The annual spring meetings of the International Monetary Fund and World Bank take place in Washington this weekend with the Chinese delegation determined as ever to increase its influence.
For now, China feels under-represented at these global organisations.
“Fundamentally, Chinese people don’t believe the emerging markets, including China, have any substantial power or decision-making ability at international institutions such as the World Bank or the IMF,” argues Xiang Songzuo, chief economist of the Agricultural Bank of China.
Christine Lagarde, managing director at the IMF, has promised to address this perception. But she and her leadership team have been too preoccupied with the European debt crisis to deal with the matter properly over the last year, Xiang told WiC.
Yet changes are underway at the institutions, with a review process set to give China a bigger quota, or shareholding, by 2014. The current quota of almost 4% will rise to about 6.4% – still too low for a country that is now the world’s second-biggest economy, believes Xiang.
“The quota issue is the most important thing. You vote on key decisions according to your share of the quota. And right now the US and Europe hold a majority, so it’s hopeless,” he said.
In late March, China and the other BRICS nations threw down a gauntlet by announcing financial cooperation agreements of their own, saying they are considering the feasibility of a new BRICS bank at the New Delhi meeting of the five-nation grouping of China, India, Russia, Brazil and South Africa.
A new BRICS bank would be geared to extending credit facilities within the developing world, Xinhua reported.
“This year, we plan to sign a framework agreement offering credit in our respective local currencies. Those agreements aim to boost the use of domestic currencies among BRICS nations and provide an institutional framework for members,” said Chen Yuan, chairman of the China Development Bank. The agreement represents “new steps for us,” Chen told CCTV.
Could a BRICS bank work? Certainly, it would prove a difficult project, not least because the BRICS nations themselves are highly diverse geographically as well as politically, economists say.
In emailed responses to questions, the IMF suggested that it welcomed the proposed bank. “We are following this initiative with great interest. Efforts to mobilise resources for infrastructure and sustainable development in developing countries are important steps,” its spokesperson went on.
Xiang, for all his criticism of the current global financial architecture, agreed that setting up such a bank will be a challenge.
“Russia is very reluctant to let China become number one, India has a very complicated relationship with China and Brazil is very ambitious. Who will be the controlling shareholder of a BRICS bank? And yes, you need a controlling power,” he said.
Everyone – including Chinese officials – also agrees that the IMF and World Bank will remain the premier global financial institutions for years to come. That means getting a bigger voice at both remains a key Chinese objective. And in that respect, the idea of a BRICS bank may be more of a negotiating ploy than anything else – used to persuade the US and European nations to cede a greater proportion of their votes to emerging economies.
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