Tuesday, October 17, 2023
IMF Showdown with China in Morocco
by Michael Hudson
www.nakedcapitalism.com (October 13 2023)
At issue is not only what countries will be the major beneficiaries of
future IMF and World Bank loan operations, but whether the world will
back US unipolar dominance or start to move explicitly toward a
multipolar philosophy of mutual support to increase living standards
and prosperity instead of imposing anti-labor austerity in an attempt
to maintain a trade and investment system that is now widely seen to
be dysfunctional and financially predatory US demands to use these two
organizations as arms of its New Cold War policy.
At issue is an increase in the US drive to increase quotas of IMF and
World Bank member countries. Quotas reflect voting power, with 85% of
the votes required to enact a policy. A 15% veto is able to block any
policy change. And ever since the inception of these two organizations
in 1944~1945, the United States has insisted on having veto power in
any organization it joins, so that no other countries will ever be in
a position to dictate its policy - while enabling it to block any
policy that it deems benefiting other nations more than itself. Its
17.4% quota (and 16.5% of the vote) gives it veto power in the IMF.
It was inevitable that the original distribution of quotas has not
kept pace with the shifts in international financial power since 1945.
Rising economies have asked for a larger quota and hence voice in
settling IMF and World Bank policy. But each round of quota increases
has seen US strategists insist that any increase in overall quotas
must not reduce its own quota to less than the 15% that enables it to
maintain its unique veto power.
No other country remotely approaches US power. US strategists were
glad to let Japan obtain the second largest quota, now 6.47 percent.
That reflects not only its great industrial takeoff in the 1970s and
1980s, but also US confidence that Japan will be like a "second US
vote". (That is why it tried to add Japan to the UN Security Council.
The Soviet delegate vetoed this, citing Japan's role as a US political
satellite.)
China is in third place, with 6.40%, closely followed by the weakening
economies of Germany and Britain, thoroughly reliant on US gentleness
as it imposes tightening US-centered dependency on their economies.
What makes this issue so pressing this year is the emergence of BRICS+
countries and the collective alternative that they are in the process
of juxtaposing as they move to de-dollarize their economies so as to
protect themselves from the threat that US diplomats will impose
sanctions or confiscate their official monetary reserves (as they have
done with those of Iran, Venezuela, and Russia) in punishment for
their seeking national self-sufficiency instead of reliance on US
suppliers and creditors.
For countries seeking a multipolar world order instead of a
US-centered unipolar economy, the widely used term "de-dollarization"
has evolved rapidly to mean much more than simply using other
currencies to settle their trade and investment transactions: A
fundamentally different philosophy of international finance,
creditor/debtor relationships, and national self-sufficiency to
protect themselves from trade sanctions and other US-sponsored
economic warfare. For many decades, countries sought to avoid running
into debt to the IMF in fear of being subjected to its anti-labor
austerity policies imposed in the junk-economics belief that any
volume of foreign debt service could be squeezed out by reducing
labor's wages by a sufficient degree.
US Treasury Secretary Janet Yellen and her US neoliberal gang at
Marrakesh have thrown down the gauntlet when it comes to giving China
a stronger voice - that is, quota - in the IMF. The Financial Times
published the most explicit statement of their position on October 12
in an article by former US Treasury official Edwin Truman. "Like it or
not", he points out, "any deal must satisfy the US Treasury". Its
primary concern is that while ideally, each member's quota would
increase by at least one-third, "the combined size of these selected
increases must not threaten the US voting share, or Washington will
block the compromise". Edwin Truman, "Another impasse on IMF quotas
is not acceptable", Financial Times, (October 12 2023).
Furthermore, Mr Truman explains, the planned increase should not apply
to "the emerging market and developing countries". They are debtors
and hence would support policies that help debtor countries recover
instead of falling into deepening dependency on international
bondholders and new US dollar loans from US/Nato creditors and the
IMF.
The problem is that "Under the current formula, the quotas of [the
strongest] 25 IMF members should be at least 50 percent larger than
their current ones, led by China". But in addition to threatening to
"reduce the US voting share to close to 15 percent", it would give
China increasing influence. "The US has made clear that it will not
support an increase in any member's quota share unless that country
respects the rules and norms of the IMF, which in the US view China
does not. To remove this obstacle, China should agree not to accept
the selective increase in its quota to which it would otherwise be
entitled, and the US should support the compromise."
If it does not submit quietly, he threatens, is for the IMF meeting to
end in "another stalemate". By that word, he means a refusal by China
and other countries to acquiesce in US Cold War strategists hijacking
even more Asian and Global South resources to support their
international diplomacy.
In one sense, I wonder what all this kerfuffle really is about. Who
really cares what the IMF's articles of agreement stipulate and what
its staff recommends? We are no longer in a rule of law, but in a
"rules-based order", with US officials setting the rules on an ad hoc
basis. This already had made a travesty of IMF rules and procedures.
The IMF's recent loans to Ukraine have raised its borrowing to seven
times its quota. The IMF no longer feels obligated to follow its
articles of agreement, and quite openly acts as an agent of the US
State Department and military to finance the US/Nato war on Russia and
China (and really, of course, against Germany and Western Europe).
In addition to IMF loans to Ukraine violating its stated limits to
member-country borrowing, it is lending to a country at war, also
forbidden. And third, it violates the "No more Argentinas" rule that
it is not supposed to make a loan to a country without some
calculation that the country will be able to repay the loan. Does
anyone believe that Ukraine can repay - except perhaps by selling its
agricultural land to Monsanto, Cargill, and other US agribusiness
companies?
In view of the fact that US strategists at the IMF and World Bank are
bound to continue to weaponize their loans to promote a US-centered
neoliberalism, I have a modest proposal for China. I know that it does
not want to use the present state of international tension to
emphasize its willingness to break. So perhaps it should indeed give
the US precisely what it wants - and even more!
It can indeed go on record as suggesting that it be given a quota
reflecting its economic equality with the United States. That
certainly would seem to be warranted by being designated America's
Number One long-term adversary. But if the US refuses, then I would
like to see China simply withdraw its IMF and World Bank subscriptions
altogether. Walk away.
Why should China help subsidize international organizations whose
policies are adverse to those of China and its fellow BRICS+ allies?
The World Bank is always headed by a US diplomat, usually from the
military, and hopes to finance the US/Nato-backed alternative to
China's Belt and Road initiative. And the IMF's neoliberal
"stabilization" policies are anti-labor and hence most amenable to US
client oligarchies, not the reforms that BRICS+ countries are seeking
to put in place.
If Chinese and fellow BRICS+ de-dollarization is indeed a broad
system-wide effort to replace the US unipolar predatory asymmetry with
a more positive-sum philosophy of mutual gain, why not take this
opportunity to accept the US challenge that has just thrown down the
gauntlet to China? That would avoid a "stalemate". It would make clear
the philosophical distinctions that have led the world economy to
today's crossroads.
In diplomatic terms, let's call it an agreement to disagree.
_______
Michael Hudson is a research professor of Economics at the University
of Missouri, Kansas City, and a research associate at the Levy
Economics Institute of Bard College. His latest book is The Destiny of
Civilization (2022). Originally published in the Investigacion
Economica (Economic Research), produced by UNAM (Autonomous National
University of Mexico)
https://www.nakedcapitalism.com/2023/10/michael-hudson-imf-showdown-with-china-in-morocco.html
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