In IMF’s case, the balance is shifting subtly as BRICS (Brazil, Russia, India, China, and South Africa) now holds almost an equivalent share as the US’ 16 per cent. Any decision taken by the IMF will have to keep in mind BRICS, which often votes as a bloc.
That is also getting apparent in the case of support to Venezuela, which, according to both the IMF and World Bank, is undergoing a humanitarian crisis that needs urgent support. Issue is, what the US wants in terms of whom to support as the president of Venezuela — Nicolás Maduro Moros or his rivals may not be the same as what China, Russia and other BRICS nations would want. And so, the IMF is stuck.
“We are guided by our membership,” Christine Lagarde, managing director of the IMF, said in her press conference on Thursday.
“So it is for our members to indicate which authority they are recognising diplomatically, so we can then follow through. This is the way it has always worked at the IMF,” said Lagarde.
Surely, China’s trade war with the US is one of the greatest risk factors facing the world today, according to the IMF, and Lagarde said in her press conference that countries should “do no harm, and do the right thing.” But the concern now is how China is expanding its footprint across the world, often entangling resource-rich but poor nations, by multi-million dollar loans that can be never repaid.
In the Spring Meetings 2019, thoughts about China’s rise hangs in the air, even as graceful dancers from the Washington Chinese Dance Academy fluidly pirouette at the ground floor of the IMF headquarters.
The unease primarily centres around resource-rich Africa, where, according to the World Bank projections, nine out of 10 ‘extremely poor’ people would be living by 2030. “Half of the world population itself will be living in fragile and conflict-affected setting,” according to David Malpass, newly elected president of the World Bank Group.
China’s loans to African countries have ballooned in recent times. According to Moody’s, between 2012 and 2017, Chinese loans to sub-Saharan Africa jumped to more than $10 billion a year, from less than $1 billion in 2001. China in 2018 committed $60 billion to Africa, with no “political conditions attached”.
This is exactly matching the World Bank’s exposure to Africa.
The issue though, as African journalists attending the Spring Meetings of the IMF and the World Bank are repeatedly telling senior officials of the agencies, the money being given by China is to countries with corrupt politicians, and often with clauses and repayment terms that would keep the nations poor for ages to come.
It is a classic debt trap. And the World Bank at least, is clearly very, very concerned. “Debt is something that helps economies grow, but if it is not done in a transparent way, with good outcome from the build-up of debt, then you end up having a drag on economies. History is full of those situations where too much debt dragged down economies,” said Malpass during an interaction with press after his opening remarks at the 2019 Spring Meetings.
To be sure, the World Bank is also in awe of China for its huge success in poverty reduction. China lifted 850 million of its people from extreme poverty and improved the median income of the country.
That is an achievement and the Chinese have a lesson and insights to share with the rest of the world, but in “China’s programmes abroad, the importance of transparency of the debt, of the quality of the projects,” are something that needs more improvement, said the World Bank president.
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“We have data that says 17 African countries are at high risk of debt distress and that number is growing as the new contracts are coming in that are not sufficiently transparent,” the World Bank president said, adding, it is important to have transparent and full disclosure of the debt, and also focus on the outcome, in terms of quality projects.
The World Bank is also working on this debt transparency project and the collection of data, as requested by the Group of 20 nations, he said. “I think this is an area that bilateral governments can do much better and something that the world can press on saying, ‘look, this is the way to get help from countries getting ahead of in terms of growth’,” said Malpass.
China also used to borrow billions from the World Bank, but recently has committed to bring down the borrowing to less than $1 billion annually from the World Bank.
World Bank, in turn, actively partners China-floated Asian Infrastructure Investment Bank, where India is also an important member, and other important development banks where China has a large share such as Asian Development Bank for lending operations.
“I should be clear that poverty is getting worse in some sub-Saharan Africa and that is troublesome. More resources sometimes will help, better programmes almost always help. So what we plan to do is to be having as effective a country programme as we can. Part of that is cooperation with other multilateral donors,” the World Bank president said.
The World Bank president met with his counterparts in other development banks in the Spring Meetings, to discuss how they can cooperate concretely to meet the resource need of the challenge. “Everyone agrees that the mission of shared prosperity of better economies in developing countries in a common goal, and that requires as many resources available as possible.”
China is also one of the top 10 shareholders of the World Bank. As of March 2019, China held 4.65 per cent of World Bank, with a voting power of 4.42 per cent of the total votes.
India, by the way, is also a large shareholder of the Bank, holding 3.18 per cent of the total shares and having a voting share of 3.04 per cent. The US, in comparison, holds 16.77 per cent share of the World Bank and has a voting right of 15.87 per cent.
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