The Importance of BRIC Countries - Admission/Application Essay Example

? Importance of BRIC countries The BRIC countries are made up of Brazil, Russia, India and China and they compose the fastest growing and largest emerging market economies. This term was first used by O’Neil a global economist of Goldman Sachs after carefully analyzing the behavior of these economies. They account for almost three billion people almost a half of the world population and they contribute to majority of the world GDP growth, this big population is a driving force behind growth of consumer spending and innovation and this gives them advantage over small countries like U.K. Some economist projects that by 2050, these will be the most important economies with China replacing U.S.A. in the first position. Economist believe that by working together, BRICs can curve the future economic order for themselves with China dominating manufacturing, India services, Brazil and Russia supplying raw materials. In the year 2010, BRIC countries delivered more than a quarter of the world GDP (27) % and this is quite significant in global economy. Between 2000 and 2010, BRIC GDP grew by 92.7percent despite the economic meltdown of 2008 and the growth is projected to be higher in future. The market capitalization of BRIC countries has grown from $1.2trillion to $ 6.4trillion in 2010 which is a massive 641percent, which is 18% of global capitalization. This is a significant improvement since in 2003; the market capitalization of BRIC was a paltry 3.8% of global capitalization. China and India has strong natural resource base while Brazil has more arable land than North America and Europe combined. This gives them a strong footing to compete vigorously in economic scene and they are more likely to set the trend in global economies. The west fiscal woes and protracted controversies over financial reforms and rescues have instilled mixed reactions in global economies to which may see the possible rise and fall of some economies (Renard, 2010). BRIC is building on the economic momentum with the view of transforming international financial relations which has always been controlled by the west. BRIC countries are motivated by the feeling that they can also dictate the direction of financial decisions in the global scale if they continue to work together. Some economist argue that BRIC poses a serious challenge to the dominant west while other argue that it’s just a political fad with no future in global economy. According to IMF estimates, the BRIC share of the GDP will surpass that of the G7 by 2020 making it strategically placed to take control of the global financial settings (Renard, 2010). This is evident from their aims when they met Hainan 2011 summit to conclude that they are in a broad consensus to improve and strengthen cooperation on international and regional issues. BRIC has been trying over time to have a say in the global scale in all spheres and that’s why the Libyan and Syrian crises gave them an opportunity to showcase their capabilities and thus prove their legitimacy. Bricks are tying to secure their place in Security Council by having a common stand and voting in on one side to promote their unity in all matters. At 2012 Delhi summit, the BRIC promise to unveil a bank, South-South Development Bank in an attempt to further their influence in the global economy. BRIC are potential financial partners to the Low Income Countries (LIC) and they are making good their promises which are in contrast to some industrial countries. BRIC financing to LICs is mainly driven by China and they are proving to be in strong financial position to continue increasing their development financing which is good for LICs. BRIC philosophies for development financing are quite different with those of the traditional donors and this is making LICs to really enjoy their approach. BRIC engagement with LICs is mainly founded on mutual benefits with most financing targeted to infrastructure in support for productive activities most of which they are involved in. China particularly is on record for providing non cash financing projects without attachment policy conditionality as a principle of noninterference of internal affairs and it’s quite unique. While BRIC focus on micro sustainability of individual projects, traditional donors focus on long run debt sustainability, thereby making them quite different I their approach. Financing provided by BRIC is helping LICs to alleviate key bottle necks in their domestic economy thereby boosting exports thus spurring economic growth of those countries. Large financing provided by BRIC on infrastructure is quite beneficial but concerns are being raised on the impact of debt sustainability of this financing to the concerned states. Concerns are also being raised on the size of subsidized exports credits received by some BRIC firms and their labour practices in an attempt to critically scrutinize BRIC financing (Renard, 2010). BRIC financing could help many LICs address their poor quality infrastructure which is good for the development of a country. It’s estimated by World Bank that South Sahara requires in excess of US$93billion to address their infrastructural deficits which is about 15% of their GDP and this is a huge amounts of money. The traditional donors alone would not sufficiently meet these huge deficits and BRIC are stepping in as a good alternative for the west in donor financing. Due to BRIC financing in infrastructure, more LICs are able to tap into their natural resources and are raping good benefits which comes with improved infrastructure. Studies show that benefits of BRIC financing has resulted to 35% improvement in electricity, 10% in rail network and reduced price of telephone services thereby