Emerging markets must be heard

Editor's Note: Ahead of the Group of 20 summit of the world's largest economies in Russia, the International Monetary Fund noted that developing countries have been hardest hit in the past few months by the US central bank's warning that it will soon taper its massive bond-buying program that poured cash into the economy to stimulate it. The subsequent slowdown in emerging markets, particularly Brazil, China and India, could hold back global economic growth, the IMF warned. What risks lie ahead and how can the BRICS nations coordinate efforts to deal with the potential impact? China Daily interviewed four economists for their views.

The questions:

1 Concerns have risen as the US Federal Reserve plans to start tapering its $85-billion-a-month program of quantitative easing. What kind of risks would that bring to emerging markets, especially the BRICS nations? 2 In what aspects do you think the BRICS members and other emerging countries need to cooperate to deal with the impact and fluctuations the US QE exit will bring to the international financial market?

2 In what aspects do you think the BRICS members and other emerging countries need to cooperate to deal with the impact and fluctuations the US QE exit will bring to the international financial market?

3 How can the G20 nations find an appropriate mechanism and solution for capital markets' healthy development on global and national levels, instead of just turning the summit meeting into a talking shop?

The answers:

Zhang Qi, deputy director-general of the Foreign Economic Relations Research Department at the Development Research Center under the State CouncIl

1 The long-term quantitative easing measures adopted by some developed economies after the financial crisis have led to a continuous increase in global liquidity. As a result, emerging countries have been burdened with spillover costs such as asset bubbles and imported inflation. Currency depreciation in several countries such as India has weakened their international competitive edge while other countries such as Brazil have failed to resolve their own problems by shedding the adverse impacts onto emerging countries.

Since the United States Federal Reserve indicated in June that it may start tapering its quantitative easing measures, the international capital market has been saddled with increasing expectations of higher dollar returns. Patterns in global capital flows have been altered and large amounts of cross-border capital flows have been flooding back to the US. Emerging economies, including Brazil, India and South Africa, have suffered from currency depreciation, slumps in their stock markets and drops in market value since the capital withdrawal.

The US has yet to decide a specific timetable for its QE exit, but a long wait will bring volatility in commodity prices. A long drawn-out capital withdrawal will bring more fluctuations to the capital market in emerging economies, which have already suffered from economic slowdowns. Emerging economies have been the major driving forces of post-crisis economic growth and any slowdown in growth for these nations will bring further uncertainties to a global economic recovery.

2 To deal with fluctuations in the international capital market, the BRICS countries need to strengthen cooperation effectively. First, measures to create a foreign currency reserve fund should be adopted to ease liquidity pressures and lower financial risks. Second, countries need to call for stricter supervision from international organizations such as the International Monetary Fund on monetary policies, such as QE measures. Third, emerging economies need to strengthen cooperation to buffer any adverse impacts blocking economic growth.

3 The existing risks have shown the importance for countries to join hands in coordinating their macroeconomic policies. Since the launch of the G20 summit, its agenda has become broader and more fragmented, and sometimes countries have no clear, common goal. That has affected efforts by member countries to coordinate their macroeconomic policies.

Emerging economies have attracted more attention with their growth, but they still have little say in global management reforms as compared to developed economies. One reason is that developed economies or host countries are the chief designers of summit agendas. Emerging economies have a limited say. It is important to create a mechanism that allows all member countries to participate in shaping the agendas, to make agendas more reasonable and representative, to further strengthen communications among countries and promote the effectiveness of the G20 mechanism.

Dan Steinbock, research director of International Business at the India, China and America Institute

1 Whether the next US Federal Reserve leader will be current vice-chairwoman Janet Yellen, former treasury secretary Larry Summers or somebody else, the simple reality is that moving too fast or too slow could severely disrupt the lingering recovery in the US. Consequently, the Fed will opt for gradual unwinding. Nonetheless, the economically more vulnerable BRICS nations are not immune to adverse impacts.

In the short-term, the volatile "hot money" flows into BRICS have declined. India's growth potential has been downgraded. Brazil struggles to sustain its growth trajectory. In Russia, growth forecasts have been reduced. Similar challenges have been seen in Turkey, Mexico, Indonesia and other large emerging economies.

As they say, "easy come, easy go". When foreign investment is driven by opportunism, emerging economies must remain cautious. They need patient foreign investment rather than fickle hot money. Also, it seems that current markets are a bit too pessimistic about some BRICS nations and too optimistic about the G7 club, particularly Europe and Japan.

2 In the late 1990s, the rapid recovery after the Asian financial crisis was based on export-led growth. Today, there are fewer opportunities. It is important that BRICS can deter efforts at protectionism and sustain international trade and investment in a very challenging economic environment.

It is also vital that the BRICS nations work together to accelerate institutional reforms in international multilateral and financial organizations. The International Monetary Fund, World Bank and World Trade Organization are still led by the postwar victorious nations 70 years after the end of World War II. As a result, the playing field is not even in international economy, finance, trade and investment.

The BRICS nations should not wait for substantial change that is not likely to happen. Rather, they could move ahead on their own. Despite challenges, a BRICS development bank would be one way to at least focus attention, energy and financial support to issues that matter more to emerging and developing economies.

3 For half a decade now, major advanced economies have engaged in different kinds of quantitative easing. That era will end in the fall as the US Fed will first gradually reduce its purchases of US debt and, by the mid-2010s, hopes to begin raising rates. Over time, Europe and Japan hope to follow in its footsteps.

Until recently, the BRICS nations have largely responded to these shifts that have been shaped by the G7. The G7 and BRICS work together within G20, but the two live in different worlds. In the former, per capita income is $30,000 to $50,000 per year. In the emerging nations, it is closer to $5,000 to $15,000 annually. As a result, the BRICS nations have interests of their own within the global framework.

As the era of quantitative easing is changing, it would be vital for BRICS leaders to develop a joint platform in order to shape the global agenda more proactively.