IMF – six things you should know about BRICs
The extent to which BRICs could be the building blocks for lasting growth in Low Income Countries or LICs may still be an open question. But, we took away from the panel discussion six essential factors that will help LICs lay the groundwork to benefit from this important relationship.
- Current LIC-BRIC ties may pose a risk to LICs becoming too reliant on raw materials—a commodity trap—but LICs can also learn from successful BRICs.
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- On one hand, India and China’s competitiveness in manufacturing and their large demand for natural resources may push up the relative price of commodities undermining incentives for LICs to shift into manufacturing.
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- At the same time, Brazil and Russia (as well as advanced economies, such as Australia and Canada) have benefited from natural resources as a lynchpin for growth.
- Boosting manufacturing is central to stimulating growth. Here too there are mixed views as to whether or not BRIC development financing has helped transfer technology and improved labor skills particularly in manufacturing. Greater provision of trade preferences (including beyond commodities) could help ensure that the relationship is mutually beneficial and de-bunk the notion that BRICs are simply “looting” the LICs for their natural resources.
- Concessional financing can provide a good jump start, but commercial financing will be vital to sustained growth. BRIC development financing is complementary to traditional donor support, but can also have important knock-on effects. China’s experience points to two possible advantages: commercially-oriented development financing is less constrained by the size of the flows, and provides incentives for competition, efficiency and permanent interest in ensuring that the project remains viable.
- LICs can learn from the BRICs in how they balance these various challenges. Countries need a coherent strategy for scaling up infrastructureand development that maximizes their growth potential. China, for instance, has had tremendous success in coherent investment planning, constantly reassessing infrastructure gaps and reorienting resources.
- Multilateral institutions and donors can play an important role in complementing the LIC-BRIC relationship, through: analysis and policy advice to support macroeconomic stability and debt sustainability; and capacity building and facilitating improvements in the investment environment to boost LICs’ absorptive capacity.
- Greater transparency of BRIC financing, particularly development financing, is needed. Perhaps the biggest gap is the lack of official data on development financing by China—it would be helpful for China to publish this data.
Source – IMF