World Bank, IMF Fight For Survival During US-China Rivalry
Kristalina Georgieva’s alleged sins may seem trivial to some. The Managing Director of the IMF is accused of having manipulated the World Bank’s Doing Business Index in 2018, when she was CEO of the institution, to give China a higher ranking than it deserved. Compared to Dominique Strauss-Kahn, one of his predecessors, accused in 2011 of sexual assault in New York, or to Rodrigo Rato, a former occupant, imprisoned for embezzlement, the clerical interference of Georgieva looks like a crime victimless. However, in geopolitical terms, its fate will be much more serious.
An independent report released last month claims Georgieva has heavily interfered with the Doing Business rankings to appease China as it tries to secure a capital raise from Beijing. It is unlikely that it would have generated anything like this fuss if Georgieva had stepped in on behalf of another country, let alone maintaining his ranking at a paltry 78th rather than dropping it a few steps.
Yet we live in a world of Thucydides in which the current hegemony, the United States, which has dominated the Bretton Woods system since its beginnings in 1944, faces a challenger, China, which knocks on our door with a growing conviction. How could such a damning report land silently?
The most striking contrast between today’s emerging Cold War and that between the United States and the Soviet Union is that China is deeply integrated into the global economy. The USSR boycotted Bretton Woods and had no significant presence in the world trading system. China, on the other hand, has played an important role, first as a beneficiary of Bretton Woods largesse and now as a creditor. Today, it is the largest trading partner of many more countries than the United States. In terms of purchasing power parity – calculated by what you can buy in local currency – the Chinese economy is larger than that of the United States. In dollars, the gap is shrinking rapidly. However, China only represents 6% of the IMF’s quota – an indicator of shareholding – against 17% for the United States.
If she stayed on, one of Georgieva’s most important jobs would be to reweight China’s quota next year. If she recommended a big increase from China, as it should, her motives could now be called into question. There are a lot of Chinese hawks in the US Congress looking for excuses to vote against any change. The larger question is whether the world’s institutions are robust enough to cope with what appears to be a protracted competition for global primacy between the two titans.
Since their inception, these organizations have been dominated by the United States, which has been happy to apply their rules to others while exonerating themselves whenever they see fit. The global bureaucracy is littered with acronyms coined by the United States to which America is not a party: the United Nations Convention on the Law of the Sea, the International Criminal Court, the Arms Trade Treaty and many more. others. Some call these double standards “American exemptionalism”.
America remains a reluctant member of other bodies, such as the World Trade Organization and the World Health Organization. But the US-China rivalry has essentially disabled both. In the case of the WTO, which China joined in 2001 on favorable terms, the United States has refused to fill vacancies on appeal to settle trade disputes, leaving the body toothless. The world trading system has changed dramatically since then.
China was a billion dollar economy at the turn of the century. Today, its gross domestic product is $ 15 billion. Donald Trump pulled America out of the WHO in a sinophobia crisis at the start of the pandemic. Joe Biden has joined. But China’s refusal to cooperate with the Geneva organization’s investigation into the origins of Covid-19 has left it adrift. An institution is only as effective as what its larger members want it to be. Like the proverbial dog, the staff of a multilateral agency are often kicked when their owners lose patience. The fact that they are exempt from income taxes may constitute reasonable compensation.
America faces a choice between loosening its grip on global bodies to encourage Beijing to stay in the game, or refusing to recognize China’s rise to power and risk it leaving parts of the system altogether. Beijing has already created parallel tracks, such as the Asian Infrastructure Investment Bank and the Belt and Road Initiative. Given that China, along with the United States, is one of five vetoed UN Security Council members, it is unlikely to reduce its presence there. But it takes little imagination to imagine that China will lose interest in bodies such as the IMF if it does not receive its due as one of the two great world powers. It is certainly not in the interest of the West to get rid of the key tools to engage China in an increasingly bifurcated world.
Where does that leave Georgieva from the IMF? America is under pressure from the poorest members of Africa, Latin America and elsewhere to hold it back. She received praise for responding with agility to the pandemic and re-equipping the global lender of last resort to tackle threats such as climate change. Yet American hawks now describe it as hopelessly bendable towards China. A reputation for intrepid probity will come at an increasing premium amid the battle for the future of great global organizations. The worst of both worlds would be to keep Georgieva in place without having banished doubts about his neutrality.
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