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16 Apr, 2010 07:32

BRIC’s eye national currencies and markets

Leaders of the BRIC countries are studying the use of national currencies in mutual trade. The heads of the world's fastest emerging economies are meeting in Brazil to work out a common vision on post-crisis development.

In an interview with RT, Chief Economist of Deutsche Bank, Yaroslav Lissovolik, gives his view on the future of the common BRIC currency and the steps Russia and the other members have to take to ensure the sustainable growth of their economies.

RT: Russia plans to borrow 17$ billion in euro bonds, is the timing good?

YL: “Yes, I think that the timing is favorable, partly due to the fact that world prices are high, also the current situation is also quite strong, especially when compared to a lot of the other developed and developing countries. And I think also we've seen more recently in the past week or so a reduction in risks associated with concerns about sovereign defaults across the world economy most notably with respect to Greece, so overall I think due to a combination of factors both Russia specific and global, I think the conditions currently are quite favorable.”

RT: What’s the alternative to this Euro bond issue?

YL:  “Well I think in the course of this year, the Russian government has quite a diversified toolkit of financing the budget deficit. Apart from the reserve fund which is the world fund that is used primarily to finance the budget deficit in Russia, there are also privatisation proceeds, and those are likely to increase in the course of this year. There are also proceeds from domestic borrowing that might be increased in the course of this year. There will also be foreign borrowing over and above euro bonds placements including from the world bank. So overall I think there are a lot of options that the Russian government has in the course of this year to finance the budget deficit.”

RT: some analysts believe the government should abandon the planned debt sale to foreign investors in favor of actively tap into the domestic bond market, do you agree?

YL: “Yes, my view is that indeed there should be growing emphasis placed by the Russian authorities on borrowing domestically. This would allow the government to deepen Russia's financial markets, to develop them more intensively. And this would in turn provide the pool of resources that would be available to tap, especially during global downturns that would be very important. But still I I think this euro bond issue is important as well because it marks Russia's return to international capital markets for the first time in more than 10 years and that in turn should serve as an important benchmark for the Russian government, for Russian corporates in their future borrowings abroad.”

RT: Do you think the placement will be a success?

YL: “Yes, I do think it's likely to be successful, I think there's a lot of appetite for Russian assets right now and I think Russia's macro economic situation is quite strong right now, there's a lot of liquidity in international financial markets that has not been forcefully mopped up by governments across the world. So really I think there are enough resources out there, financial resources and enough appetite for Russian assets.”

RT: Avoiding future currency crisis seems to be a hot topic for the BRIC leaders. How can the minimize the impact of a future crisis?

YL: “I think one of the steps here would be greater coordination in terms of anti-crisis measures, I think another step would be towards boosting the roles of their own currencies and reducing the exposure and the vulnerabilities associated with the dependence on dollar, for example in terms of their foreign trade or in terms of their reserves. So I think those would be the main measures that these countries would have to undertake.”

RT: Are BRIC leaders still talking about a new reserve currency?

YL: “Yes, there will be discussions on the part of the BRIC countries to come up with alternatives to the dollar. In the short or medium term, I think, realistically it will be the national currencies of the BRIC countries themselves that will increasingly be substitutes for the dollar or the euro. Later on in the longer term there may be further measures to come up with perhaps a regional currency or the global currency, these plans are being discussed. But for the time being I think realistically most of the efforts will be centered on boosting the roles of national currencies of BRIC countries.”

RT: The Chinese leader asked for the summit program to be shortened because of the earthquake. Is this a signal the actually son’t have much to talk about – or vice versa, the summit is so important he did not come back home as soon as possible?

YL: “No. well, I think the main reason is really an earthquake in China, and the need of china's leaders to focus on the issues there. So I don't think there's anything specific to the BRIC agenda that led to the shortening of this program.”

RT: How large is the Agenda? Some say that BRIC is just an acronym.

