The BRICs work on lending to nations in distress

Since January the IMF has been working on the issuing of a first bond issue.  The bonds would be denominated in SDRs, with a maturity of 1 year and offered to Central Banks. Speculation has been rife for some time that the BRIC countries would be the principal purchasers of such bonds. The BRIC countries – Brazil, Russia, India and China met together just several days ago to work on possible terms of the bonds.  It is noteworthy that the BRICs again are seen as a self actualizing group and it appears that all are prepared to lend to the IMF in this way though it appears that the BRICs would prefer that their be a secondary market for the bonds to improve their liquidity.

While the BRIC targeting is noteworthy in and of itself, it would appear additionally that the bond issue is a means for the BRICs to contribute to nations in distress but also to avoid providing longer term commitments to the IMF.  Some, like Cornell’s Eswar Prasad, formerly the chief of the financial studies division in the research department of the IMF, see the bond issue as a means to put pressure on the IMF and leading members to increase the voting shares of countries Continue reading

The Bad News Continues

This week finance ministers are meeting at the International Monetary Fund (IMF) and the World Bank (WB).  In advance of the meeting the IMF release a Report yesterday that raised the total projected losses from the global financial crisis to banks and other financial institutions to $USD 4.05  trillion.  That’s a big number and few steps have been taken by the institutions to write down those amounts.

To date the IMF has loaned $55 billion to to countries such as Iceland, Ukraine, Hungary, Serbia, Romania, Belarus and Latvia. In a continuing effort to identify the impact on emerging countries in either the G5 or the N11 a November arrangement to loan funds to Pakistan was concluded.  Mexico has just concluded (March 24, 2009)  a flexible credit Continue reading

‘From Architects to Gardeners’ with Joshua Cooper Ramo

I first encountered (not literally mind you) Joshua Cooper Ramo in his description and analysis of what Ramo called the ‘Beijing Consensus’.  Difficult to unearth the consensus part of the story, but that’s for another post, still I was intrigued by his effort to describe a developmental approach that emerged from the ‘new’ China.  I was also interested in the fact that he lived – at least part time – in China (hat’s off to any ‘louwai’ (foreigner) for doing this) and that he was the Managing Director of Kissinger Associates though he’d previously been a journalist including a stint as foreign editor and assistant managing editor at Time Magazine.

So, with the recent publication of, The Age of the Unthinkable: Why the New World Disorder Constantly Surprise Us and What Can We do about It, I was drawn to it – not least because the book was focused on the failure of current Continue reading

Prevailing Winds and India

I had the great pleasure of attending a presentation at the C.D. Howe Institute here in Toronto by Montek Singh Ahluwalia, currently the Deputy Chairman Planning Commission of India.  Unfortunately these sessions, probably wisely, are undertaken as off-the-record discussions.  So, I cannot comment directly on what was said.

Mr. Ahluwalia has had a very distinguished public career spanning the World Bank, the IMF, the Ministry of Commerce and the Ministry of Finance in India as well as a special secretary to the Prime Minister in the latter eighties. His appointments, writings and research point to what can only be described as a thoroughly erudite public servant.

Not surprisingly the focus of questions centred on the state of India’s economy in the midst of the global financial Continue reading

N-11 and the Global Financial Crisis

 Late in 2005, Goldman Sachs (GS) introduced the concept of the N-11. As described by Dominic Wilson and Anna Stupnytska in the GS Global Economics Paper, No. 153  (March 28, 2007), “The N-11: More than an Acronym.”*

The N-11 appeared to be a GS effort to introduce a further tier of emerging economies and determine whether the next group of large developing countries with large populations had the potential to become ‘BRIC-like.’  Their summary conclusion:


“The diversity of the N-11 makes it difficult to generalise. But our projections confirm that many of them do have interesting potential growth stories, alongside reasonable scale, although their prospects vary widely and some face much greater challenges than others.  …Of the N-11, only Mexico, Korea and, to a lesser degree, Turkey and Vietnam have both the potential and the conditions to rival the current major economies or the BRICs themselves. Other N-11 economies – Indonesia and Nigeria in particular – have the scale to be important if they can deliver sustained growth. But while the rest of the N-11 may not have a BRIC-like impact any time soon, the Continue reading

BRICSAM and the G20: A Week Later

The London G20 summit turned to be an unanticipated success. In the weeks and days before the event, signs were gloomy of any positive outcome. The French and Germans were saying ‘no’ to any major collective stimulus package. Gordon Brown as host was losing his personal bounce amidst increasingly pessimism about the UK economy. And even the Barack Obama phenomenon, as directed towards his trip to the London G20, appeared to be more about style than substance.

