This week the US Congress is considering a bill to provide financial aid to
Ukraine. President Obama had appended clauses to this bill to ratify the IMF’s
2010 decision to increase the quotas, and hence voting power, of emerging
countries, chiefly at the expense of European members, and to boost the IMF’s
capacity to lend. The USA enjoys a blocking minority in IMF decision-making
under current quotas, and would continue to do so after the changes; it is
essential, therefore, that US ratification be secured if the reform is to go
ahead. However, many members of the US Congress, especially on the Republican
side, are suspicious of the IMF and its activities. Specifically, that element
of the reform package which would convert countries’ temporary lending to the
IMF during the global financial crisis into a permanent increase in IMF
resources has roused fierce opposition. For more than three years, congressional
leaders have thought better of exacerbating party tensions by bringing forward
proposals to approve the IMF changes. However, the G20 meeting in February
‘deeply regretted’ that the reform was still held up and urged the USA to ratify
‘before our next meeting in April’. Mr Siluanov, Russia’s finance minister, then
suggested that the IMF should move ahead with the reforms without US approval, a
suggestion sympathetically received by other BRICS leaders but which would
threaten to split the IMF. Mr Obama’s concern to avoid this outcome is
understandable and he has argued that, since the IMF will play the lead role in
supporting Ukraine’s economy, approval of the new quotas is relevant to the
Ukraine legislation. All the same, Mr Reid, the Democrat Majority Leader in the
Senate, yesterday stripped the IMF provisions from the text, taking the view
that the bill would be given a rough ride through the Senate and no chance of
passage through the House of Representatives if it retained them. It now seems
unlikely that the USA will complete (or, indeed, begin) legislative action on
the IMF reform by the 10 April deadline the BRICS have set. The odds are moving
in favour of a showdown at the G20 finance ministers’ and central bank
governors’ meeting due in Washington on that date.
International discord over Ukraine does not bode well for the settlement of
differences over the IMF’s future. Though the G7 is excluding Russia from its
number, in retaliation for its action in Crimea, this does not amount to
isolating Russia. There has been no suggestion that Russia be excluded
from the G20. The USA and its allies have suspected that several other G20
members would not stand for it. This suspicion was confirmed yesterday
when the BRICS foreign
ministers, assembled at the international conference in The Hague, issued a
statement condemning ‘the escalation of hostile language, sanctions and
counter-sanctions’. They affirmed that the custodianship of the
G20 belongs to all member-states equally and no one member-state can
unilaterally determine its nature and character. In short, their
statement read like a manifesto for a pluralist world in which no one nation,
bloc or set of values would predominate.
Meanwhile, Mr Obama has also been active at The Hague fostering warmer
relations between South Korea and Japan. His aim seems to be to contain China’s
expansionism in the Asian region. But US worries in this regard may be
exaggerated to judge by a recent article in the PLA Daily, the official media
outlet of China’s military. This urged China’s leaders to study the history of
the 1894-95 war with Japan, which China lost decisively despite being at least
as well equipped. The concern in Beijing seems to be that problems of corruption
and nepotism in the PLA today are no less serious than they were in China’s
forces in 1894. That may well deter China from taking military action. However,
to the extent that China lacks confidence to use military force, it may be all
the more intent on wielding financial weapons in pursuing its geopolitical aims.
Beijing leaders have long dreamt of displacing, or at least dethroning, the US
dollar from its reserve currency role. US dominance of the IMF is one of several
effective bars to the achievement of such a goal. The kind of action Russia is
advocating, the BRICS wresting control of the IMF in despite of US veto power,
might have some appeal. That would mark the end of the unified global
monetary system that has developed since the IMF was founded in 1945, to be
replaced by a bloc of fiat currencies in the developed countries and a system in
the emerging sector where currencies were linked to drawing rights in some new
international fund, possibly with some material backing. It seems
unlikely that convertibility between these monetary systems could be maintained
for long. Consequently, the 10 April meeting is shaping up as a
potentially critical juncture in world economic history.
(Click link below to read more)
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- Judy Chaffee
- This site is the inspiration of a former reporter/photographer for one of New England's largest daily newspapers and for various magazines. The intent is to direct readers to interesting political articles, and we urge you to visit the source sites. Any comments may be noted on site or directed to KarisChaf at gmail.
Thursday, March 27, 2014
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