BRIC countries plan coordinated measures to tackle slowdown

The Business Times
November 10, 2008
BRIC countries plan coordinated measures to tackle slowdown
They will increase bilateral trade and capital flows

(SAO PAULO) Finance ministers from emerging economies said that they would take new measures to tackle the global economic slowdown.

Brazil, Russia, India and China, the so-called BRIC nations, plan coordinated measures to increase trade and capital flows between their economies, Russian Finance Minister Alexei Kudrin said in an interview.

The ministers are meeting here amid evidence that the financial crisis which is pushing the industrialised economies into recession is dragging down growth in Asia and Latin America.

'We are closely watching the development of the financial crisis and the situation regarding global activity,' Zhou Xiaochuan, governor of the People's Bank of China, said on Saturday. 'If China can maintain domestic demand, it's helpful for global stability.'

India, Russia and Brazil have already injected funds into commercial banks and South Korea last week unveiled a 14 trillion won (S$15.4 billion) fiscal stimulus plan.

'This is a global crisis and demands global solutions,' Brazilian President Luiz Inacio Lula da Silva told delegates. 'The participation of the developing world is essential.'

Mexican Deputy Finance Minister Alejandro Werner said that slower economic growth and lower food and commodity prices justify cutting interest rates.

Finance ministers and central bankers from the G-20 are meeting in Sao Paulo to lay the groundwork for a Nov 15 heads of state summit in Washington. The meeting concluded yesterday.

'Finance ministers of BRIC countries have worked out measures for the near future,' Mr Kudrin said on Saturday. 'We have agreed that we can jointly increase trade and capital flows. The major thing is that we are prepared to coordinate.'

The International Monetary Fund (IMF) is forecasting that the UK, Japan and the euro region economies will all contract next year, their first simultaneous recessions since World War II. With slower growth damping inflationary pressures, central banks are likely to cut borrowing costs further, Canadian Finance Minister Jim Flaherty said.

'There are ongoing conversations about who plans to do what when' on interest rates, Mr Flaherty said. 'I expect that these discussions will lead to some degree of coordinated action.'

Canada's central bank joined the Fed, the European Central Bank and the Bank of England in an unprecedented coordinated interest rate cut on Oct 8 after the collapse of Lehman Brothers Holdings Inc sent credit markets into seizure. The Reserve Bank of India on Nov 1 lowered its main interest rate for the second time in two weeks while China cut its key interest rate for the third time in two months on Oct 29.

Calls from the IMF and UK Prime Minister Gordon Brown for coordinated fiscal stimulus will probably fail to win backing from the group because some countries are concerned about increasing public spending, Mr Flaherty said.

'Ideally that would be so - it's just not likely to happen,' Mr Flaherty said. 'Some countries feel that they are more constrained than others.'

China's willingness to stimulate its economy may play an important role in supporting world growth, Mr Flaherty added. China's economy grew at the slowest pace in five years in the three months through September as export orders shrank and industrial production waned.

'Chinese authorities talked about having a strong fiscal expansion,' World Bank president Robert Zoellick said in a briefing on Saturday. 'China is in a very good position.'

Companies from Paris to Mexico City are feeling the heat as credit dries up. PSA Peugeot Citroen is cutting staff in China; Mexican homebuilder Consorcio Ara SAB's middle-class clients are struggling to raise home loans; and Brazilian aircraft maker, Empresa Brasileira de Aeronautica SA, slashed its 2009 forecast for deliveries by a quarter.

'Clearly, a lower interest rate would be very favourable to stimulate aggregate demand and to lessen the impact of the international crisis,' said Mexico's Mr Werner, a former central bank economist. -- Bloomberg