Brazil, Russia, India and China were given the acronym BRIC nations in early this decade in response to the growing economic contribution the population of these emerging countries had made to world growth and established economic prosperity.
History of the BRIC Countries
The BRIC countries became net creditors to the world economy. They enjoyed stable governments that encouraged the growth of free market economics. The BRIC group were developing a large middle class that was able to trade with the world, producing goods and services that the world wanted. Growth was considered sustainable since moderate wage levels and wealth from natural resources, growing consumer demand, and emerging strategic importance all indicated a strong economic future. Indeed, growth for the group was well above European and North American averages.
Comparative Strengths of the BRIC
The strength of the China and India experience was built upon industrial and technological innovation and transfer to their large populations. The intention was to move agrarian resources to factory and technology environments. Brazil already held large agrarian resources that were used for both export and bio-fuel production. Brazil also has a relatively stable relationship with its neighbors so that its military budget did not draw upon resources as it did in China, India, and Russia. Like Russia, Brazil benefited from large energy reserves making it a net provider to the world and boosting its export trade credits.
Russia’s Particular Energy Boost to Growth
Russia, while part of the BRIC group of countries was somewhat apart from them as well. Russia, reduced in size and power post-Gorbachev sought to regain world leadership under Vladimir Putin. Putin imposed stringent measures meant to center the country’s economic growth through tight party leadership and a resource-based focus. During the period leading up to 2008 Russia’s growth in power and trade balances was primarily energy and resource based as exploding world demand and prices never anticipated the sharp and painful crisis that followed. The invasion of Georgia, the natural gas price dispute with the Ukraine and the exercise of naval power all were measures of Russia’s strong image of itself.
The Damage of the Global Recession to Russia
Eurasianet reports that Russian officials expect a full year GDP decline of 2.2 per cent. This seems optimistic given the roiling financial markets and the lack of oil to find a base level of support. It is because of the oil situation that the ruble has returned to values not seen in 10 years. 1998 was the year of the Asian contagion, a major banking destabilization crisis that resulted in the devaluation of the ruble.
So far official statistics indicate that Russia’s foreign reserves and gold holdings are around $450 billion. This indicates that over a third of its reserves have been used to support the ruble. As the financial turmoil continues a devaluation against the dollar, perhaps not as steep as the 70 per cent devaluation of 1998, could be in the offing.
BRIC Countries All Have Problems
The issue is that Russia seems unlikely to use the wealth it has to invest in technological transfer as China and India have done. Nor does Russia have the regional stability and diversified resource potential that Brazil does. It is not clear whether Russia can return to a normalized period of economic growth or stability or will remain the high volatility currency play it has been for over a decade. Russia may be a better commodity play than a story of emerging growth.