DAVOS, Switzerland: Ministers from the BRICS economies defended their growth prospects on Thursday (Friday in Manila) despite waves of turbulence caused by the tightening of monetary stimulus in the United States and concerns about a potential cash crunch in China.
“I still believe that the BRICS will continue to lead the global economy,” said Guido Mantega, the Brazilian finance minister, while discussing the state of the world’s emerging powerhouses at the Davos World Economic Forum.
BRICS is the acronym used to group the emerging players Brazil, Russia, India, China and South Africa. Their economies were thrown into disarray last May, when the US Federal Reserve warned it may turn off the taps of easy money that had shifted foreign investment to the developing world in search for better returns.
Talk in Washington of stimulus “tapering” moved investment back to the richer countries, sending currencies plummeting in most BRICS economies and sparking talk that the emerging world may have replaced the eurozone as the world’s biggest headache.
But South Africa’s Finance Minister Pravin Gordhan said that though “there are going to be some shifts” due to tapering, hopefully those shifts were not going to be shocks. And after last year’s scare, governments had this time prepared the ground to anticipate the slowing of easy cash, he added.
Rather than a change in monetary policy, Russia’s Deputy Prime Minister Arkady Dvorkovich said that the eurozone, Russia’s biggest trading partner, remained the big problem as it continued to grow far too slowly.
“The business environment isn’t good enough in both Russia and the world,” he said.
“If Europe is almost in recession and China is slowing down a little bit, it’s natural we will slow down a little bit,” Dvorkovich added.
Liu Mingkang, a former Chinese central bank deputy governor, said that a slowdown in China and fears of financial shocks there should not be underestimated.
“The growth pace is slowing down, that’s the fact,” he said, noting that growth rates had gone from double digits only a few years ago, to this year’s expected 7.7 percent.
But Liu explained that China was changing its export-driven growth model to a demand-based one, and that these lower growth figures should be expected from now on.
He added that talk of a credit bubble created by heavy borrowing in China’s regional and city governments, should also be taken seriously.
But this too was from the fundamental shift in the China economy, and measures to wind back the excess in capital were being taken, he said. South Africa’s Gordhan insisted that whatever turbulence hitting the emerging economies was not of their doing.
“It came from the financial centers of the world, and particularly in the United States,” he said.
On accusations that the gap between the rich and poor was too high in emerging countries, the ministers insisted that much had been done to bridge that gap.
“After overcoming three hundred years of apartheid and colonialism, a lot has been done in the past 20 years,” said Gordhan.
Persistent “inequality doesn’t mean we haven’t raised millions of people above the poverty line,” he said.
“China has lifted about 500 million people above the poverty line. India has raised 150 million above the poverty line,” Gordhan noted.