ALEX BRUMMER: China in the IMF crossfire
China in the IMF crossfire: Face-off between US and Beijing brings credit programs to a halt, writes ALEX BRUMMER
This week’s spring jamboree for finance ministers and central bankers from around the world will focus on current economic events.
Key themes are the fight against inflation and the explosive growth of government borrowings and debts, the prospects for weak growth and the still fragile banking system, and energy prices (more on that below).
As for Britain, the big question is whether the International Monetary Fund (IMF) will follow the Bank of England and other forecasters and recognize that the UK is not the prime example of its most recent forecasts.
Fly in the ointment: The Chinese have refused to accept the West’s normal process of bailouts, whereby debts are written off or stretched
Recent surveys and the latest growth data suggest that the IMF’s January estimate of a 0.6 percent fall in output in 2023 is wrong.
With UK local and general elections on the horizon, the Fund’s projections this week could be a soundbite battle.
In addition to the predictions of the World Economic Outlook, a far-reaching world war is taking place at the institutions of Bretton Woods, the World Bank and the IMF.
It has already precipitated the departure of a leader, World Bank president David Malpass, who is being awkwardly replaced.
There was no pretense of an open nomination process in the choice of former Mastercard boss Ajay Banga by the Americans.
At the IMF, an arm wrestling match between the US and China is bringing lending programs to a halt.
Only serial defaulters Argentina and desperate countries like Ukraine and Sri Lanka have access to emergency funds.
As the pandemic enveloped humanity, the IMF embarked on a cash-raising expedition. It convinced rich countries to double its borrowed capital to $462 billion and increased the issuance of special drawing rights (IMF virtual currency), giving it the capacity to pay out up to $1 trillion to countries short of money.
Analysis by The Economist magazine shows that the Fund’s total loan portfolio grew by just $51 billion.
This is despite the enormous pressure on emerging market economies from Covid-19 and the sharp rise in oil and commodity prices following Russia’s war on Ukraine.
It would be great to think that the low use of IMF resources is due to the large animal husbandry of desperate countries. Instead, the blockade is blamed on Beijing.
Wealthier countries welcomed China into the club of advanced countries. It was hard to keep it out given the exponential growth in the 21st century.
The IMF is now between a rock and a hard place. As we saw last year during the acute emergency in Sri Lanka, the Chinese refused to accept the West’s normal bailout process of writing off or stretching debts.
The result of China’s intransigence is that Western countries take the pain and Beijing reaps the rewards, through debt and interest payments, instead of the struggling countries.
Banga at the World Bank faces a similar difficulty. The US is keen to see climate change lending ramped up.
But US Treasury Secretary Janet Yellen wants to ensure minimal Chinese participation to reduce geopolitical influence.
The end of the Cold War and the opening up of China caused the Bretton Woods institutions to move away from US financial dominance.
Washington wants to turn back the clock.