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Germany

When The Fairy Tale Made Of BRICS Came Crashing Down

Brazil, China, India and Russia were once the flavor of the month for investors, but this may be coming to an end as high inflation rates and slowing growth weigh on the respective national economies -- and the world's too.

Has India's economic miracle come and gone? (Jasleen Kaur)
Has India's economic miracle come and gone? (Jasleen Kaur)
Frank Stocker

BERLIN – Since the euro crisis started weighing on the German economy, developing countries have been a ray of hope for businesses and investors, with exports to BRIC countries consistently increasing in the last few years.

Recently, however, there have been more and more signs indicating that the situation in Brazil, Russia, India and China is about to go downhill.

In case you missed the telltale signs, ratings agency Standard & Poor's (S&P) issued a warning this week that India's investment rating risked being downgraded. If this happens, it would be the first time in many years that a large developing country had such serious and pessimistic economic news.

Until now, BRIC countries have only known one direction on the list of credit-worthy nations – and that was up. If India's rating is lowered, its bonds become junk again, as they were decades ago before it joined the ranks of boom countries.

Many investors would sell as a result. Right after the S&P announcement on Monday, the rupee went south, crashing the Bombay stock market. And yet the S&P move was thoroughly justified.

India presently appears to be doing everything it can to compromise the successes of these past years. "The country is mothballing its plans to open up and liberalize its markets and instead the government is taking protectionist measures," explains Erik Nielsen, head economist at Unicredit. India's system, corroded by bureaucracy and inefficiency, urgently needs structural change – but this is getting pushed onto the back burner.

A plan to open part of the retail sector to foreign companies recently failed to make it through parliament. Instead, the government is threatening to implement retroactive taxes on mergers of foreign companies with Indian assets, going back 50 years.

Although many are hoping the proposed measure will be scrapped, the move nevertheless managed to confuse foreign investors completely -- and they are beginning to flee in droves. As a result the rupee has fallen to the dollar, and the rate of economic growth is at a nine-year low.

Parallel to this, inflation rates are rising, and as if that weren't enough, India also has the highest government debt by comparison to the other large developing countries.

BRICs crumbling one by one

But negative developments are piling up in other BRIC countries as well. Alarm bells are ringing for China, even with recent news of stronger than expected exports. This news was dampened by the fact that that both industrial production and retail turnover were well behind expectations.

This completely contradicts the government target for domestic consumption to slowly but surely take the leading role in driving growth away from exports and structural investment.

In Russia, it's the same picture. "This country really worries me, because the dependence on state-controlled commodities continues to increase," says Unicredit economist Nielsen. That too is exactly the opposite of Moscow's target.

And things aren't looking any better for Brazil. "The Brazilian government is becoming more and more interventionist and doing very little to solve the country's structural problems including high taxes and not enough investments in infrastructure and education," says Maarten Jan Bakkum, an expert on developing countries at ING Investment Management. "Instead, it's subsidizing credits to stimulate investment."

Brazil's national bank is also lowering interest rates – a toxic move in the face of the present inflation rate.

So the BRIC fairytale may soon be facing an abrupt and not so happy end. "We don't have any developing country investments left in our portfolios," says Alfred Roelli, head investment strategist at Pictet, the Swiss private bank.

In late April he sold the last positions – some Chinese stocks – and says he's only staying with China via foreign companies that have particularly high turnovers there: brands like Dior, LVMH, Nike and Swatch remain highly sought after in Asia, with or without structural reforms.

Read the article in German in Die Welt.

Photo - Jasleen Kaur

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Ideas

Shame On The García Márquez Heirs — Cashing In On The "Scraps" Of A Legend

A decision to publish a sketchy manuscript as a posthumous novel by the late Gabriel García Márquez would have horrified Colombia's Nobel laureate, given his painstaking devotion to the precision of the written word.

Photo of a window with a sticker of the face of Gabriel Garcia Marquez with butterfly notes at Guadalajara's International Book Fair.

Poster of Gabriel Garcia Marquez at Guadalajara's International Book Fair.

Juan David Torres Duarte

-Essay-

BOGOTÁ — When a writer dies, there are several ways of administering the literary estate, depending on the ambitions of the heirs. One is to exercise a millimetric check on any use or edition of the author's works, in the manner of James Joyce's nephew, Stephen, who inherited his literary rights. He refused to let even academic papers quote from Joyce's landmark novel, Ulysses.

Or, you continue to publish the works, making small additions to their corpus, as with Italo Calvino, Samuel Beckett and Clarice Lispector, or none at all, which will probably happen with Milan Kundera and Cormac McCarthy.

Another way is to seek out every scrap of paper the author left and every little word that was jotted down — on a piece of cloth, say — and drip-feed them to publishers every two to three years with great pomp and publicity, to revive the writer's renown.

This has happened with the Argentine Julio Cortázar (who seems to have sold more books dead than alive), the French author Albert Camus (now with 200 volumes of personal and unfinished works) and with the Chilean author Roberto Bolaño. The latter's posthumous oeuvre is so abundant I am starting to wonder if his heirs haven't hired a ghost writer — typing and smoking away in some bedsit in Barcelona — to churn out "newly discovered" works.

Which group, I wonder, will our late, great novelist Gabriel García Márquez fit into?

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