HT Home / Blogs Home >
Cutting The Edge / Research / 9 days to G20: China likely to get influence support from Down Under…and other stories
9 days to G20: China likely to get influence support from Down Under…and other stories
Today, Australian Prime Minister Kevin Rudd pressed for a greater role of China in International Monetary Fund (IMF) as a prelude to the G20 meeting on April 2. With this, the first step in reforming this multilateral institution has been taken. That step is to give a greater voice to borrower countries that are poorer than the wealthy nations that lend to the bank.
On its part, China is ready to take the reins. According to a Reuters report filed today, the country’s vice foreign minister He Yafei “told reporters that Beijing would press for reform of international financial institutions with a view to giving a bigger voice for developing countries.”
A November 2006 paper by Brock Blomberg of Claremont McKenna College and J. Lawrence Broz of University of California, San Diego, explores this conflict. Titled, The Political Economy of IMF Voting Power, this short paper is insightful as much as it is mathematical.
“The IMF’s membership is now divided into two blocs: rich country “creditors” that provide the lion’s share of IMF resources, and poor country “borrowers” that draw upon the Fund for financial assistance and are subject to its policy conditionality,” the paper says. “This division creates tensions around governance issues and voting power because rich country creditors have different interests regarding the terms and conditions of IMF lending, and are sceptical about ceding greater control to developing country borrowers. To oversimplify, developing countries favour quota increases and less conditionality since they are more dependent on the IMF for payments financing and more vulnerable to financial crises. Industrial countries resist quota increases and favour increased conditionality and surveillance since they have access to private credit markets to finance deficits and do not rely on the IMF for support (as it was the case in the 1960s and 1970s).”
Broadly, this paper brings to the table the conflicts of interest in the governance of IMF. “Our exploration into the political economy of IMF governance recognises that the IMF’s membership is sharply divided along income lines: rich countries provide the financial resources and developing countries use these resources to finance balance of payments deficits and development. This division creates tension over who controls the IMF. Creditors and debtors have opposing interests over policies and these differences translate into opposing interests over the structure of governance institutions, which determine policy outcomes.”
Exactly a year ago, on March 28, an IMF survey hinted at this reform. “In total, 135 countries will see an increase in voting share of 5.4 percentage points due to the combined effects of the increase in quotas and basic votes,” an article published in IMF Survey Magazine stated. “Among countries that will see the biggest increase in voting share in the two rounds combined are China, Korea, India, Brazil and Mexico.”
With the ongoing crisis, the increased vote share of China — a somewhat foregone conclusion, given its $2 trillion reserves that countries are seeking to be invested in IMF — will give a boost to India’s IMF ambitions. But I’m not sure whether the rest (Korea, India, Brazil and Mexico) have the flexibility to invest in proportion to those ambitions.
—
The other important development today was how trade unions have broadened their vision from merely job protection and creation to things as distant from them (or closer, its proponents would argue) as climate change. Here’s what BBC News reported as being the 5-point plan of ITUC, a Brussels-based body that represents 170 million workers in 312 organisations in 157 countries:
* a co-ordinated international recovery and sustainable growth plan to create jobs and ensure public investment
* nationalisation of insolvent banks and new financial regulations
* action to combat the risk of wage deflation and reverse decades of increasing inequality
* increased action on climate change
* new international legal framework to regulate the global economy, and reform of the IMF, World Bank, OECD, WTO
That’s an evolutionary jump for the unions.
—
According to a report in Forbes today, there’s little G20 will end up doing to fix the global financial crisis. Quoting Oxford Analytica (a paid site), the report says, “Despite grandiose talk of a Bretton Woods II, rifts between nations and a US government changeover have quashed hopes of real progress.”
The reasons are many — Obama’s domestic focus so far, varying speeds of nations even if they agree on broad principles (see this post for more), stimulus disagreement, futile role for IMF (see this post for more), and the very credibility of G20 now that many countries are introducing protectionist measures.
I am not so pessimistic…yet.
—
This article in Guardian on Sunday brings together five economists and their suggestions for G20. Economists usually are many-handed and have many ideas, but three in this group (Nariman Behravesh of IHS Global Insight, Gerard Lyons of Standard Chartered, and Heiner Flassbeck of Unctad) are stuck on spending — a solution that will die before being born. Lyons says, “Led by China they need to rise to the challenge and commit to saving less, spending more.”
Gosh!
Also read:
10 days to G20: a reading list that hopes to change the world
11 days to G20: 24 recommendations but no breakthrough
12 days to G20: IMF’s spend-your-way-out-of-the-crisis recommendations are best ignored
13 days to G20: set broad principles, leave detailing to sovereigns
14 days to G20: no space for a common global financial regulator
15 days to G20: can India grab its geopolitical moment?
16 days to G20: will G20 bring solutions?
17 days to G20: look who’s driving the G20 agenda
(No Ratings Yet)
Loading ...
LEHMAN down, GM down, Citi, Chrysler … Is AMERICA really hurt ?
PONTIAC, BUICK, CHEVROLET… the “American dreamt” brands, the symbol of an era in America.
The wish of many teenagers that then became great personalities around the globe.
But, this was a forecasted end. TOYOTA has been for many years, the real revolution in the american auto industry. Together with NISSAN, both japanese manufacturers, leaded the auto sales market for many years in a row.
Afterwards, came the korean cars… the asian conquer of the american auto corporations.
Is this the sign of an hegemony change ?… Is AMERICA really that hurt ?
Is competitiveness the key crack-down factor for this consequences ?
The US will always mean marketing, show, branding, globality, with its own values and essence. But, is this enough to keep US sovereignity in the planet ??
AMERICA has voted for a change. Barack Obama, the first black president, meant a new change era and a barn of hopes for many americans. But is it enough with a good carisma and beautiful words ??
USA is now playing a tough game. The game of competitiveness, the game of innovation, the new rules of capitalism…
Can AMERICA workers compete with the 24-hour turns of japanese or chinese workers ?
Can AMERICA export more than import ?
Can AMERICA reissue the huge external debt owned by CHINA now ?
Does anyone know that the main owner of the USA is CHINA ?
Yes, the main owners of US debt is CHINA. If CHINA decides to do it, US Dollar can dissapear.
Nowadays, CHINA has lived of US imports. Therefore, CHINA has accumulated vast deposits of T-bonds and US Dollars. This has been the reason for the dollar stability.
Once CHINA develops their internal consumer rates, or begin diversifying their exports, CHINA will be in position to change US dollars for other currencies. Then, US Dollar will be dead.
Is AMERICA ready for this era ?
Does Barack Obama has a real plan to put a brake on this dynamic ?
Huge challenges ahead. But, for sure, the only opportunity for AMERICA is not to lose their essence. The AMERICAN DREAMT must be on, but politicians and decisions makers must also help on this.
One advice for Mr Obama:
Capitalism has not failed, it has been the lack of regulation in the financial markets.
It is very important to keep this clear, because around this point, the US must build their next future generations.
Jose Luis Revilla Escudero
Chairman&CEO
WWShares, Inc
-Global Wealth Management-
http://www.worldwideshares.blogspot.com
[Reply]