High-profile BRIC and SOC summits in the Russian Urals echo across the globe
Two budding and increasingly influential international organizations — formed by the so-called emerging economies with Russia as a core founding member in both — took place in the Russia’s Urals central city of Yekaterinburg, which temporarily became the main source of major world political and economic news in mid-June, as summiteers from Asia, Europe and Latin America deliberated on key regional and global issues aimed at shaping the current global geopolitical and economic landscapes and existing financial institutions.
Mutual assistance within SCO
The first of the summits was the annual summit of the Shanghai Cooperation Organization (SCO), a multilateral governmental organization founded in 2001 in the eastern China’s Shanghai municipality, hence the name of the city in the official name, and naturally includes China, as well as Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, with Mongolia, India, Pakistan and Iran with observers’ status.
The key newsmakers at the SCO summit were the Russian president, Dmitry Medvedev, who, in his capacity as the host, made a series of public statements covering a broad range of major international issues and old and new initiatives on how to exit the current global economic slump, and also the Chinese president, Hu Jintao, who called on the SCO members to deepen their economic cooperation. To realize this goal, Hu suggested SCO members enhance coordination in macroeconomic and financial policies, expedite the implementation of adopted programs on energy, transportation, and telecommunication networks, actively promote cooperation in new industries, push for more convenient trade and protect an open and free environment for trade and investments.
The Chinese president declared his country’s readiness to continue to support all bilateral and multilateral programs within the bloc, and moved on to back the assurance with concrete actions. “To meet this goal, China would provide a $10bln loans to needing SCO states, and also send high-level trade and investment delegations to the member states to discuss possible joint trade and investment projects.”
Historic BRIC summit
The second summit was the first official meeting of the leaders of Brazil, Russia, China and India — a group of countries with the world’s fast-growing developing economies coined by investment giant Goldman Sachs Group Inc. in 2001 as ‘BRIC’ with the economic and human potentials to surpass most of the current G8 economic powerhouses in terms of contributions to global GDP by 2050. Here, Medvedev, Hu, as well as Brazilian President Luiz Inacio Lula da Silva and Indian Prime Minister Manmohan Singh also discussed vital regional and global issues featuring reformation of the architectural foundation of the current global financial system, lessening global economy’s reliance on the United States, especially on its dollar, as the world’s most important international forex reserves currency.
Indeed, when Goldman Sachs analysts invented this apt acronym, which, apart from depicting the first letters in the names of these countries, also rhymes with the English word ‘brick’ as used in the construction industry, and hence referring to these countries’ huge, but currently latent economic might as the ‘foundation stone’ for the future and more prosperous global economy, little would they have perceived that they were also laying a foundation for the creation of one of the world’s biggest intercontinental multilateral governmental geopolitico-economic alliances in the 21st century.
But this is exactly what has happened, as events of the past years have indicated a strong willingness among the BRIC countries to harness their perceived economic might with their abundance of human and natural resources potentials into an influential geo-political alliance capable of shaping both regional and global issues. As the Russian president noted at the summit, where the BRIC leaders countries issued a declaration calling for the establishment of a new multipolar world order, the BRIC alliance has become a force to be reckoned with — both at the regional and global levels. This claim is not entirely baseless as the member states account for 15% of the global economy, hold almost 40% of the world's international currency reserves and house about half of the world’s current population (see Factbox: BRIC’s overall picture and might in figures). “This was a major historic and outstanding event as it heralded the formation of a new multilateral format for solving major international issues,” Medvedev added.
“We need to do all that is necessary for our countries, home to billions of people on Earth, to play more active roles in global affairs, and therefore, we shall never forgive ourselves if we fail to achieve that goal.”
Boosting the BRIC’s weight in global financial affairs
And, expanding further on his vision of the roles of the BRIC nations on the Russian First Channel TV, Medvedev noted that decisions made in BRIC states, housing half of the world’s population, naturally influence the solutions to other major global issues, including the financial ones (see Factbox: Highlights of key positions of the BRIC states in the global economy). “I constantly reminded my BRIC colleagues at the summit that in the 1930s-40s none of our countries took part in the formation of the current global financial system. Then everything was decided for us, but today, we cannot afford to allow this to happen again, because, our countries, the home to billions of people on Earth, want to play more active roles in global affairs, and therefore, will never forgive us if we fail to meet their aspirations today.”
The Russian president’s view was shared by other BRIC leaders at the summit. Thus, speaking on behalf of his country at the sidelines of the summit, Roberto M. Unger, the Brazilian minister overseeing strategic issues, noted that the BRIC states have started the creation of a new global economic and geopolitical order in Yekaterinburg, while the Indian prime minister, Manmohan Singh, a former finance minister of his country, underscored the huge importance of the BRIC joint declaration on the urgent need to reform the current system of management of global affairs and international financial architecture to reflect the new geopolitical realities. Tsin Gann, the official Chinese Foreign Ministry representative, said the summit had enabled the BRIC states to deepen level of mutual understanding and map out further agenda for future joint actions.
