IMF becoming a chip in contest to reshape post-crisis global landscape
New York Times 31 March 2009
(WASHINGTON) Barely six months ago, the International Monetary Fund (IMF) emerged from years of declining relevance, hurriedly cobbling together emergency loans for countries from Iceland to Pakistan, as the first wave of the financial crisis hit.
Now, with world leaders gathering this week in London to plot a response to the gravest global economic downturn since World War II, the fund is becoming a chip in a contest to reshape the post-crisis landscape.
The Obama administration has made fortifying the IMF one of its primary goals for the meeting of the Group of 20 (G-20), which includes leading industrial and developing countries and the European Union.
But China, India and other rising powers seem to believe that the made-in- America crisis has curtailed the ability of the US to set the agenda. They view the Western-dominated Fund as a place to begin staking their claim to a stronger voice in global economic affairs.
Treasury Secretary Timothy Geithner, who once worked at the Fund, has called for its financial resources to be expanded by US$500 billion, effectively tripling its lending capacity to distressed countries and cementing its status as the lender of last resort for much of the world.
Japan and the European Union have each pledged US$100 billion; the US has signalled it will contribute a similar sum, though its money will take longer to arrive because of the need for congressional approval. China, with its mammoth foreign exchange reserves, is the next obvious donor.
Yet officials of China and other developing countries have served notice that they are reluctant to make comparable pledges without getting a greater say in the operations of the Fund, which is run by a Frenchman, Dominique Strauss-Kahn, and is heavily influenced by the US and Western Europe.
A senior Chinese leader, Wang Qishan, said last Friday that Beijing was willing to kick in some money, but he called for an overhaul of the way the Fund is governed. China wants its quota - which determines its financial contribution and voting power - adjusted to better reflect its economic weight.
China’s contribution, Mr. Wang said, should not be based on the size of its reserves but on its economic output per person, which is still modest. Some US officials now expect a pledge on the order of US$50 billion from China.
‘Their arms may yet be twisted, but they simply do not want to pony up based on vague promises of governance reform,’ said Eswar Prasad, a professor of economics at Cornell University, who has discussed the matter in recent days with Chinese and Indian officials.
Given the inevitability that these countries will have a growing influence, the London summit meeting, which begins on Thursday, is likely to be remembered ‘as the last hurrah for the US and Europe rescuing the world economy’, said Simon Johnson, a professor at MIT and a former chief economist of the Fund.
One reason the IMF has emerged as such a popular cause is that the US has been unable to rally countries behind its other major priority: fiscal stimulus. The EU opposes further stimulus packages in 2010, arguing that its social safety net makes an increase in government spending unnecessary.
European and US officials are also still divided, to a lesser degree, on how to rewrite international financial regulations. France and Germany are more receptive than the US to giving regulators supranational authority to scrutinise global banks and other financial companies.
‘The US is desperately trying to assert leadership, as if it were 10 years ago, when it set the agenda,’ said Kenneth Rogoff, an economist at Harvard and another former chief economist of the Fund.
With more countries slipping into crisis by the week, there is general agreement that the Fund needs additional resources. Since last year, the IMF has given nearly US$50 billion in loans to 13 countries. It is streamlining the process for making loans and loosening its strings, hoping to counter the resentment that built up against it during past crises because of its stringent demands.
At a preparatory meeting two weeks ago, G-20 finance ministers agreed to ‘very substantially’ increase financing, though the Europeans favoured an extra US$250 billion, not US$500 billion.
Whatever their reservations about financing, the Chinese have seized on the fund for another purpose: to tweak the United States.
The governor of China’s central bank, Zhou Xiaochuan, recently proposed that the US dollar be phased out as the world’s default reserve currency. As a replacement, he suggested using special drawing rights, or SDRs, the synthetic currency created by the Fund that is used for transactions between it and its 185 member countries.
Few economists view that idea as a realistic one, at least for years to come. But the mere assertion that the dollar’s pre-eminence is waning - a theme picked up by Russian officials as well - sends a message.
