In August 2007, when the first signs of the problems caused by the bursting of the American real estate bubble began to appear, many specialists argued that the global effects of the subprime credit crisis would be minimal. Mostly, defenders of this theory put their hopes in the capability of emerging countries, especially the Bric countries – an acronym for Brazil, Russia, India, and China –, to keep things rolling even if Uncle Sam were to fall sick. For a year, while nobody yet knew how deep the hole really was, the world went on with no major bumps. In September, when Lehman Brothers – one of America’s largest investment banks - announced their bankruptcy due to involvement with junk bonds, the crisis showed that the monster was strong enough to knock out a lot of people.

Starting then, generalized panic in the global markets ensued. Among the Brics, it was no different. The Bovespa Index (Ibovespa), which closed at 71,492 points on May 15th, felt the bitter taste of 36,833 points on October 15th – a loss of over 48%. In the 30 days following September 15th, the day when Lehman Brothers announced its bankruptcy, the index dropped by almost 24 percentage points. Sensex, the main index of India’s stock exchange in Mumbai, depreciated by over 37% from May 15th to October 15th, plummeting from 17,353 to 10,809 points. The Shanghai exchange index, the SSE Composite, ended trading on October 15th at 1,994 points, 45% less than the 3,637 points of May 15th. The Russian tumble was the most painful: the RTS index lost 71.2% during the period, dropping from 2,478 to 713 points.

The question that lingers is: after the panic – and all the fickleness and irrationality associated with it – cools down in the international markets, what will the effects of the crisis be in each Bric country? Who will be affected the most?

In the opinion of specialists consulted by CAPITAL ABERTO, India and Brazil will bruise the least. Each has its own particularities that were very helpful in stormy times. Both benefited from the fact that they do not depend too heavily on foreign consumers’ wallets. Exports account for 12% and 13% of Brazil and India’s GDP, respectively. “Though the United States is still the main destination for Brazilian products – 14.1% of our exports are unloaded there –, the Brazilian export plan has diversified quite a lot in the past years”, says Jayme Alves, investment analyst at Spinelli Corretora.

IT service exports are unlikely to dwindle in India, guaranteeing earnings of US$ 87 billion

On the Indian front, a competitive advantage caught the world’s eye: a large part of what the country sells to the foreign market (35%) refers to information technology (IT) services, an industry where India has few competitors and where demand is unlikely to dwindle, crisis or not. In the early 90s, India’s software industry was worth about US$ 5.7 billion. A McKinsey survey forecasts US$ 87 billion in earnings this year for Indian IT companies – which may represent more than 7% of the country’s growth in 2008.

Brazil, in turn, may lean on the solid groundwork of its companies, on its volume of international reserves, and on its current account balance, now a lot less dependent on asset inflow from other countries than in the past. Having a strong financial industry that was not directly contaminated by subprime credits also counts in the country’s favor. “The major Brazilian banks underwent adjustments and restructurings that gave them a solid structure”, affirms Alves.

WOUNDED GIANT – For the Bric representative in the Far East, the forecasts are not so optimistic. Some years ago, China was used to already achieving double digit growth by the month of September. This year, however, the story went differently. In October, the country announced that their GDP had expanded by “only” 9.9% in the first nine months of 2008 – 2.3 percent less than the same period of the previous year. A growth rate like that would make any political leader in the world grin from ear to ear, but the fact worries the Chinese Socialist Party. Accelerated growth is a necessity in China, where, each year, the urban zones swell with over 20 million more people, coming in from the countryside in search of opportunity. To avoid social unbalance, the Chinese government targets annual growth rates of at least 8%.

With uncertainties being raised about the health of the world’s fourth largest economy, the government tried to show that the scenario was not as ugly as it seemed. “Despite the world’s economic and financial turbulence, the Chinese economy is in a very good situation. Its structures remain solid”, declared Li Xiao-chao, government spokesman. The measures undertaken by Beijing, however, show that China is not so unconcerned. Aiming to keep the economy hot, the government announced discounts in export taxes for some industrial segments, as well as more credit for small and medium-sized businesses .

Specialists agree that the impact of the crisis in China will not be small, especially on exports – which account for more than 37% of the country’s GDP. It’s very true that, up until September, the total amount of Chinese exports was 22.3% higher than in the same period in 2007, reaching US$ 1.07 trillion. But this growth was 4.8% lower than in the period from September 2006 to September 2007.

A study published by Standard Chartered bank estimates that the Chinese GDP will grow 8.2% this year – versus 11.9% in 2007 –, and the major culprit for this reduction will be the recession in U.S., the destination of 19.1% of the country’s exports. Some symptoms could already be felt in early October, when two toy factories closed up their doors. In a statement to the press, representatives of the companies blamed their bankruptcy on their activities’ large dependence on the American market.

One man’s doubt has the ring of opportunity to another. The idea of restraining exports somewhat is not a total negative, for it can heat up the service industry. In the first nine months of this year, internal consumption in China saw a growth of 22%, 6 percent more than the same period in 2007. “The major question that remains is whether domestic demand will be able to sustain the growth rate that they desire”, says Maurício Molan, chief economist at Santander. His question is based on the assumption that the Asian giant, despite its astounding growth, is still not powerful enough to become a large consumer center – like the United States and some European countries. “The United States and Europe account practically for half of the world GDP. Can the Chinese consumer market really take on what the Americans and Europeans fail to buy?”, he asks.

OIL-DEPENDENT – The heaviest storm clouds seem to loom over Russia, and the reason for that can be summarized in a single word: oil. The fall in commodity prices, especially of “black gold”, promises to open deep wounds in the Russian economy, which is extremely dependent on exports – oil and gas account for 65% of the country’s foreign sales. As a producer of over 10 million barrels per day, Russia will likely already see lower production this year, a drop of about half of one percent, according to a forecast by the International Energy Agency made in September.

One of the criticisms made of the Russian growth model is that, benefiting from rising oil prices in the past years, the country was unable to take advantage of the oil boom to boost up local industrial activities. Imports grow geometrically, but the production of manufactured products has not kept up. In 2007, the procurement of products from overseas was almost 40% higher than in the previous year, whereas domestic production grew by only 5%. “In addition to this, the Russian capital market is very closed off and not very transparent, causing many problems of trust as regards the economy’s true status”, says Jankiel Santos, chief economist at Banco Espírito Santo (BES).

The issue of transparency may be what bothers international investors the most. The Russian corporate universe – seen as a reflection of the authoritarian political regime that seems reluctant to leave the country – lacks a strong flow of information. “The auditing jobs carried out by large international firms in Russian companies are not publicly disclosed, which makes some investors suspicious”, says Antonio Carlos Rosset, president of the Brazil-Russia Chamber of Commerce.

Despite the pessimistic forecasts for the Kremlin, Rosset believes that the storm is unlikely to push Russia off their course of growth. “The country was stagnant throughout the period of the socialist regime, and was opened up a short time ago. Therefore, there are still great opportunities around there”, he believes. For the long term, Rosset bets on the quality of Russian workers. “The illiteracy rate (0.05%) is the lowest in the Bric countries, and this will make a difference in the upcoming years”, he wagers.