China in the IMF crossfire: Face-off between US and Beijing brings lending programmes to a crashing halt, writes ALEX BRUMMER
This week’s spring jamboree for finance ministers and central bankers from across the globe will be dominated by current economic events.
Key issues will be the battle against inflation and ballooning public borrowing and debt, prospects for frail growth and the still fragile banking system and energy prices (of which more below).
As far as Britain is concerned, the big question is whether the International Monetary Fund (IMF) will follow the Bank of England and other forecasters and acknowledge that the UK is not the basket case of its most recent forecasts.
Fly in the ointment: The Chinese have refused to accept the normal process of bailouts deployed by the West in which debts are written down or stretched out
Recent surveys, and the latest growth data, suggest that the IMF’s January assessment of a 0.6 per cent decline in output in 2023 is off the mark.
With British local and general elections on the near and further horizons, the Fund projections could be a soundbite battle this week.
Beyond the World Economic Outlook forecasts, a far-reaching war of the worlds is taking place at the Bretton Woods institutions, the World Bank and the IMF.
It has already hastened the departure of one chieftain, World Bank president David Malpass, who is clumsily being replaced.
There was no pretence of an open appointments 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 programmes to a crashing halt.
Only serial defaulters Argentina and desperate nations such as Ukraine and Sri Lanka are able to access emergency funds.
As the pandemic enveloped humanity, the IMF embarked on a fund-raising expedition. It persuaded rich countries to double its borrowed capital to $462billion and increased its issue of special drawing rights (IMF virtual currency), giving it the capacity to dole out up to $1 trillion to cash-short nations.
Analysis by The Economist magazine shows that the Fund’s overall loan book has grown by just $51billion.
This is in spite of enormous strains put on the economies of emerging markets by Covid-19 and the surge 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 down to great husbandry by desperate countries. Instead, the blockage is blamed on Beijing.
Wealthier nations welcomed China into the advanced nations club. It was hard to keep it out given its exponential growth in the 21st century.
The IMF now finds itself between a rock and a hard place. As we saw during Sri Lanka’s acute emergency last year, the Chinese refused to accept the normal process of bailouts deployed by the West in which debts are written down or stretched out.
The result of China’s intransigence is that the Western countries take the pain and Beijing reaps the rewards, through debt and interest repayments, rather than the struggling countries.
A similar difficulty faces Banga at the World Bank. The US is keen to see climate-change lending souped up.
But US Treasury Secretary Janet Yellen wants to ensure minimum Chinese participation so as to reduce geopolitical influence.
The end of the Cold War and the opening of China saw the Bretton Woods institutions gravitating away from US financial dominance.
Washington wants to turn back the clock.