significantly improving the state of most economies. BRIC financing is also scaling up investment which in turn improves external competitiveness raising productivity and this leads to good economic record. More aid from BRIC countries are used in development projects which in turn initiate products hence putting the country in good rating on export competitiveness. This is because improved transport network and improved investment in agriculture tends to have a large effect on agriculture which is the economic backbone of most LICs. Brick financing is also strengthening the regional trade and linkages among different countries for mutual benefit. Transport network which connects two countries is good in facilitating trade which in turn initiates economic growth for the concerned countries. Due to good state of infrastructure brought by BRIC financing, exploitation of natural resources is being witnessed in most parts of sub Saharan Africa. This also helps to LICs to tap into direct foreign investments which ha s seen increase in job opportunities and increased tax collection for the government. While BRIC financing is being praised for most of the positive impacts, some criticism also exists in the nature of their financing. The major challenge LICs face is managing their engagement with BRIC to ensure debt sustainability in the long run and avoid over indulgence in debt. A critical debt analysis should be undertaken to ensure that there is good economic balance to avoid future financial problems. Over indulgence in BRIC financing can lead to some LICs running into commodity trap due to over dependence on natural resources. Association with BRIC firms may lead to the closure of some of the indigenous manufacturing firms due to increased competition from BRIC firms considering their low cost of production. Chinese are known to promote their enterprises and entrepreneurs in Africa thereby bringing stiff competition to the already established African firms. Concerns are being raised on the labour practices with most of the BRIC investors’ limiting employment opportunity for the locals and this has e negative effect for the economy of the concerned country. The BRIC believe that by collective bargaining, the can exert a geopolitical pressure in order to enhance their political prospects. Their delegations have distinct negotiation styles aimed at giving them a win on international debates and conferences. On UN matters they always take one side to have a strong bargaining power that makes their presence be known and felt. BRIC alignment has prompted experts to engage governments that do not form blocs in to enable them reduce the enormous influence of BRIC. Some argue that despite BRIC common goal and destiny, each country is driven by self interest that may saw it collapse in the near future. BRIC have raised diplomatic stakes and this has raised two more sympathetic strands of inquiry which are determined to know how BRIC actually operates. The first one is aimed at understanding why most countries trust BRIC bandwagon so as to establish the reasons behind their attraction to it. It’s argued that most of these countries have personal interest and it’s highly believed that Moscow jumped into brick bandwagon in order to balance china rise to prosperity. China is jumping into its accidental allies to position itself as the reformer rather than a revisionist in its attempts to please the international community. Brazil is in BRIC to position itself as the future world economic leader and thus each country has its own selfish interest in their collective attempt to achieve their goals. Most economists believe that China being the major player in BRIC has done more to enforce rather than to subvert and thus it poses a little influence in the liberal order. Some also notes that even though BRIC combine a lot of assets and ambitions; they lack the strategy to challenge the U.S and establish a new world order and this makes the U.S less worried. Its also believed that the BRIC market is exaggerated and for this reason their tricks will end and this will make them crumble economically. Due to this, some economist argue that BRIC should be ignored since it has little effect on global economy and that giving it a lot of attention strengthens it. BRIC countries invest in in friendly environment focusing mainly on benefits and forego the gains and any negative effects from such businesses. These type of investment if not properly checked can turn risky or unprofitable to the affected countries in the long run. The global financial crisis posed a tricky situation for both economies due to negative impacts it presented both to the west and the BRIC. The global financial crisis dashed hopes for most of the economies and put Washington in tricky situation in its stewardship of the global economy. It eroded the quality of the dollar and this put the U.S in a tricky situation in before BRIC who fell that something ought to have been done to prevent this. U.S debt bubble and burst made emerging economies face massive reserve losses and price volatility, thereby negatively affecting their economies (Samake and Yang, 2011). It rattled all save China who loosed but did not lift its currency peg in attempts to escape form the credit crunch. Brazil had to resort to unconventional measures to control the hot money that was pushing up the real and destabilizing its economy. India had to tame increase liable for liquidity driven flow in product prices weakening the purchase capabilities of its citizens. The U.S currency had become the world problem and due to this the BRIC were further encouraged amongst themselves to continue with their desperate attempts to bring a new world order economically. When fear of global financial crisis prompted