Cristina has been on the media warpath against a perceived attack on emerging markets.
This Monday, Cronista republished (in Spanish) an article from the Financial Times titled, “Emerging Markets: Fixing a Broken Model.” The article is long, a bit on the dry side, hardly sensational and difficult to construe as an attack on anyone.
The article does not mention Argentina even one time. Nevertheless, Argentine President Cristina Fernández de Kirchner exploded onto the Twittersphere with close to 100 tweets, shot back with two blog posts and drove her point home at an electoral rally where she somehow connected the BRIC issue with European nations turning away migrants.
I have to preface this by saying that a few years ago, I liked Cristina enough. I disagreed with her, but at least could respond to her policy moves and statements as a professional with reasoning based in economics. In this case, her violently emotional reaction to a newspaper article reads like a crazy person writing a stream of consciousness. You disagree with Cristina or want to suggest she has misread an article? Too bad! You’re a racist who hates the poor and celebrates genocide.
Before attempting to decipher why an economic assessment of emerging market growth happens to grind Cristina’s gears, it’s important to have a bit of context concerning emerging markets and the terms BRIC and BRICS.
BRIC is an acronym for Brazil, Russia, India and China that was coined in 2001 by a Goldman Sachs investment bank paper to describe these big, rapidly growing countries. Over the ’00s, BRICs was used to describe the shift in global economic power away from the historically rich economies to the developing world. Back then, economists debated projections of the future power of the BRIC economies, with estimates ranging from overtaking the G7 economies by the middle of the 2020s to the 2050s. By 2010, the BRIC countries accounted for over 25% of the world’s land area, 40% of the global population and 25% of the world’s gross national income.
In 2009, the BRIC nations semi-formalized and began holding summits annually. South Africa and the big S at the end of the name joined the group in 2010. The group has taken steps to create a IMF-like multilateral development bank called the New Development Bank aimed towards mobilizing resources for infrastructure and sustainable development in BRICS and other emerging and developing countries. All in all, the BRICS as an organization is innocuous and has been well received by the global economic community. Criticism abounds over the leaders of member countries and their track records for human rights abuses and individual foreign policy, but as a multilateral economic organization, they aren’t under attack. I doubt they’re going to extend an invitation to broke Argentina anytime soon, so Cristina will likely not be living the BRICSA dream.
In her article, “Going After the BRICS: It Is Not Economics: It Is Geopolitical, Stupid,” Cristina accuses the authors of omitting South Africa from the BRIC countries because, “who knows, perhaps their problem is the color of the population (?)”. I posit that the omission is likely the result of referring to the BRIC countries, rather than racism. This is not the only outlandish accusation in her posts and tweets.
The FT article raises timely concerns about the importance of emerging markets in the world economy.
Following the financial crisis of 2008 that originated in the US and rippled across the globe, two important things happened:
- The US and Europe started a thing called Quantitative Easing (QE), consisting of loose monetary policy and really low interest rates. This made investors more likely to put money in emerging markets.
- The emerging markets, especially the BRICS, continued to produce, consume and grow, which helped pull the economy out of recession.
There was no “screw you” moment where the more developed nations decided to free ride on emerging markets — it’s just that the global economy is interconnected, so that’s the way it worked out.
The FT article draws attention to changing global conditions and how these conditions are effecting emerging markets in different ways. They highlight two changing conditions massively affecting the playing field:
- As the US and Europe wide down QE, money is flowing back out of emerging markets.
- Commodity prices worldwide have collapsed. This includes oil, metals like copper and iron and grains like soy and corn.
For many emerging markets, this is putting extreme pressure on growth models that relied heavily on one or both of these conditions. This means countries that rely more on industry and manufacturing, like China, Mexico, Sri Lanka, South Korea, India and Taiwan, will have to rebalance but will be ok. Countries that export commodities like Brazil, Russia, Argentina, Venezuela and South Africa have been hit hard. The FT demonstrates this situation with a graph, rather than a slew of nasty tweets:
Global trade was the area where emerging markets provided support to the world economy following the financial crisis. But as GDP growth has slowed and trade has been hit double by low commodity prices, the emerging markets are now providing a downward pull rather than an upward boost to the global economy. Again, graphs instead of belligerent accusations:
What the FT article demonstrates is that the BRICs, BRICS and emerging markets as a whole have grown not only in size but also in global importance, making the world more interconnected than ever. So even though the immediate fallout from shifting global conditions (end of QE, low commodity prices) will be borne first and hardest by the emerging markets, their suffering will become the suffering of the global economy as well. As the authors put it, “Developed and developing world fortunes are so interlinked that the demise of one is sure to bring down the other.”
The article concludes by suggesting ways to avert crisis, including increased fiscal spending by relatively strong economies and investment in new infrastructure backed by multilateral.
Let me be clear: the article does NOT conclude by saying the BRICS are collapsing and taking the world with it. It merely draws attention to a regional crisis that has not finished playing out.
I’d like to end this article by wishing President Fernández de Kirchner would stumble across this article, have a think and make productive suggestions as to how we can work together to make the world economy stronger and more resilient. I’m pretty sure that if she were to stumble across it she’d make sweeping judgements against me based on the pictures in the article, say I have an imperialist hair style and accuse me of supporting genocides against poor babies.
Never thought I’d say it, but I miss writing about Griesa and the vulture funds.