China to dictate tough terms on BRICS rescue fund
China to dictate tough terms on BRICS rescue fund
"Currency intervention would not be a good use of money," said Daokui Li, a member of the Communist Party's upper chamber (CPPPC) and a key economic strategist.
"China will only act together with the International Monetary Fund, which has the ability to impose strict conditions," he told the Daily Telegraph.
The comments came as Russian president Vladimir Putin launched the $100bn fund at the G20, gathering for a symbolic photo of the five BRICS leaders from Brazil, Russia, India, China and South Africa in the grounds of the Constantine Palace in St Petersburg. "The initiative to establish a BRICS currency reserve pool is at its final stage," said Mr Putin.
The launch came on the same day that official data showed Russia fell into recession in the first half of the year. The relapse came despite high oil prices, and exposes the deep structural flaws in the Russian economy.
There has been intense talk among analysts that the BRICS states would use the fund to counter any speculative attack on those emerging market currencies now in the eye of storm, acting together with overwhelming force to quell panic and stop capital flight.
Between them, emerging markets hold $8.7 trillion in foreign reserves, giving them ample firepower to halt capital flight as the US Federal Reserve prepares to wind down stimulus and drain global liquidity.
However, Mr Li made it clear China will use any aid to gain trade leverage. "It would not be appropriate to use money without conditions, and some of the money would be used in the form of Chinese renminbi so that businesses in India and other countries can buy Chinese products," he said.
Mr Li said said China will not undertake an open-ended responsibility for countries deemed to have failed to live within their means, and seemed to question whether the BRICS have much in common.
"Emerging markets have split into two groups. There are those that lack good foreign exchange buffers, or have trade and budget deficits. India, Brazil and Turkey will all run into some kind of trouble," he said, speaking at the Ambrosetti forum of policy-makers on Lake Como.
Mr Li said the crisis was unlikely to be as severe as the Asian turmoil in the late 1990s because the IMF has learned its lesson. "They will not tell countries to tighten their belts and contract their economies. Policies will be wiser this time," he said.
Ian Bremmer, head of political risk consultants Eurasia Group, said internal frictions within the BRICS replicate the clash between creditors and debtors within the eurozone. "We are seeing an emerging market core, and an emerging market periphery, but without any multilateral bodies to work it out."
Mr Bremmer said a world in which the rising new powers make up half of global GDP is "more dangerous" since they are prone to bouts of political instability and lack the institutions to manage their new role.
Nouriel Roubini, head of Roubini Global Economics, said emerging markets enjoyed artificial growth over much of the past decade. "They were lucky, benefiting from a Chinese boom, a commodity supercycle and zero rates in the US, but now the party is over," he said.
Mr Roubini said governments face a "policy trilemma" as they try to defend currencies, knowing that rate rises will choke growth and lead to a vicious circle. "They are damned if they do, and damned if they don't. The risk is a currency freefall of the kind we had in Indonesia [in 1998]," he said, true to fame as Dr Doom.
The spike in 10-year US Treasury yields from 1.6pc to 2.9pc since talk of Fed tapering began amounts to a global shock. Mr Roubini said the climb in borrowing costs - up by as much as 400 basis points in Turkey - could cause Europe's fragile recovery to wilt, and may be too much for the US as well given the sluggish levels of consumption and public investment. It is now "extremely unlikely" that the Fed will go ahead with tapering as soon as this month.
Worse yet, a clash in the US Congress over the budget could spin out of control. "Markets are underestimating the fiscal risks. It could be very ugly," he said.
China to dictate tough terms on BRICS rescue fund
"Currency intervention would not be a good use of money," said Daokui Li, a member of the Communist Party's upper chamber (CPPPC) and a key economic strategist.
"China will only act together with the International Monetary Fund, which has the ability to impose strict conditions," he told the Daily Telegraph.
The comments came as Russian president Vladimir Putin launched the $100bn fund at the G20, gathering for a symbolic photo of the five BRICS leaders from Brazil, Russia, India, China and South Africa in the grounds of the Constantine Palace in St Petersburg. "The initiative to establish a BRICS currency reserve pool is at its final stage," said Mr Putin.
The launch came on the same day that official data showed Russia fell into recession in the first half of the year. The relapse came despite high oil prices, and exposes the deep structural flaws in the Russian economy.
There has been intense talk among analysts that the BRICS states would use the fund to counter any speculative attack on those emerging market currencies now in the eye of storm, acting together with overwhelming force to quell panic and stop capital flight.
Between them, emerging markets hold $8.7 trillion in foreign reserves, giving them ample firepower to halt capital flight as the US Federal Reserve prepares to wind down stimulus and drain global liquidity.
However, Mr Li made it clear China will use any aid to gain trade leverage. "It would not be appropriate to use money without conditions, and some of the money would be used in the form of Chinese renminbi so that businesses in India and other countries can buy Chinese products," he said.
Mr Li said said China will not undertake an open-ended responsibility for countries deemed to have failed to live within their means, and seemed to question whether the BRICS have much in common.
"Emerging markets have split into two groups. There are those that lack good foreign exchange buffers, or have trade and budget deficits. India, Brazil and Turkey will all run into some kind of trouble," he said, speaking at the Ambrosetti forum of policy-makers on Lake Como.
Mr Li said the crisis was unlikely to be as severe as the Asian turmoil in the late 1990s because the IMF has learned its lesson. "They will not tell countries to tighten their belts and contract their economies. Policies will be wiser this time," he said.
Ian Bremmer, head of political risk consultants Eurasia Group, said internal frictions within the BRICS replicate the clash between creditors and debtors within the eurozone. "We are seeing an emerging market core, and an emerging market periphery, but without any multilateral bodies to work it out."
Mr Bremmer said a world in which the rising new powers make up half of global GDP is "more dangerous" since they are prone to bouts of political instability and lack the institutions to manage their new role.
Nouriel Roubini, head of Roubini Global Economics, said emerging markets enjoyed artificial growth over much of the past decade. "They were lucky, benefiting from a Chinese boom, a commodity supercycle and zero rates in the US, but now the party is over," he said.
Mr Roubini said governments face a "policy trilemma" as they try to defend currencies, knowing that rate rises will choke growth and lead to a vicious circle. "They are damned if they do, and damned if they don't. The risk is a currency freefall of the kind we had in Indonesia [in 1998]," he said, true to fame as Dr Doom.
The spike in 10-year US Treasury yields from 1.6pc to 2.9pc since talk of Fed tapering began amounts to a global shock. Mr Roubini said the climb in borrowing costs - up by as much as 400 basis points in Turkey - could cause Europe's fragile recovery to wilt, and may be too much for the US as well given the sluggish levels of consumption and public investment. It is now "extremely unlikely" that the Fed will go ahead with tapering as soon as this month.
Worse yet, a clash in the US Congress over the budget could spin out of control. "Markets are underestimating the fiscal risks. It could be very ugly," he said.
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