Emerging no moreThe 2016 Summer Olympic Games have kicked off in Rio de Janeiro with more than 10,000 athletes from 207 countries. Brazil is hosting the first summer Olympic Games in Latin America to underscore its position as the world’s 9th biggest economy, with 2015’s gross domestic product hitting $1.8 trillion.
Brazil is a one of the four major emerging economies — the BRIC countries — along with Russia, India and China. 40 percent of the world’s population — 2.9 billion people — live in these countries. They account for more than 30 percent of global output in terms of purchasing power. When you add South Africa, BRIC becomes BRICS.
The emerging economy category capitalized on the wave of globalization, rapidly expanding trade and investment. Their role became bigger when the developed economies of the United States and Europe struggled following the 2008 financial meltdown. The Group of Seven was widened into the G-20 to include the BRICS as well as South Korea, Australia and Turkey to reflect the voice of emerging economies and form a new international economic order.
But the emerging economies began to sink from 2012. Brazil and Russia went into tailspins. Their economies contracted by nearly 4 percent last year. Inflation hit 9 percent in Brazil and 16 percent in Russia. China’s growth slowed to 6.9 percent from double-digit growth. Export-driven economies were hurt by prolonged sluggishness in developed economies.
Leading commodity exporters like Brazil and Russia took direct hits from the plunge in raw material prices. The expansive quantitative easing programs and ultra-low interest rate policies of central banks in developed economies aggravated volatilities in international capital and currency markets, taking the biggest toll on emerging economies, including Turkey, Brazil, India, South Africa and Indonesia.
Internal social and political strife also complicated problems. Brazilian elite have been implicated in corruption scandals, and the Rio Olympics could not be opened by the head of the state because Brazil’s president Dilma Rousseff has been suspended from office to await trial on impeachment charges. India is struggling with a snowballing fiscal deficit with little sign of progress in its land and labor reforms. China needs to address its alarming corporate debt level and is slow in reforming its state enterprises and financial sector.
Russia needs to reduce its reliance on gas exports, but does not know how to restructure its volatile economy.
Many emerging economies heavily regulate the corporate sector and their governments do a poor job of refereeing conflicts among various interest groups.
Trade frictions are becoming common between emerging and developed economies, and political and military tensions have escalated. Russia invaded Ukraine to forcibly annex Crimea. China is almost at war with neighboring countries due to its claim over islets and waters of the South China Sea. The Middle East remains a conflict zone due to wars in Libya and Syria.
The leaders of China and Russia — Xi Jinping and Vladimir Putin — wield despotic authority based on huge popularity. Extreme nationalists are gaining ground in the United States, Europe and Japan. Global powers have turned inwards.
The G-20 is in disarray without clear leadership. International conflicts and disputes have added to the insecurity of the global economy. Emerging economies are in danger of becoming casualties.
South Korea leads the emerging economy pack. Its economy has maintained the steadiest growth in the world over the last four decades. It is the world’s 11th largest economy and fifth biggest exporter. Its per capita GDP is at $27,000. The incomes of China, Brazil and Russia have not yet approached $10,000. Indians earn $1,600 on a per capita basis. Koreans have achieved much with a small population and few resources.
But Korea is shaky, especially on the economic and security fronts. Its export-fueled economy has been weakened due to poor global demand. Monetary easing and fiscal expansion have failed to bolster the economy. The economy has turned fragile due to ballooning private-sector debt, over-reliance on external trade and the fast aging of the population.
Apart from hosting the G-20 summit in 2010, Korea has not achieved much on the international level. It has not been keeping up ties with global powers. Inter-Korean relations are in deadlock. It recently lost a vice-president seat at the China-led Asia Infrastructure Investment Bank.
Many worry that Korea could be headed for the same prolonged lethargy as Japan. We stunned the world with our strength in the midst of hardship. But our potentials is weakening. Political leaders and the people must become one to strengthen our economy as hard as our national athletes train for the Olympics.
Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, August 8, Page 31
*The author, a former chief economist at the Asia Development Bank, is a professor of economics at Korea University.