Are other MIEs potential growth locomotives?

Was there a contradiction when on June 16, 2009, in Yekaterinburg, PM Manmohan Singh said that the Bric must cooperate to accelerate overall growth while others have recently been stressing that other middle-income economies (MIEs) are also potential growth locomotives? MIEs have also been cited as having the potential for tutoring others on trade liberalisation (a la Doha).

So where exactly do the Bric economies stand?and how far does it matter that they too belong to the MIE grouping? Clearly, an appreciation of the catalysing influence of Bric versus others is a must, and it must be essayed against a deeper assessment of MIEs. Meanwhile, it helps to keep in mind that all four Bric economies also belong to the MIE grouping. So, just how are they structured and how do they function?

They number 95 and are divided between lower- and upper- MIEs?with China and India falling within the lower lot (GNI per capita $936-3,705), while Brazil and the Russian Federation belong to the latter ($3,706-11,455). Clearly, there is no Bric-vs-MIE contradiction since the Bric belong to the larger class of MIEs. But, to assert that the MIEs as a whole can energise wider growth is like saying that they are all fit to undertake that task. But, are they?

Not really, since they are a heterogeneous collective: there are many monoculture commodity exporters, many others are unviably small (island or land-locked), whilst quite a number are paralysed by political flux. Obviously they cannot all play leadership roles to galavanise the economies of the rest.

The point being made is best illustrated by lower-MIEs as defined by the World Bank. There are 54 of them and it is, for instance, not immediately obvious that Albania, Angola, Bhutan, Djibouti, Kiribati, Sudan and Vanuatu are dependable candidates for playing the role of economic engines. Not, at least, vis-?-vis larger, more diversified, economies?or even peers.

As for the commodity exporters amongst them, they might have to live with price volatility and uncertain demand for services (tourism, off-shore finance), while fuzzy politics, bad governance or territory-grabbing neighbours drain out national treasuries, rule out imports, choke-off exports and put economies out of bounds for private dealings.

Likewise, it would also be futile to expect locomotive-like growth bailouts even from the better-off upper-MIEs. That is partly because the group mostly includes small economies like Belize, Cuba, Montenegro, Palau or St Lucia. And although the value of 2008 imports of certain large MIEs like Bulgaria, Romania and Uruguay has been almost twice that of exports, their foreign borrowings that year stood at very nearly twice their exports. They are at best uncertain bets in the matter of imparting an impetus to others.

Meanwhile, the other large economies within the upper-MIE grouping are Argentina, Botswana, Bulgaria, Mexico, Malaysia, Poland, Romania, South Africa, Turkey and Venezuela ?plus, of course, Brazil and Russia. They are mostly regionally focused and have few specific global interests (except, of course, for Brazil which has China as its biggest buyer of iron ore.) Few appear likely to meet?let alone fulfill?the expectation of acting like a motive force for the remaining world economies.

But there is more. Last year, the IFC?s Independent Evaluation Group (IEG) had brought out IFC?s experience and additionality in Middle Income Countries?a report which had observed that there are still significant ?weaknesses in banking capacity, non-banking financial services, infrastructure provision, as well as corporate governance and environmental and social sustainability.?

The IEG then went on to note that the sheer lack of institutions very often meant that even available external funds could be neither accessed nor utilised?either for equity investment or local, long-term, use. A reading of the study reveals that institutional weaknesses were also a major factor in the Asian region?s weak recovery after the financial crises of 1997 and 2003.

Yet, it is interesting to compare that official position (of a multilateral financial institution) with an assessment of the same region by Goldman Sachs. That positively exhorts investors to increase their exposure to Asian markets for debt and equity while diversifying away from Latin America! It also quotes official American estimates which say that, by 2015, Hong Kong, South Korea, Singapore, China and India would be amongst the world?s most influential economies.

That pole of attraction could also spell the reason why quite a number of other current (or potential) high-flying economies seem all set to join either the Bric grouping, or form another one that will have one or more Bric members.

Bric would be one such grouping. It would be the result of the adhesion of Indonesia to the current grouping. Brick could be another?the last initial being South Korea?s. There is also the possibility of Mexico?s entry, and a change of name to Brimc.

And the two final possibilities which have been mooted include Brica (where ?A? stands for the Gulf Cooperation Council?s Arab economies) and Bricet (or, Bric plus the economies of East Europe and Turkey.) All told there could be 16 fresh entrants?to either the Bric, or to a sibling union that would have one or more Bric member states.

That implies it is best to assess growth prospects?not by current (or even extrapolated) income levels, but by consistent performance and credible promise.

It is just as important to stand back, reassess and redeploy. And that must have been the credo that, in 2005, had led Goldman Sachs to gauge that there inhered much promise (of running with the growth baton) in 11 other economies, the so-called N-11.

But although the N-11 were expected to be a part of the next wave of growth stories, they nowhere near possessed either the size, or growth rates, of the Bric economies. Nor, in fact, were they all culled from the MIE grouping. Those made up only six: Indonesia, Iran, Philippines, Brazil, Mexico and Turkey. But the five remaining ones were Bangladesh, Nigeria, Pakistan, Vietnam and South Korea.

Clearly, then, it is not so much the Bric or MIEs that will get to decide the fate of recovery and growth, but a particular country?s willingness and ability to spread quality education, augment human capital, innovate, embody technology, minimise corruption, implement the rule of law, accelerate savings (and investment) and compete?within the domestic economy, as well as internationally, through trade. Sound macro-economic practice is another much-needed pillar of the system.

After all, the US has been the only post-War economy that has been able to act as a locomotive for all while it itself ran up deficits. It was able to do so for 60 years. But now even the US has had to confront a nasty reality check. As for others, the denouement would arrive much sooner.

The author is a fellow at the Maulana Abul Kalam Azad Institute of Asian Studies, Kolkata. These are his personal views