raw materials, suffer from this. In 2010. the difference of interests and it has led to the fact that China has imposed antidumping duty on import of the Russian Elektrostal because of Moscow's accusations of artificially lowering the prices of their products. No full economic harmony in the relations of China and Brazil. The Latin American country have expressed dissatisfaction with the monetary policy of Beijing, which suffer from Brazilian entrepreneurs.

Trading relationships within the BRICS is still not going to any comparison with the bilateral relationships of each of the five members with the European Union and the United States. On the one hand, total trade within the group since 2002. rose to 2013. more than 10 times $ 282 billion. - when forecasts 500 billion. by 2015. On the other, the foreign trade turnover of only one China with Europe and the United States exceeds 1 trillion dollars.

Seriously affect the long-term prospects of the group and the uneven economic power of its members, among which is China. In their study, the experts at Deutsche Bank are right to state that "economically, financially and politically, China is ahead of all other BRICS countries, which will continue in the future." Different weight categories of China on the one hand and India, Brazil, Russia and South Africa to allow many different scholars and analysts to argue that in fact the BRICS is a train, driven by a Chinese driver. "As a group the BRICS plays a small role... It's not a Union of equal partners. Dominated by the PRC," rightly observes the Professor Shanghai business school CEIBS Bala Ramasamy.


In anticipation of the bright future

And yet despite all the problems inherent in the BRICS, underestimating the potential of a group should not be.

Brazil, Russia, India, China and South Africa are able to convert economic power into geopolitical influence. Starting with 2009. BRICS countries annually hold summits, where the agenda are submitted to the most serious problems. So, at the last summit this year, leaders discussed the possibility of the formation of the development Bank of the BRICS, which in the future could challenge such giants as the IMF or the world Bank.

Moreover, the economic influence of the BRICS group is attracting attention from other developing countries, some of which are already willing to become a participant. So, in may of this year about intention to become a member of the BRICS said the leadership of Egypt. A year earlier a similar statement was made by the Ambassador of Indonesia.

Due to the significant resources of the BRICS countries have an excellent opportunity for growth and strengthening its role in the world. The realization of this potential will largely depend on the ability of China, India, Russia, Brazil and South Africa to reform its system in the key changes taking place on the world stage. Otherwise, the basis for the building of the world economy will fall the other "bricks".

Yakov Grabar


Tags: crisis , BRICS

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