Jun 15, 2009

This commentary originally appeared on on June 15, 2009.

Does a club that includes countries as radically different as Brazil, China, India, and Russia make any sense?

The leaders of the BRIC countries—Brazil, Russia, India, and China—hold their first stand-alone summit in Yekaterinburg, Russia, on Tuesday, June 16. One can easily picture Goldman Sachs economist Jim O'Neill, who invented the "BRIC" term in 2001, grinning at Chinese President Hu Jintao's elbow and scribbling notes for an updated version of Present at the Creation, former U.S. Secretary of State Dean Acheson's memoir of the shaping of the Cold War-era global order.

The timing of the BRIC summit, just a few weeks before U.S. President Barack Obama's arrival in Moscow and the G-8 meeting in L'Aquila, Italy, is hardly accidental. The event caps months of high-profile—and largely constructive —policy moves and statements by BRIC officials who have demonstrated that the commanding heights of the global economy are no longer the sole province of the so-called G-3: the United States, the European Union, and Japan.

Yet it will take far more than summit photo ops, high-minded press releases, and Goldman Sachs research reports to turn the BRIC countries into the architects of the post-crisis international financial system, let alone the masters of the new global order. And it is far from clear that Russia, hamstrung by a severe recession and its continued dependence on energy exports, is well-equipped to play an outsize role in shaping what comes next.

The BRIC countries are rightfully angry about the reckless practices of Western financial institutions and governments, which have triggered unprecedented wealth destruction, a wrenching (yet incomplete) correction in global imbalances, and painful slumps in industrial production and international trade. The re-pricing of risk over the past 12 months has hurt BRIC asset values (despite the effects of a recent rebound in emerging-market equities) and choked off beneficial financial and investment flows. With massive holdings of U.S. dollar-denominated liabilities and currency reserves, the BRIC countries are particularly worried about ballooning U.S. deficits and the possibility that Washington might try to ease its debt burden by weakening the dollar.

But is this array of BRIC concerns—and the complementary desire for a stronger voice in institutions such as the G-20, IMF, World Bank, and World Trade Organization—matched by a meaningful vision for the future? It's doubtful. Click Here!

The dirty secret in Yekaterinburg is that the BRIC countries have little in the way of a common policy agenda. Russia and China have issued detailed proposals for reducing reliance on the dollar as the world's main reserve currency. But neither the ruble nor the yuan is likely to be freely convertible anytime soon, and liquidity in both currencies simply pales in comparison to the dollar. China, Russia, and Brazil may be talking about using new IMF-issued bonds to diversify their central bank reserves (at the expense of U.S. Treasuries), but they will avoid precipitous steps that might hurt the value of their holdings in the short term.

And they are far from a group of equals. While the Russians tend to relish any opportunity to tweak Washington, the others actually want closer ties with the Obama administration. Hu Jintao, preoccupied by the global economic crisis and urgent threats to China's domestic stability and economic vitality, will hardly be in the mood for geopolitical grandstanding. (It was China, after all, that blocked any endorsement of Russia's invasion of Georgia at last August's Shanghai Cooperation Organization summit in Dushanbe, Tajikistan.) Brazilian President Luiz Inácio Lula da Silva and Indian Prime Minister Manmohan Singh have their own clear priorities: keeping economic growth on track, easing the social impact of the crisis, and accelerating domestic reforms. They're not interested in causing trouble.

More and more, Russia looks like the BRIC countries' odd man out—and it's not only because the Russian economy is in much worse shape than the others. (The IMF projects a 6.5 percent drop in GDP in 2009.) A big part of the problem is Russia's growing complacency in the face of its worst economic crisis since August 1998. Now that crude oil is back above $70 per barrel, hopes for long overdue structural reforms are fading.

Apart from the notable exception of Finance Minister Alexei Kudrin, the recent St. Petersburg International Economic Forum was dominated by government officials' comments about the potential bottoming out of the economic crisis. They offered scant detail on handling the glaring weaknesses of the Russian banking sector, a deepening recession in key EU countries that will crimp demand for Russian energy and raw material exports, or the jump in social tensions in one-company towns such as Pikalevo, where workers temporarily blockaded roads earlier this month.

With these kinds of unaddressed problems on the Russians' plate, the pomp and circumstance of the BRIC summit might turn out to be a lot more expensive than its hosts bargained on.

Andrew S. Weiss is director of the Center for Russia and Eurasia at the RAND Corporation. He served in a variety of policy positions at the U.S. National Security Council, State Department, and Department of Defense during the Bill Clinton and George H.W. Bush administrations.

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