China takes back seat on IMF, for now
Historically, a European has led the international financial body, but emerging economies want that to change.
|Various contenders are racing to replace former IMF boss Dominique Strauss-Kahn who was arrested for allegedly trying to rape a hotel maid [AFP]|
The sex scandal in the top couloirs of the IMF and the power struggle to find a successor to Dominique Strauss-Kahn has fascinated the Chinese. Rife speculations about political intrigues and shadowy deals behind the scenes have spilled into cyberspace and the usually restrained media.
But despite calls and expectations that China will play a prominent role in determining the new chief of the International Monetary Fund, Beijing has been reluctant to comment publicly, and it appears far from ready to take its battle for global recognition to the high echelons of the IMF.
China has indeed given its backing to an effort by emerging nations to break the tradition of a European always heading the IMF. In a joint statement with Brazil, Russia, India and South Africa earlier China slammed Europe’s renewed push to lock the IMF top job, calling its stranglehold “obsolete”.
By a convention dating back to its 1945 founding, the head of the IMF has always been European while the World Bank president has been a US citizen. But in the aftermath of the financial crisis some of the pillars of the Bretton-Woods system of monetary management established by world powers after the end of World War II have been repeatedly criticised in China as antiquated.
Prominent Chinese scholars like Xu Guoping who runs a think tank for developing nations in Geneva have called for an end to the “colonialist or neo-colonialist dogma” that guarantees an international candidate should be a US citizen or a European.
“People from developing countries should be given an equal chance, particularly because the GDPs of these countries are growing ever bigger as a share of the global economy,” Xu wrote in a commentary in the Economic Observer. Not to be forgotten too, he said, was the fact that many of these countries, China in particular, had huge foreign exchange reserves.
But the domestic consensus seems to be that the current IMF is not the IMF that a Chinese would like to head. Moreover, experts hold, Beijing is not ready to launch a bid for the top job yet, not the least because China’s financial system is not fully fledged.
China has not forgotten that during the financial crisis the IMF sided with detractors in the West accusing Beijing of mismanaging its current account, manipulating its currency exchange rate and causing the “global economic imbalance” that triggered the crunch.
“The IMF turned a blind eye on the imbalances existing in the US economy and the lopsided financial sectors of the developed countries,” said an opinion piece published on the Xinhua net. “Even now grave economic concerns like the so-called easy money policies of theUS and Europe and the unhinged flow of multinational capital across borders are being blatantly ignored by the monetary body.”
While China is eager to see changes in the way the IMF is run and the policies it supports, Beijing is likely to take the back seat in choosing the successor to Strauss-Kahn.
This cautious attitude has something to do with Beijing’s adherence to dictums stipulated by the late patriarch of economic reforms Deng Xiaoping, who advised a low profile in international affairs, and biding one’s time. But there is also recognition of the fact that with a currency which is not yet fully convertible and a financial industry that is not fully liberalised, China is unlikely to win support to lead the IMF.
“No matter how big our banks are or how much reserves we have, the truth is that China’s financial sector is not entirely open and does not operate according to market rules only,” says Wu Xiaoqiu, finance and securities researcher with China People’s University.
Wu is predicting that China will be ready to take on US dominance in the financial world by 2020 – earlier than the more commonly expected year 2025 when the size of Chinese economy may rival that of the US
For now China is said to be supporting the candidacy of French finance minister Christine Lagarde – something that France has alleged but Beijing has refrained from confirming. The Chinese foreign ministry said this week the choice of the new chief of the IMF should “better represent emerging markets and better reflect changes in the world economic structure.”
China is likely to be one of the first stops of Lagarde’s international tour to drum support for her candidacy beyond Europe. Countries from the European Union hold about 31 per cent of the votes at the IMF, and the US almost 17 per cent. In 2012 China’s share of votes will rise to more than six per cent, giving it more clout than before.
“China should concentrate on achieving leverage in the IMF rather than bagging the top agency job,” argues economic affairs observer Qiu Lin.
Two Chinese names have been floated as possible number two in the IMF hierarchy. Zhu Min, a special adviser to Strauss-Kahn, and Zhou Xiaochuan, China’s current central bank governor, have been talked about in the Chinese press as possible candidates for the post of first deputy managing director of the IMF.
A version of this story first appeared on Inter Press Service news agency.