YL: “Well, I think we have to remember that this is one of the the first steps towards shaping this group, this is only the 2nd such meeting. And I think increasingly we'll see that this group is more institutionalized that there are more meetings at different levels of government. So my sense is that there's enough to discuss in the time being in terms of coordinated approaches to dealing with the crisis, in terms of the vision of the new financial architecture for BRIC countries. But again we have to bear in mind that this is just the first stages of a group that is not well institutionalized.”

RT: What role does Russia play in BRIC?

YL: “I think Russia plays a very important role in this grouping. And I think in many respects it is a leader amongst BRIC countries. Specifically I would refer to the fact that Russia is the only BRIC country without capital account restrictions. All other countries of the BRIC group have such restrictions. Russia has open capital account. I think Russia has a lot to bring to the table in terms of its political weight, in terms of issues related to non-proliferation of nuclear weapons, in terms of issues which have to do with security in the political sphere. But also in the economic sphere I think clearly in terms of Russia's reserves, in terms of Russia's increasing role in trade and investment, I think clearly Russia deserves a place in BRIC for sure.”

RT: Goldman Sachs predicted a decade ago that future global economic powers will include Brazil, Russia, India and China. What signs can we see in the BRIC countries that this future is already dawning?

YL: “What we see today is that the share of BRIC countries in world trade in world investment in world GDP is rising. And this will be followed in my view by a V-shaping of the world's financial architecture where these countries will start to play a greater role and international financial institutions including organizations such as the IMF or the World Bank.”

RT: For some, the BRIC countries are limited in their role. When will the BRIC countries be treated as equals?

YL: “I think clearly there is a growing recognition of the greater role that these countries play in world economic affairs. And this we can see in a fact that share of some of these countries such as China for example in the IMF quarters has been increased. I think going forward will depend a lot on the ability of these countries to act in a coordinated way and hence the need for such summits – the need for the leaders of these countries to meet and present a coordinated, unified view and approach to the key issues on the world economic agenda. And I think clearly we are seeing that this is what is exactly is in a process of being developed. So my view is that yes we will see that the weight of these countries will grow in tandem with the role that they play in world economy and world trade.”

RT: What could go wrong? Could the BRIC nations’ progress still be derailed by AIDS, ecological collapse, war or a failure to build proper resources?

YL: “Of course all of the global problems are still very much there. A lot depends on the ability of the world community to engage all of the main actors including BRIC. And I think BRIC countries have a lot to say and to contribute dealing with these key global issues. And in that regard I think what is really important is to bridge the gap between East and West, between South and North, and G20 for example is a perfect venue for this. And again BRIC countries would certainly play important role in that regard. I think Russia as a link between North and South developed world and developing world, is a very important one. Russia is a part of G8, at the same time it's a part of G20, so at some degree it may be considered as a bridge between developed and developing countries. And this is a very important role that Russia could play.”

RT: Will there be competition among the BRIC countries? And which country will rise to the top after the BRICS by 2050?

YL: “I think there of course will be a creative competition among BRIC countries I think such competition is I think beneficial for all of the main actors within this group as long as there is also coordination on key economic issues in the global economy. The since that I have is that Russia stands to play one of the key roles in this group and can well compete with such dynamic economy as China – Russia has tremendous potential in terms of GDP growth and in terms of productivity growth WE are seeing in a policy agenda that there is major focus shaping up right now to modernize Russia's economy. And I think if this effort is carried through Russia could challenge China as one of the local motives of World economic growth.”

RT: What other countries, do you think, deserve to join the BRIC list?

YL: “I think there are several candidates and certainly this list should not be restricted to just these 4 countries. I think you can easily have candidates in Asia such as Korea for example and Latin America potentially you can have Argentina as an economy that also have very significant potential that progressively could play a greater role. Mexico perhaps as well. There are a lot of candidates up there and I think going forward this list of countries that makes the BRIC formations may increase.”