International economics: A few brics short of a load?

Experts question whether Brazil, Russia, India and China merit supergroup status.

As acronyms go, it even sounds solid: BRIC. Yet back in 2001, when investment bank Goldman Sachs hit upon the idea of lumping four of the world’s most-dynamic developing economies — Brazil, Russia, India and China — into a single bloc, only its most ardent boosters would have expected the concept to catch on like it has. Today, BRIC funds are an investment mainstay, with money managers targeting the BRIC countries as the nexus of a new economic and political power centre. What’s more, the countries themselves are now acting like a partnership. This summer, the quartet held its first formal gathering of leaders in Russia. With the world financial crisis seemingly signalling an end to America’s dominance, the prospects for their eventual pre-eminence seem bright.

Or do they? Amid the BRIC’s ascendancy, there’s a growing debate among investment experts as to whether the current club best represents the shifting tides of global power or is more a product of Wall Street hype.

The most ill-fitting member: Russia. Influential research firm Euromonitor International made the case for its expulsion in September, arguing the once mighty bear is too old and too specialized. The BRIC’s worst economic performer thus far in 2009, Russia is overly reliant on energy, has a declining and aging population with Third World mortality rates and an authoritarian government too willing to intervene in its economy to the detriment of investors.

Even “Dr. Doom” himself, New York University economist Nouriel Roubini, has picked up the theme, arguing that the downturn has exposed Russia as a high-growth imposter with “highly leveraged banks and corporations” and “rust-belt infrastructure” plus “dysfunctional and revanchist politics and a demographic trend in near-terminal decline.” Roubini maintains there’s a better case to include South Korea, Turkey and Indonesia.

Indonesia has the advantage of easy acronym acceptance (BRIIC or BIIC) and some compelling positives — at least on paper. The world’s most populous Muslim country and third-largest democracy with 238 million people, it has a per capita income more than double India’s, a 90% adult literacy rate and is energy independent. “It is weathering the current global slump remarkably well: with GDP growth expected to be around 3% this year and 4% in 2010,” noted ING Investment Management in a summer report. The downside: high foreign debt, “excessive” currency volatility and meagre foreign-exchange reserves. Oh, and a history of Third World–class corruption.

Another outlier is Mexico. BRIC creator Goldman Sachs argued in its BRICs and Beyond 2007 paper that it may have erred by excluding it from the original mix. “Certainly, Mexico, the four BRIC countries and Korea” are “a critical part of the modern globalized economy, and they are just as central to its functioning as the current G7 is,” it wrote.

The BRIC still has its backers, however. Mark Mobius, president of Templeton Emerging Markets Fund and lead manager of its BRIC mutual funds, points to its members size and substance. “First of all, you have the two most populous countries in the world, China and India. Then you have the two countries with huge land masses and probably more resources than any of the others in Russia and Brazil.”

By comparison, says Mobius, Indonesia is resource poor, while South Korea lacks both resources and population. “If you go through the list of other countries, none of them really qualify,” he says. As for the limping Russian bear, he points to government efforts to halt its population decline as well as resource diversification into natural gas and minerals, and a growing consumer sector. “The BRIC concept makes a lot of sense,” says Mobius. “Most importantly it is an easy concept for investors to understand.”