Mumbai: Blasting rich countries for turning the world into “a gigantic casino,” Brazil’s President joined with leaders from India and South Africa in urging that emerging economies’ voices be heard as the world grapples with the unfolding financial crisis.
Across the developing world, there is a growing resentment that a crisis hatched by the rich is coming home, to be borne by the poor.
Joining hands: South African President Kgalema Motlanthe (left) and Brazilian President Luiz Inacio Lula da Silva at the third annual India-Brazil-South Africa conference in New Delhi on Wednesday. Pedro Ugarte / AFP
The leaders of emerging economies, meeting in New Delhi on Wednesday, slammed wealthy countries and vowed to boost regional trade in an effort to shore up their domestic economies.
“We are the victims of a crisis generated by the rich countries,” said Brazilian President Luiz Inacio Lula da Silva at the third summit of leaders of the three major emerging market countries. “It is unacceptable that a group of speculators would turn the world into a gigantic casino and tell us how we should run governments.”
India, Brazil and Africa have little to no direct exposure to the toxic mortgage-backed securities that spawned the current crisis, but they are suffering collateral damage in the form of tight credit, plunging currencies, tanking equity markets, slowing growth and falling commodities prices.
At the Intercar auto dealership on Copacabana beach in Rio de Janeiro, Bruno Medeiros last week sat idly behind his desk. His showroom, full of plush Mercedes coups and Chrysler imports, was empty because credit-strapped Brazilian banks are tightening terms on car loans, he said.
Brazil’s tanking currency also means he’ll have to raise prices 35% to buy his next shipment of Mercedes. In the coming months, Medeiros said, “the only thing that’s certain is that I’ll be here at 8am every day, whether we’ve got clients or not”.
Across Africa, the turmoil has provoked fears of declining investment, aid, tourism, exports and remittances. Among those hardest hit are Zimbabweans caught in an economic and political crisis that has forced a third of the population to flee the country and left many of those remaining dependent on remittances from abroad.
Mavis Moyo, 36 and unemployed, probably wouldn’t have thought mortgage-backed securities could affect her life in Harare, Zimbabwe. Until, that is, the $1,000 (Rs48,900) check from her husband who works as a labourer in London, shrank to $600.
“He just says things are really tight there now,” Moyo, a mother of three, said, standing outside a Western Union. “But the price of food goes up every day here and how am I supposed to manage?”
Remittances to Africa estimated at $40 billion a year by the UN make up only 2% of the continent’s GDP (gross domestic product) but account for as much as 20% of GDP in countries such as Liberia and Somalia and much more in hyperinflation-hit Zimbabwe.
“Those countries facing inflationary import price shocks, declines in their terms of trade, and lower remittances and private capital inflows, face an especially acute challenge,” said Antoinette Sayeh, the director of IMF’s Africa department.
In India, Jet Airways (India) Ltd, one of the nation’s largest airlines, on Wednesday called off its expansion plans, saying it would instead cut flights by 15% and likely lay off at least 1,900 staff in response to high fuel costs and slowing demand.
India’s malls, meanwhile, are packed with shoppers enjoying the air conditioning and twinkling decor strung up for Diwali, a Hindu holiday that falls at the end of this month and is a major shopping season. But there are far more footfalls than shopping bags.
At the summit, president Kgalema Motlanthe of South Africa said the hope for future economic recovery potentially lay in developing countries. “As a developing world, we must accept that one-sided solutions ascribed to us by the developed world must be approached with a great deal of caution,” Motlanthe said. “They are not always the panacea they are held out to be.”
The leaders vowed on Wednesday to boost trilateral trade to $25 billion by 2015 from $11 billion today.
The US and EU still top the list of trading partners for all three countries, but experts say the current crisis is likely to intensify the focus on domestic and regional markets across the developed world.
“We’re getting off the drug of the US consumer,” said Philip Suttle, the director of global macroeconomic analysis at the Institute of International Finance, a consortium of global financial services firms based in Washington, DC. “The world is rehabbing out of that painfully.”
Bradley Brooks in Rio de Janeiro, Ashok Sharma in New Delhi and Michelle Faul in Johannesburg contributed to this story.