Emerging Markets Flex Collective Muscle At BRICS Summit

India will play host a meeting of increasingly influential emerging market leaders whom some say will define the next generation of global economic growth.

The fourth BRICS Summit, which kicks off Thursday in New Delhi, will see India's President Pratibha Patil welcome leaders from Brazil, Russia, China and South Africa for two days of meetings on trade, investment, food security, technological innovation and renewable-energy cooperation. The event, a diplomatic forum akin to the Group of Eight and G-20 gatherings, is another example of the growing economic and political confidence of so-called emerging markets.

The value of the BRICS economies is expected to overtake that of the United States within three years, according to Jim O'Neill, the man who coined the acronym when he was Goldman Sachs's lead economist in 2001. In the past decade, the five nations have accounted for more than 50 percent of global economic growth, with potentially more to come.

"I think you are going to see real growth in emerging markets as they are the fruits of their hard work and production," said Peter Schiff, who oversees around $1 billion in assets as head of Euro Pacific Capital in Connecticut. "I think you have better prospects for growth and earnings than you do here in the U.S. We've got some serious, serious problems over here."

Two agreements on intra-BRICS trading are expected to be signed at the New Delhi summit in an effort to promote growth in a market already valued at $230 billion and growing at a staggering 28 percent annually.

Discussions will also include formation of a BRICS development bank, modeled on the World Bank, that would prioritize emerging-market projects in infrastructure and other areas, reducing the members' dependence on U.S. and western European institutions for financing.

"The ability of BRICS to make intra-BRICS lending in their own currencies is a sign that they are breaking away from a dollar-denominated system," said Cary Leahey, an economist with Decision Economics. "But it's a glacial change; it's not going to be a big change soon."

Emerging Confidence

The economic confidence of a trading bloc worth more than $4.5 trillion will also be evidenced by suggestions from some -- including India's influential Economic Times newspaper -- that the BRICS abandon talk of shifting away from dollar-denominated trading and instead value goods based on a basket of the five nations' currencies.

"It probably won't have a big, immediate impact upon the role of the U.S. dollar as a reserve currency," said John Praveen, chief investment strategist for Prudential International Investment Advisers, a unit of Prudential Financial Inc. "This is just a first step and it will take a very long time before alternatives are strong enough. It's not just doing the trading and things of that kind. You need deep and liquid financial markets before you can become a rival to the U.S. dollar as a reserve currency."

The implications of such moves, however theoretical at this stage, would be enormous -- especially for the United States. At present, China is the U.S. government's most important lender, as it swaps dollar-denominated trade receipts (which pay no interest) for interest-paying U.S. Treasury securities. At last count, China held about $1.11 trillion in Treasurys.

Critics have long maintained that China's use of U.S. debt securities is a back-door strategy that artificially devalues its own yuan currency, giving China a decided advantage in the export market.

U.S. lawmakers, while stopping short of branding China a currency manipulator, have expressed concern over the advantage and have pressed Beijing to allow the yuan to float freely on the foreign-exchange market.

Brazil's powerful manufacturing lobby has also voiced irritation about the undervalued yuan and Brazilian government delegates at this week's summit are expected to raise the matter with their Chinese counterparts.

Bilateral deals may also be negotiated of the sidelines of the event, at which cooperation on renewable-energy projects will be discussed. Some observers expect news of a possible gas deal between Russia and China that could be worth up to $1 trillion and involve as much as 70 billion cubic feet of natural gas to be piped from Siberia to China each year.

At last year's BRICS summit, in South Africa, seven stock exchanges in the bloc agreed to cross-list their traded securities, creating an intraregional market of more than 9,400 publicly traded companies worth a combined $9 trillion.

That plan will be advanced this week with the launch of a benchmark equity derivatives index shared by the five major BRICS exchanges that can be bought in the local currencies of each investor nation.

Increasing Influence

The BRICS countries also have had an increasing influence in geopolitics of late, most notably in President Barak Obama's appointment of South Korean native Jim Yong Kim to be the next president of the World Bank.

The post, traditionally held by an American, will be next held by the Dartmouth College president, a U.S. immigrant, after BRIC leaders pushed for an end to the tradition of having Washington select the World Bank's head.

China and other BRICS members have also played a role in Europe's ongoing sovereign-debt crisis, but they're unlikely to take a high-profile stance on euro zone bailouts, fearing this could ignite anger within their own countries.

"We don't expect much emphasis to be put on bailing out indebted countries like Greece," said Victoria Lai, an economist with the Economist Intelligence Unit. "Wen Jiabao, [China's' premier, has made general comments on 'getting more deeply involved' in helping with the European debt crisis, but little concrete action has been seen."

In pure political terms, however, the BRICS have failed to convert their collective sway to the level of U.S. or European prominence. Current tensions in Iran, the escalating violence in Syria and a potential showdown over nuclear weapons with North Korea are issues on which the BRICS could undoubtedly take the lead, and these will be discussed during the two-day summit in India.

Many have said the BRICS countries must do more to address such matters if they're to contribute to the political stability that engenders global economic growth.

The BRICS "have benefited enormously from an international order that has an open economic system that allows them to trade with the United States and with other powers and they don't have to spend a lot of money on their defense," argued Robert Kagan of the Brookings Institution, a think tank in Washington.