Offloading increasingly ‘toxic’ U.S. assets
It, therefore, was natural the BRIC leaders discussed ways of reforming the current global institutions, investment of their reserves into one another’s bonds markets and increasing the role of the IMF’s Special Drawing Rights, an international reserve currency used by the IMF in its transactions, either as an alternative to and/or supplementary to the U.S. legal tender, currently used as the universal reserve currency, which most experts and politicians, including Medvedev, have blamed for the recurrent economic and financial crises in regional and world economies. It is, indeed, not a secret that the Kremlin is seeking the creation of a new ‘supranational’ reserve currency that would radically lessen the world economy’s lopsided reliance on the U.S. dollar, especially today, when the world fears that Barack Obama’s White House might simply turn to minting policy to finance its rising multitrillion-dollar budget deficit. 
The BRIC countries, indeed, really have objective reasons to be seriously concerned over the prudence of the U.S. fiscal policies and other anticrisis measures that collectively define the stability of its local currency and other government’s assets as they jointly hold over $2.8trln in U.S.-dollar foreign reserves, including treasury bonds. It is not yet clear whether this is a beginning of a more profound negative trend for the U.S. dollar or not, but the fact three of the BRIC nations, namely, China, Russia and Brazil, almost simultaneously offloaded $6.4bln from their U.S.-dollar denominated forex reserves in April ahead of the June summit is a real bad omen for the U.S. economy in general, and the greenback in particular.
For instance, China, which reportedly holds almost $2trln in foreign currency reserves, and the largest foreign holder of the U.S. treasury bills and other U.S. government-guaranteed assets, has reduced its investments in U.S. assets by $4.4bln to $763.5bln. Similarly, Russia, the sixth U.S. Treasury bills largest holder, has reduced its holdings by $1.4bln to $137bln, with the Russian Central Bank Deputy Chairman, Alexei Ulukaeyev, expecting his country to reduce its overall stake by 30% in the near future, while Brazil, the seventh largest holder, also reduced its U.S. bond share by $600mln to $126mln, according to the U.S. Treasury Department. Besides, Russia and Brazil have announced additional plans to buy $20bln of IMF bonds and diversify their U.S. dollar-denominated foreign-currency reserves, while China will purchase $50bln of IMF bonds, with India harboring similar plans. Together, the BRIC countries increased their non-U.S.-denominated international holdings by more than $60bln only in May, with Russia’s Central Bank saying that it plans to offload about $140bln of U.S. bonds to make room for the purchase of more IMF bonds.
All these countries, and especially, China, have expressed deep concerns over the role and reliability of the U.S. dollar to guarantee their assets/bonds in the current economic circumstances. It is widely believed that the lifeline of the U.S. dollar and swift recovery of the economy depends, in parts, on China’s readiness to instantly offload or retain its U.S. dollar-denominated assets. It was, therefore, not surprising that Obama dispatched his Treasury secretary, Timothy Geithner, to Beijing in early June, ahead of the Yekaterinburg summit, to calm the jittery Chinese nerves, fearing a false move by the communist government leadership could totally undermine the budding ‘green shoots’ of recovery in the world’s largest capitalist economy, pushing it deeper into recession.
Global experts share BRIC’s visions
Sharing the Yekaterinburg summiteers’ sentiments, local and international financial experts say the BRIC’s plans to diversify their forex reserves away from the U.S. dollars into other international financial instruments, including the IMF’s bonds, signal their collective aspiration to boost their roles in global economic affairs via leveraging their growing financial clout, rather than their mounting dissatisfaction with the fiscal reliability of the U.S. economy, or a lack of demand for its currency and other government assets.
“The first BRIC states leaders’ summit was really a major historic and outstanding event as it heralded the formation of a new multilateral format for solving major international issues.”
Nouriel Roubini — the founder and CEO, Roubini Global Economics LLC, who also doubles as a New York University economics professor that first predicted the current financial crisis — shares the BRIC aspirations, saying the U.S. dollar’s status as the world’s sole reserve currency would surely deteriorate with time. “This is because we may see [new] complementary reserve currencies, but whilst this will not happen overnight, such development will, however, eventually diminish the role of the U.S. dollar over time.” Airing the same view, Alberto Ramos, an economist at Goldman Sachs, noted in a statement carried by the Bloomberg news agency, that the BRIC nations, by theses actions, are saying that they are a part of the ‘big’ global economic leagues. “They are not buying the IMF bonds just to diversify their reserves, but to increase their voices on global market affairs.”
And, going by the tone of the summiteers’ joint declaration, it seems the BRIC leaders have, indeed, laid a solid foundation for the achievement of these and other objectives in the Russian Urals city last month. The BRIC leaders agreed to continue the work strengthening the budding alliance, which was started at the Yekaterinburg summit, in Brazil in 2010.
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