From BRICs to PIGS: what’s in a name?

by | Dec 6, 2010 | Economics and development, Global system

First there was BRICs. Then came CIVETS. Then we were presented with BASIC, CRIM, BRICK, CEMENT, BEM, N11 and the 7% Club. Now barely a week goes by before someone tries to float another ‘useful’ investment acronym.

Behind the dense forest of exotic acronyms is a simple fact: the catch-all classification ‘emerging markets’ has lost much of its usefulness. It was invented in the 1980s, by World Bank economist Antoine van Agtmael, to replace the now-defunct acronym LEDCs (or ‘less economically developed countries’) by which the West had until then blithely referred to the rest of the world. The term ‘emerging markets’ served as a useful way to refer to fast-growing although crisis-prone markets like Russia, China and Mexico.

Within the term ‘emerging markets’ was quite a 1980s-assumption: these markets would follow the development route laid down by ‘developed’ economies, until they arrived in the neo-liberal end point reached by the US, the UK and other western countries. And the phrase also came to have strong associations with the currency and debt crises of the 1980s and 1990s.

But things have changed. The bigger emerging market countries have now overtaken the weaker developed markets, not just in total GDP, but also in the pricing they pay on their sovereign debt. Emerging market countries like China and Russia have accumulated trillions of dollars in foreign exchange reserves, and are now the main creditors of western sovereigns. In the 1980s, emerging markets depended on the west for capital inflows. Now the situation is reversed, and the US and EU depend on China to buy their sovereign debt.

It was partly to recognize this shift in economic power to emerging markets that Goldman Sachs economist Jim O’Neill introduced the now-famous acronym BRICs (Brazil, Russia, India and China) in 2001. It was a runaway success. A decade on, and MSCI has launched a BRIC index, there are several BRIC-focused funds, BRIC-focused blogs, BRIC conferences, and the leaders of the BRIC countries even held their own BRIC summit in 2009. 

However, the success of the acronym, and the increase in capital flows to BRIC markets that followed, quickly led to questions and criticisms of the BRIC tag. In 2008, for example, when Russia’s economy slid into recession following the war with Georgia and the Credit Crunch, some analysts suggested Russia should be dropped from the grouping. This suggestion was sufficiently alarming to Russia that it organized not one but two BRIC summits in Russia in 2009. . (more…)

Incitement to Murder

by | Dec 4, 2010 | South Asia

This is not about religion.

Aasia Bibi, sentenced to hang for blasphemy after an argument with her neighbours, may be Christian, but she is also poor and a woman:

The complainant was a local clergyman Qari Mohammad Salam. He was neither present at the place of occurrence nor personally heard the blasphemous words allegedly uttered by Aasia Bibi. Muslim women who worked with Aasia Bibi in the falsa fruit fields of a local landlord informed him on June 19, 2009 that on June 14, Aasia uttered blasphemous remarks about the Prophet (PBUH) and the Quran.

The two sisters admitted in evidence that a quarrel took place regarding drinking water that Aasia brought, which was declared as ‘unclean’ and they refused to drink it. The complainant stated that she confessed her guilt before a religiously charged mob.

Now another powerful man has brazenly, and without seemingly any fear of legal sanction, offered money to anyone prepared to kill Aasia.

According to this morning’s print version of the Express Tribune, Maulana Yousaf Qureshi, a prominent cleric who also solicited the murder of the Danish cartoonists, has offered Rs500,000, around $6000, for Aasia to be killed:

We expect her to be hanged and if she is not hanged then we will ask the mujahideen and the Taliban to kill her.

So a peasant woman risks the death penalty for something she may or may not have said, but an influential man is able to commit flagrant crimes and have them spread across the newspapers, and fears not even the slightest penalty.

ECB stands firm (sort of)

by | Dec 3, 2010 | Economics and development

The ECB yesterday slightly increased its bond purchasing programme, but did not push the nuclear button and announce some huge new programme of QE or bank re-capitalizations, as some in the bond markets were screaming for.

The editor of Euroweek, one of the finance mags I write for, reckons the ECB played it well:

There has been no shortage of thundering demands from bankers and investors for a vast wave of quantitative easing from the European Central Bank. Speaking to people in the market this week has at times felt like hosting the sort of talk radio show that attracts prophet of doom taxi drivers and the more outspoken members of the National Rifle Association. Amid the talk of meltdown and default, immediate “shock and awe” spending by the ECB was prescribed as the only thing that could save the world from a terrible peril.

The response from the ECB was predictably less aggressive, more nuanced and, for now, more appropriate. Trichet is not a politician: he does not do shock and awe, he never has and nor should any central banker. Central banks are there to keep things stable and boring. Further, this would be the wrong time to let slip the dogs of QE war. Yields on peripheral sovereign debt have made back some or all of the ground lost earlier in the week. A lot of firms are about to shut their books for the year. Borrowers do not have a whole lot more borrowing to do, if any at all.

So why, pending any reckless statements from a European politician, with volumes about to lighten, would the ECB worry about doing anything before Christmas? Next year is sure to provide plenty of problems. Now is not the moment to go nuclear.

I agree. I’ve noticed this pattern over the last decade, whenever financial crises occur: the markets shriek ever louder that governments ABSOLUTELY MUST come to the rescue or ALL HELL will break loose. This generates such a general sense of panic and catastrophe that terrified politicians cave in and open the tax purses, and then bankers get bailed out, close their positions, and hail a cab to the gentlemen’s club for whiskies and cigars.

Private banks are, really, the perfect parasite: if you look at financial news, almost all the ‘expert opinions’ come from bankers, from bank economists, from bank analysts, from bank traders. There are hardly any alternate views given in the media. The taxpayer doesn’t really have a representative to put forward our views on CNBC. So the financial sector has captured information transmission, and it makes sure the only message that gets through is: it is imperative that the market gets supported and the banks and boldholders get bailed out. The perfect parasite.

So has the ECB stood firm against the histrionic Gillian McKeith-esque fainting of the bond markets? Well…sort of. It also emerged this week that the Irish government will protect all senior bank bondholders from any hair cut in the restructuring of Anglo Irish Bank, and probably of other bailed out banks too. This taxpayer largesse towards senior bank bondholders came at the insistence of the ECB, according to the Irish government. And that pattern is likely to be followed in other bank bail-out regimes across the periphery of Europe.

So don’t worry, oh hysterical bondholders. The gallant ECB will hold your hand after all. Quick, fetch the smelling salts!