Jim O’Neill urges LatAm to adjust to a post-Brics era

Jim O’Neill urges LatAm to adjust to a post-Brics era

  Photo caption: Fe Ilya  
Jim O’Neill, the economist who coined the ‘BRIC’ acronym, has called on Latin American policymakers to take action to cope with a new era of slowing Chinese growth, and rising US rates.

Writing in the May/June edition of LatinFinance, O’Neill says even countries like Mexico – which investors hope will benefit from the US recovery and higher wages in China – will need to implement successful policies to consolidate the gains of recent years.

“There are two big external forces facing global markets today: US interest rates and China,” writes O’Neill, the former chairman of Goldman Sachs Asset Management. “If the US recovery continues, or accelerates, then a less accommodative US monetary policy is inevitable.”

But he says that China’s slowing growth – a key part of his early 2000s theory of the growth of the BRIC countries (Brazil, Russia, India and China) – could have equally drastic consequences for Latin American countries.

In O’Neill’s view “the days of China as a low value-added exporter growing at 10% and gobbling up the world's commodities” are now over. “Those countries and companies that were the winners as a result of that China will not be the winners of tomorrow,” he says.

“Countries like Mexico, which find themselves much more competitive as a result of years of rising Chinese wages and appreciating currency, will be winners of this new China. Examples of likely losers - Brazil and Russia among them - are not hard to find.”

For a country to be a winner in the new era, the economist says it “is not sufficient” to rely on a more competitive export sector compared to China. “Mexico suffered for years from a weak US economy and Chinese competition,” says O’Neill

“For Mexico to be a clear winner from the new reality, it will need to successfully execute its broad economic reform agenda, especially in the energy sector.” O’Neill says it is a similar story for the region’s other big economies.

“With the exception of Argentina and Venezuela, much of the continent seems transformed compared to 20 or 30 years ago, with great progress in Chile, Colombia, Peru, as well as Brazil, despite its recent disappointment.

“But close to a decade of rising commodity prices made that apparent success easier for many to achieve. It is now up to these countries and their policymakers to turn the gains of recent years into something more lasting - and in doing so, to boost the welfare of their ambitious peoples.”

See the full article in LatinFinance May/June 2014: Beyond Brics, by Jim O'Neill