James O'Neill is the former chief economist of the investment bank Goldman Sachs, who left in the first quarter of 2013. It was he who coined the definition Bric in 2001, an acronym for Brazil, Russia, India and China. Today, in ainterview in Le Monde, explains the impact that the Federal Reserve's new monetary policy could have on these countries.
“I experienced the bond crisis of 1994, the most serious since that of 1982 – remembers O'Neill – just as I began to work in the world of finance. That year, several countries suffered far more than their economic fundamentals let on. This was mainly because the cost of investing in these markets had risen due to falling interest rates in the United States. Today, if the Fed cuts liquidity, there will be effects everywhere, particularly in states with current account deficits, such as India and Brazil. Unsurprisingly, New Delhi has deteriorated last year. The balance of payments is threatened by large public debt. India needs major reforms. In comparison, the Brazilian situation is less disturbing.”
Meanwhile the world changes, for the umpteenth time. China is growing, Brazil and India are slowing down, while the United States, Japan and Europe are starting to pick up again.
“Most Emerging is slowing down, it's true – O'Neill clarifies – but I don't think a new change of course is underway. If we take China, it isn't slowing down simply because the government is focused on the quality of growth, not the quantity. In reality, many people have not understood the extent to which the world has changed. If Beijing grows "only" by 7,5% a year, it still means an additional wealth of one trillion dollars. To find the same figure in the United States would require annual growth of 3,5%. This year, the contribution of emerging economies to global GDP will be even higher than that of industrialized countries, albeit at a slower pace than in the last two years."
The fact is that, in the collective imagination, by now, emerging countries should grow ever more rapidly, regardless of the circumstances. “But whoever thought this – objects O'Neill – is wrong. In the last decade, the BRICS (the additional S stands for South Africa) have grown more than in the previous one. Yet I never thought this growth would be permanent. In the end, the only country that grew as much as I hoped was Brazil. And over the next 10 years, the countries that will improve their performance will be the Philippines, Indonesia and many others in Africa, especially Nigeria.”
In between, there is always the decision of the Fed. If now the capitals flee from the Emerging Countries and return to other, safer shores, how will these Countries maintain growth?
“If you take into consideration – replies O'Neill – the BRICs, plus Indonesia, Turkey, Mexico and South Korea, you will see that these states have public debt levels well below those of the eurozone members, with the notable exception of India. It will seem strange, but those countries have figures more similar to those of Switzerland. They don't have debt problems, but they suffer from vulnerability to the US dollar. This is what needs to change. Some, such as India, Indonesia, Turkey and, to a lesser extent, Brazil, have current account deficits, but compared to 1997, when the emergence began, the situation is much more robust. And, as far as Russia is concerned, I see no signs of a crisis.”
Now everyone is starting to talk about the end of the Bric miracle. But, according to O'Neill, the reality is quite different: “I don't think China and Brazil are on the verge of crisis. The first three years of the last decade, the Brazilian growth rate was the same as today. But this has not prevented the country from emerging. People forget that every nation has its own economic cycle.”
