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Anthony Jenkins/The Globe and Mail

Nouriel Roubini

BRICkbats for the Russian Bear Add to ...

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.

Russia's fall back to Earth, meanwhile, spawned a kind of parlour game among academics, foreign-policy wonks and educated investors, aimed at replacing the country in the club of major emerging-market economies. A variety of acronyms has been suggested, from the cutesy BRICET (adding Eastern Europe and Turkey) to BRICKETS (the former, plus South Korea) and - an even greater stretch - BRIMC, which shoehorns Mexico into the mix.

In all of these revisions, Russia survives, despite the writing on its economic wall. While Russia retains the world's largest (if somewhat aging) arsenal of nuclear weapons, as well as a permanent seat with veto power on the UN Security Council, it is more sick than BRIC.

Purely from the standpoint of economic potential and fundamentals, the case is far stronger for South Korea, a sophisticated economic power whose primary liability is the danger that the regime of its evil twin to the north will collapse and inundate it with hungry refugees. The same is true of Turkey, with its robust banking sector, thriving domestic market, growing importance to Middle East and energy politics, NATO membership, European Union membership bid and ties to ethnic cousins across Central Asia.

Perhaps the most compelling case of all is that of Indonesia, the world's largest Muslim state, with a rapidly expanding middle class, relatively stable democratic politics, and an economy that has been a star performer in Asia despite the global recession. From an U.S. perspective, Indonesia is an attractive alternative to Russia, which recently has vied with Venezuela for leadership of the "America in decline" cheering section.

Indonesia, moreover, has shown resilience not only economically, but also as a nation. In spite of its diverse ethnic makeup and far-flung island territory, the country has made a quick transition from military dictatorship and has recovered from myriad challenges and setbacks, including the 1997 Asian financial crisis, the tsunami in 2004, the emergence of radical Islam and domestic unrest. While Indonesia's per capita GDP remains low, it is a country's potential that matters in economic affairs, and here Indonesia shines.

Indonesia depends less on exports than its Asian peers (let alone Russia), and its asset markets (timber, palm oil, and coal, in particular) have attracted major foreign investment. The government in Jakarta, meanwhile, has taken a strong stand against corruption and moved to address structural problems. Even demographic trends favour Indonesia, which, with 230 million people, is already the fourth-largest country in the world by population - a full Germany (80-plus million) larger than Russia.

But catchy ideas die hard, and Russia has moved to cement the current concept of the BRIC into an irreversible reality. The ossification of the BRIC into a de facto global institution moved forward dramatically in June, when the four countries' leaders met (in Russia, of course) for the first "BRIC Summit."

That meeting produced a notable broadside against the United States, as each member declared its desire to unseat the dollar as the global reserve currency. A few months earlier, the four were moved to issue a joint communiqué ahead of the G20 Summit in April, noting their shared determination to change the rules of the global economic system.

In the private sector, BRIC index funds have proliferated, although Goldman Sachs has radically hedged its own BRIC bet by introducing a second term - the "Next 11" or N-11 - to the debate. This grouping adds Bangladesh, Egypt , Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey and Vietnam to the economic radar, and, together with the four BRIC countries, probably comprises a more logical and defensible "first tier" of emerging economies.

Russia sniffs at the idea of demotion, and U.S. officials appear to have decided to steer clear of the semantic debate. Still, it should surprise no one that Russia lobbied hard for the Yekaterinburg BRIC Summit, and footed the bill for much of it as well. Why risk exposure too soon?

Nouriel Roubini is a professor of economics at New York University's Stern School of Business and chairman of RGE Monitor.

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