1 comment:
Rising powers want bigger say in economics
IMF becoming a chip in contest to reshape post-crisis global landscape
New York Times
31 March 2009
(WASHINGTON) Barely six months ago, the International Monetary Fund (IMF) emerged from years of declining relevance, hurriedly cobbling together emergency loans for countries from Iceland to Pakistan, as the first wave of the financial crisis hit.
Now, with world leaders gathering this week in London to plot a response to the gravest global economic downturn since World War II, the fund is becoming a chip in a contest to reshape the post-crisis landscape.
The Obama administration has made fortifying the IMF one of its primary goals for the meeting of the Group of 20 (G-20), which includes leading industrial and developing countries and the European Union.
But China, India and other rising powers seem to believe that the made-in- America crisis has curtailed the ability of the US to set the agenda. They view the Western-dominated Fund as a place to begin staking their claim to a stronger voice in global economic affairs.
Treasury Secretary Timothy Geithner, who once worked at the Fund, has called for its financial resources to be expanded by US$500 billion, effectively tripling its lending capacity to distressed countries and cementing its status as the lender of last resort for much of the world.
Japan and the European Union have each pledged US$100 billion; the US has signalled it will contribute a similar sum, though its money will take longer to arrive because of the need for congressional approval. China, with its mammoth foreign exchange reserves, is the next obvious donor.
Yet officials of China and other developing countries have served notice that they are reluctant to make comparable pledges without getting a greater say in the operations of the Fund, which is run by a Frenchman, Dominique Strauss-Kahn, and is heavily influenced by the US and Western Europe.
A senior Chinese leader, Wang Qishan, said last Friday that Beijing was willing to kick in some money, but he called for an overhaul of the way the Fund is governed. China wants its quota - which determines its financial contribution and voting power - adjusted to better reflect its economic weight.
China’s contribution, Mr. Wang said, should not be based on the size of its reserves but on its economic output per person, which is still modest. Some US officials now expect a pledge on the order of US$50 billion from China.
‘Their arms may yet be twisted, but they simply do not want to pony up based on vague promises of governance reform,’ said Eswar Prasad, a professor of economics at Cornell University, who has discussed the matter in recent days with Chinese and Indian officials.
Given the inevitability that these countries will have a growing influence, the London summit meeting, which begins on Thursday, is likely to be remembered ‘as the last hurrah for the US and Europe rescuing the world economy’, said Simon Johnson, a professor at MIT and a former chief economist of the Fund.
One reason the IMF has emerged as such a popular cause is that the US has been unable to rally countries behind its other major priority: fiscal stimulus. The EU opposes further stimulus packages in 2010, arguing that its social safety net makes an increase in government spending unnecessary.
European and US officials are also still divided, to a lesser degree, on how to rewrite international financial regulations. France and Germany are more receptive than the US to giving regulators supranational authority to scrutinise global banks and other financial companies.
‘The US is desperately trying to assert leadership, as if it were 10 years ago, when it set the agenda,’ said Kenneth Rogoff, an economist at Harvard and another former chief economist of the Fund.
With more countries slipping into crisis by the week, there is general agreement that the Fund needs additional resources. Since last year, the IMF has given nearly US$50 billion in loans to 13 countries. It is streamlining the process for making loans and loosening its strings, hoping to counter the resentment that built up against it during past crises because of its stringent demands.
At a preparatory meeting two weeks ago, G-20 finance ministers agreed to ‘very substantially’ increase financing, though the Europeans favoured an extra US$250 billion, not US$500 billion.
Whatever their reservations about financing, the Chinese have seized on the fund for another purpose: to tweak the United States.
The governor of China’s central bank, Zhou Xiaochuan, recently proposed that the US dollar be phased out as the world’s default reserve currency. As a replacement, he suggested using special drawing rights, or SDRs, the synthetic currency created by the Fund that is used for transactions between it and its 185 member countries.
Few economists view that idea as a realistic one, at least for years to come. But the mere assertion that the dollar’s pre-eminence is waning - a theme picked up by Russian officials as well - sends a message.
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