On the day, however, the G20 turned sunny like the actual weather in London. Although the tensions between the ‘Anglo-Saxon” stimulators and the Continental regulators were still played up the real agenda was playing out in other ways. As predicted by CIGI blogs in the past the trans-Atlantic tensions should increasingly be seen as the side show. The Continue reading

So, Decoupling is not Dead

Jim O’Neill, Head of Global Economic Research for Goldman Sachs, is not ready to declare decoupling dead – at least with regard to the BRICs.  O’Neill, the ‘inventor’ of the BRICs, recently sought to resuscitate the notion that the BRICs can continue to grow even after their largest export market, the US, succumbs to the Great Recession, because they rely on domestic demand.  The piece is entitled “The New Shopping Superpower:  The BRICs rely increasingly on domestic demand and can boom even if export markets like the US slow,” and was published in NEWSWEEK (March 21, 2009 in the published magazine, March 30, 2009 issue).  Indeed, Jim not only defends decoupling, he has revised his estimate of when he believes the BRICs, collectively, will outgrow, in dollar terms, the G7.  Earlier predictions by Jim argued the BRICs would collectively have a larger economy in 2035.  Now Jim, with an examination of current rates, predicts that the shift could occur as early as 2027.

Though Jim recognizes that, collectively, the BRICs are likely to grow at only 4 percent, predictions for the global economy are a decline of 1.1 percent.  Individual developed states are in much more difficult shape, with Goldman Sachs’s predictions for the US down 3.2 percent, worse for the Euro zone and a dizzying 6.1 percent decline for Japan.

Meanwhile China is predicted to grow at 7 percent this year and over 8 percent in 2010 and India at 6.6 for the same year.  As O’Neill concludes:

“Within the overall picture, there is clear evidence of major rebalancing, as BRIC shoppers account for an increasingly large share of global consumption.  When we track retail shoppers from 2004 to 2008 (using data adjusted for inflation and the relative size of national economies), it becomes clear that European and Japanese shoppers are barely contributing anything to real consumption growth.  American shoppers gradually contributed less up to 2007 before completely zipping up their wallets in 2008.  BRIC shoppers slowly contributed more, and, importantly, their contribution continued to increase into 2008, despite the collapse of the US shopper.”

Jim looks to better growth for China on the basis that China’s retail sales grew by 15 per cent in February.  Consumer prices have declined sharply providing a boost to real income for Chinese consumers.  Jim also notes that the government has announced plans to strengthen medical coverage that he, and I’m sure the government, hopes will help release the savings of the public. And then there is infrastructure spending, etc., etc., ending with the current stock market rally. Notwithstanding the lowering of current growth predictions, Jim remains optimistic over China’s growth prospects.

And he may be right, though the cascading implications of the global financial crisis and its impact on trade, investment and jobs should not be underestimated.  For instance, I note that Brazil’s economy – another of the BRIC economies – is now suffering.  A recent article in the New York Times (“Brazil’s ‘Teflon’ Leader Nicked by Slump,” by Alexei Barrionuevo, dated April 3, 2009) suggests the real economy is now “hurting”. Brazil’s GDP has fallen 3.6 percent in the last quarter of 2008 from the third, and the country lost 654,946 jobs in December 2008, with 101,748 more lost jobs in January.

I would continue to hold all bets on decoupling for the moment.

The Cost of Support

Today’s New York Times article by Andrew Kramer, “Russian Auto Bailout Protects Jobs (Efficiency Not So Much)” (Tuesday April 7, 2009) chronicles the Russian governments efforts to prop up employment in automobile manufacturing including the Lada (Avtovaz) factory in Tolyatti.  The Russian government is giving billions of dollars, no strings attached,  in an effort to subsidize employment in a facility that has a wretched productivity – each worker producing on average 8 cars a year as opposed to 36 cars a year per worker at GM in Bowling Green, Kentucky.  At the same time, as identified in the World Bank’s trade protection (reported in Elisa Gamberoni and Richard Newfarmer’s “Trade Protection: Incipient but Worrisome Trends“) list, Russia in the fall imposed a tariff on imported cars.  The collapse in automobile demand in Russia has come later than the United States, according to the Times article, but it could be more severe.  And the Russian government is now supporting a no-layoff policy.

Dueling Consensus on the G20

I was struck  – indeed almost made dizzy – by the contrasting interpretations the media delivered following the London G20 meeting.   In the end I wasn’t sure whether the media was even covering the same event.  This confusion continued till I realized that the contrasting commentary arose from more than a single consensus that Leaders, and in turn the media, concluded for this now completed meeting.

I should, before continuing, express abject apologies from my lengthy absence.  I cannot at this moment go into what we were ‘cooking up’, but I’m hopeful that my absence was worth the lengthy silence.

So back to the G20 London meeting.  As I was suggesting, the media was commenting on more than one consensus. Continue reading