Conventional wisdom rarely survives a good stress test, and few tests have been as stressful as what the global economy has endured over the past 24 months. A healthy season of reappraisal has dawned, shining a new light on boom-time notions such as the value of opaque markets, the untouchable status of the American consumer and the wisdom of deregulation.
One piece of bubble wisdom that has escaped relatively unscathed, however, is the assumption that the BRIC countries – Brazil, Russia, India and China – will increasingly call the economic tune in years to come. The BRIC notion, coined in a 2003 Goldman Sachs report, is not all bad: At 75-per-cent correct, it scores a good deal better than most economic prognostications of the day.
Yet, the economic crisis that began in 2008 exposed one of the four as an imposter. Set the vital statistics of the BRIC economies side by side and it becomes painfully obvious that, in the words of the old Sesame Street game, “One of these things is not like the other.”
The weakness of the Russian economy and its highly leveraged banks and corporations, in particular, which was masked in recent years by the windfall brought by spiking oil and gas prices, burst into full view as the global economy tumbled. Saddled with a rustbelt infrastructure, Russia further disqualifies itself with dysfunctional and revanchist politics and a demographic trend in near-terminal decline.
Even with the modest recovery in commodity prices over the past six months, Russia's energy sector has experienced declining production in recent years, due in part to fears among foreign investors of expropriation. Russia's sovereign wealth fund, integral in propping up an increasingly recentralized economy, is being depleted fast. If negative trends continue, Russia's reserve fund could eventually be exhausted.
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