Thanks to China, IMF managing director Christine Lagarde, World Bank president Jim Yong Kim and Asian Development Bank (ADB) president Takehiko Nakao may no longer have much meaningful work to do.
Beijing’s move to bail out Russia, on top of its recent aid for Venezuela and Argentina, signals the death of the post-war Bretton Woods world. It also marks the beginning of the end for the US’ linchpin role in the global economy and Japan’s influence in Asia.
What is China’s new Asian Infrastructure Investment Bank, if not an ADB killer? If Japan — ADB’s main benefactor — will not share the presidency with Asian peers, Beijing will just use its deep pockets to overpower it.
Lagarde’s and Kim’s shops are also looking at a future in which crisis-wracked governments call Beijing before Washington.
China’s stepping up its role as lender of last resort upends an economic development game that has been decades in the making. The IMF, World Bank and ADB are change-adverse, bloated institutions. When Ukraine received a US$17 billion IMF-led bailout this year, it was about shoring up a geopolitically important economy, not geopolitical blackmail.
Chinese President Xi Jinping’s (習近平) government does not care about upgrading economies, the health of tax regimes or central bank reserves. It cares about loyalty. The quid pro quo: For China’s generous assistance, Beijing expects full support on everything from Taiwan and territorial disputes to deadening the West’s pesky focus on human rights.
This might sound hyperbolic; Russia, Argentina and Venezuela are already at odds with the US and its allies. However, what about the rest of Europe? In 2011 and 2012, it looked to Beijing to save euro bond markets through massive purchases. Expect more of this dynamic next year, if fresh turmoil hits the eurozone, at which time Beijing will expect European leaders to pull their diplomatic punches.
What happens if the US Federal Reserve’s tapering slams economies from India to Indonesia and governments look to China for help? Why would Cambodia, Laos or Vietnam bother with the IMF’s conditions when China writes big checks with few strings attached?
Beijing’s US$24 billion currency swap program to help Russia is a sign of things to come.
Russia, analysts and observers often say, is too nuclear to fail. As Moscow weathers its worst crisis since a 1998 default, it is tempting to view China as a good global citizen. However, Beijing is just enabling Russian President Vladimir Putin, who is now under zero pressure to diversify his economy away from oil.
The same goes for China’s US$2.3 billion currency swap with Argentina and its US$4 billion loan to Venezuela.
In the Chinese century, bad behavior has its rewards.
If ever there were a time for US President Barack Obama to accelerate his “pivot” to Asia, it is now. There is plenty to worry about as China tosses money at rogue governments like Sudan and Zimbabwe. However, there is also lots at stake for Asia’s budding democracies. The so-called “Washington consensus” on free-market economic policies is not perfect, but is Beijing’s model of autocratic state capitalism with scant press freedom really a better option?
With China becoming Asia’s sugar daddy, the temptation in, say, Myanmar for example, might be to avoid the difficult process of creating credible institutions to oversee the economy.
There could be a silver lining to China lavishing its nearly US$4 trillion of currency reserves on crisis-plagued nations: It might force the IMF, World Bank and ADB to raise their games. Competition, as Lagarde, Kim and Nakao would agree, is a good thing.
However, more likely, China’s largess will encourage bad policy and impede development in ways that leave the global economy worse off.
William Pesek is a journalist for Bloomberg.
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