BRICS weigh help for euro area, but doubts emerge

The BRICS emerging economies are taking tentative steps to offer support to the euro area, possibly by buying bonds, although doubts emerged that a significant plan could materialise.

A central bank adviser in China urged Beijing on Wednesday not to buy large amounts of euro area bonds and South Africa's finance minister suggested his country might not have the financial firepower to support a bond-buying plan.

The so-called BRICS -- Brazil, Russia, India, China and South Africa -- will discuss what they can do next Thursday on the sidelines of meetings of the World Bank and International Monetary Fund in Washington, said R. Gopalan, Economic Affairs Secretary to India's Finance Ministry.

The euro zone debt crisis has roiled global markets for more than a year with financial bailouts for Greece, Ireland and Portugal. Speculation is mounting that Greece could default on its debts and even exit the 17-nation euro zone monetary union.

In preliminary talks, the BRICS discussed increasing their holdings of euro-denominated bonds to help ease the debt crisis, a senior Brazilian government official told Reuters on Tuesday.

However, analysts suggested bond buying would not fly.

"The magnitude of the European crisis is so large," said Abheek Barua, chief economist at HDFC Bank in New Delhi. "Unless there's sort of massive buying, then it won't make a difference."

Even five weeks of bond buying by the European Central Bank, to the tune of 70 billion euros, have not turned investor sentiment over the debt crisis, which is now threatening Italy.

For graphic on BRICS FX reserves, click http://link.reuters.com/cyj73s

Chinese Premier Wen Jiabao said the world's second-biggest economy was willing to help its main trade partner, but the euro area in turn needed to prevent the debt crisis from spreading.

With about $3.2 trillion in foreign exchange reserves, a quarter of which analysts estimate is in euro-denominated assets, China has the firepower to make a difference.

"The governments of all countries must truly shoulder their responsibilities and deal properly with their own affairs," Wen said in a speech at the World Economic Forum in Dalian, China, although he made no direct mention of a BRICS plan.

Central bank adviser Li Dakui suggested China should refrain from buying large amounts of European bonds to focus on its own economy.

"We have more than our share of trouble to deal with," Li said, referring to concerns in China about inflation and asset bubbles.

Lukewarm

South African Finance Minister Pravin Gordhan said his country lacked significant reserves, so it was undecided about buying euro area bonds. Net gold and currency reserves were just under USD 50 billion in August.

"South Africa is not part of that market at the moment and it's the big countries, who have USD 3.2 trillion in reserves. We are Mickey Mouse compared to that and they can afford to look at some of those issues," he said.

New Delhi would be "cautious" about supporting a plan, an Indian finance ministry official, who declined to be identified, said on Tuesday.

India holds about 20% of its USD 320 billion in foreign currency assets in euro debt and a senior Indian official said that proportion would not change.

"All I can tell you is we will maintain the 20% ratio," the official said.

Vadim Lukov, the Kremlin's special envoy to the G8 and a BRIC coordinator, declined to be drawn on a BRICS plan.

"I will not deny or confirm this information," Lukov said. "Any such information may disturb the markets and potential buyers of the bonds."

Global policy coordination would also be difficult because countries are at different stages of the economic cycle, Indian Finance Minister Pranab Mukherjee said on Tuesday.

A Brazilian government source said the country did not intend to use its international reserves of around USD 355 to buy European debt.

But it could use its sovereign debt fund, which is allowed to take on more risky investments, although that amounts to just USD 9 billion and is already mostly invested in stocks.

Brazilian financial newspaper Valor reported on Tuesday that bond purchases could be limited to debt from the more financially solid European nations, although IMF head Christine Lagarde said she hoped that would not be the case.

"My hope is that if they happen, these interventions will be of wide scope and not limited to the safe bonds of a few states," she was quoted as saying on Wednesday by Italy's La Stampa newspaper.