the U.S administration, china which had overtaken Japan was quick to set the terms of operations its attempts to prove its worth in the summit. China called for a comprehensive, balanced, and incremental and result oriented a financial system that is fully prepared to support G20 to enable it function appropriate. China advocated for decision making and management system that fully incorporates the interest of emerging economies and this made her become a darling of emerging economies. Chinas endorsement of G20 was a setback for those who expected global response to the global meltdown and the calls to strengthen IMF added salt to the injury and these efforts put her on the spotlight. The stringent rules at IMF are amongst the reasons that prompted emerging economies to build up excessive reserves that created quixotic dollar instruments that precipitated the crisis and need to be revised. The misgivings about IMF and its governance structure made members of the BRIC led by China to call for reforms in its operations. Brazil tried to bring unnecessary reforms in IMF in the year 2003 with little success while Russia decided to divorce with IMF after being one of its greatest lenders. South Africa has always survived with minimal request to the funds assistance and India also has decided to give it a cold shoulder. This shows that the BRIC have decided to give IMF a cold shoulder but at the same time leads calls for its restructuring to make it effective in the global settings. The BRIC has nothing to loose in its hard line reforms with the IMF since they needs little help form the fund and thus could not be adversely affected. Chinas maneuvers and vulnerable defensive skills attested its diplomatic skills and BRIC cohesion therefore its success in trying to overhaul IMF would give her a much coveted stewardship of brick. When the U.S tried to instruct an amendment to determine whether a member exchange rate results into external instability, Beijing failed to convince developing countries thus put it in a tricky situation in global powerhouse. China still complained that with the new surveillance system at the IMF changed a little for the advanced economies and put emerging economies endure a lot of pressure and thus were not sufficient. It’s impossible to determine how BRIC supported china’s demands but it’s evident that they never succeeded in most of their quest. Since most of the records of the board are confidential but the 11% of the votes they controlled fell short of the 15% required to block U.S approval, this puts BRIC on the spotlight on its cohesiveness since they could not manage to convince other countries to rally behind their quest to effectively make changes at IMF. With the support of Iran, Argentinean and possibly Indonesia, a BRIC led bloc would possibly have succeeded in preventing IMF from dragging china into Washington line of fire and proved its capabilities. With these few chances of success in its attempts to have a voice in international control of key financial institutions, BRIC has demonstrated that it still has a long way to go to position itself as the steward of the financial systems. In 2009, Beijing had decided that it was the right time to see whether a crisis emboldened and G20 hardened BRIC would be convinced to buy her ideas and exert pressure on IMF. It was a test to see if the bloc would hold and allow China to reverse the surveillance if IMF thus position BRIC at the center stage of decision makers of the fund. China managed to achieve their dream after G20 support but it wasn’t cheap since china promised to invest up to $50 billion in its first ever promissory notes. This was a success for China since IMF approved the revised operational guidance for surveillance that removed requirements that had prompted China to flex its BRIC muscles. Overturning the surveillance system wasn’t cheap for BRIC since Russia and India also promised additional $10billion each but Russia later backed down to let Brasilia take up. This was a confirmation to BRIC that managing and controlling international financial institutions is not easy as they expected and despite these efforts, they did not have a bigger say in fund strategy. BRIC only controls 14.1 percent of the IMF vote against EU, Eurozone and the U.S which controls 29.3, 21.2 and 16.5 respectively therefore it’s a tall order for BRIC (IMF, 2011). Communal stakes are always high that Russian economy would one day command enough prestige to play a role in reserve currency thus bring changes to the international set up, others within the BRIC set up believed that in the predictable future, the Yuan is the only reliable replacement candidate to take the responsibility of a reserve currency. This was supported by Russia after asserting that the shortest route to creation of new world reserve is to let china liberalize its capital account to let currency float and the results will be visible in the short run. The BRIC believed that internal stability for emerging economies should take precedence over external stability to solve the dilemma of achieving their domestic monetary policy and meet the demands for the reserve currency. These proposals were however not adopted by the IMF and BRIC learned that international monetary relations evolve at multilateral sidelines and this is difficult to control. The BRIC agreed in 2011 that their state controlled development banks and should issue loans and grants in their respective currencies thereby bypassing the dollar conventions in their efforts to liberalize financial systems. In the Delhi summit, BRIC stressed for their demand for a more representative financial architecture and improved international monetary system to serve the interest of all countries with better terms and conditions. Some members at the summit wondered if the BRIC really meant to serve the interest of all the countries in the world or whether they ere just fighting for their rights in pretense. Some economists argue that China’s conduct on the currency front would make or break BRIC since Brazil reiterated that BRIC cooperation should be based on principles of solidarity and mutual trust. The message was clear that others should not use BRIC to openly challenge U.S in their attempts to achieve their own selfish interest in manipulating the currency (IMF, 2011). Brick have been the center of debate in the Kyoto protocol due to political momentum for renewed climate engagement and follow up to the protocol to avoid negative effects of the greenhouse gases. BRIC countries gravitated towards each other in climate diplomacy due to several factors curved form their own personal interest. China, India, Brazil and South Africa negotiated with the larger block of developing countries in the early days of diplomacy due to several political processes determined to achieve some set goals. China and India were used as scapegoats in U.S repudiation to pressure U.S acknowledge its responsibility for cumulative emissions and thus take necessary measures. BRIC countries interest in the climate regime is very diverge due to different expectation form individual countries. This is also because their vulnerability to climate change varies form Beijing to Moscow to Brasilia therefore achieving a common stand is almost impossible. Their political positions depended on their previous legal commitments coupled with expected future emissions therefore achieving a common goal required a lot of consultation over long period of time. BRIC faces a tricky situation due to their vulnerability due to climate change and how to tackle the debate about climate change without ceding too much ground and possibly offending others. Vulnerability to climate change in he next 30 years put India to the second place to extreme risk of detrimental impacts of climate change and this worries India. China and South Africa are also situated in the high risk category with Russia and Brazil being in the medium risk category therefore all are vulnerable. In the 1990s U.S was the major emitter but according to the 2009 rankings, china is the major emitter of greenhouse gases thus putting BRIC in a tricky situation in dealing with the matter. India and Russia are also ranked in the third and fourth position respectively thus giving BRIC countries the biggest responsibility in dealing with the matter in the global scene. There are different stakes in climate negotiations with BRIC countries trying to have a common interest in climate matters which is both affecting them in large scale and at the same time avoid mistrust between member counties. The biggest challenge for BRIC countries is transition to low carbon based economy and at the same time remains globally competitive without negatively affecting their economy. Their common interest is to develop at high rates and at the same time they are to ensure that climate change is not a barrier to development (IMF, 2011). Each country has different interpretation and mission in dealing with climate change due to their divergent environments and vulnerabilities. Russia admits that scientific opinions still lack united opinion on the causes of global warming and how to deal with it on a global perspective. Brazil being on string bio-fuels recorded has a commitment leadership and political will in reducing bad omissions which results into climate. China and India are less interested in aligning with Russia on matters of climate change but are promising working together possibly due to the fact that they are the most vulnerable within the BRIC members. BRIC countries position on the global climate cooperation reflects their different legal commitments which are not health for the smooth stay in future operations. Climate change exposed that BRIC are not ready to bargain as a coalition that is willing to work and negotiate together which is quite essential for a coalition. While BRIC is divided over climate Change, countries are deeply united in their cooperation and this puts BRIC on a tricky situation considering togetherness they profess (IMF, 2011). Academic scholars and policymaker are divided on the nature and prospect o BRIC considering their behavior in handling matters at global scene. There are concerns over U.S stewardship of the global economy which is highly believed to be the reason behind BRIC solidarity and cohesion. The only worrying issue is whether this solidarity can be of global benefit or its driven by selfish motives to achieve selfish interest. China used is BRIC affiliation to strategically overturn the IMF surveillance system but disagreements emerged on the urgency and the motive of strengthening the reserve role of the Yuan thus complicating their solidarity. Chinas reluctance to make sacrifices to achieve great benefits cast doubt on Beijing’s ability to maintain a coalition in less defensive way in their attempts to achieve their great goals. Brick promised to collectively address climate change which poses a threat to their national development but they are not showing signs of collective bargaining as a united coalition. References IMF. (2011). New Growth Drivers for Low-Income Countries: The Role of BRICs. Retrieved from https://www.imf.org/external/np/pp/eng/2011/011211.pdf Renard, T. (2010). G20: Towards New World Order. Retrieved from http://www.thomasrenard.eu/uploads/6/3/5/8/6358199/studia_-_g20_towards_new_world_order.pdf Samake, I & Yang, Y. (2011). Low-Income Countries’ BRIC Linkage: Are There Growth Spillovers? Retrieved from http://www.imf.org/external/pubs/ft/wp/2011/wp11267.pdf Read More