The International Monetary Fund (IMF) is not an association of equals, nor is it a meritocracy in which the best and the brightest get to dispense money and advice to the needy and distressed. Far from it. The IMF was a western-funded – and managed – institution that was used to build a new global economic order after World War II.
At the time of its inception, the largest shareholder, the United States of America, rejected the professional economist’s view that John Maynard Keynes put forward of creating a global central bank run by professionals. Instead, the US viewed both the IMF and the World Bank as instruments of strategic policy, aimed at extending the US’ influence in the post-War world.
The IMF’s shareholding pattern and management structure reflected this and its staffing policy ensured this. To qualify for a job at the Fund one had to first acquire a degree from a western academic institution. For over half a century, this is how the IMF was run.
The IMF was meant to help the member countries that had an external payments problem. In doing so, it sought to shape the internal policies of debtor nations. In the bad old days of the Cold War, the world’s socialist economies stayed outside the IMF, so the West ran the organisation and told the Rest what was good for them. Then came China.
China was one of the 35 founding members of the Fund. At the time of the Fund’s inception, it secured a larger vote share in the face of Indian protestations. When British India’s representatives at Bretton Woods complained, one of the architects of the Fund, John Maynard Keynes, asked the Indians to shut up and put up.
Communist China was kept out of the Fund after 1949 and its seat was occupied by Taiwan till 1980. In seeking to win the Cold War and destroy the Soviet Union, the US teamed up with China and facilitated its re-admission in April 1980. The Fund’s economists went out of their way to be kind to China in the 1980s, choosing not to question either China’s policy choices or its non-transparent statistics as long as China kept opening up to American multinationals. China undertook some token borrowing from the Fund in 1981 and 1986 and has never returned to it as a borrower. China has in fact emerged as a major source of funding for the IMF in recent years.
Given this geo-economic and geo-political context, it was only natural that China’s representatives in the Fund hardly protested when the IMF imposed hugely destructive economic policies on post-Soviet Russia in 1998. The destruction of the Russian economy was a strategic manoeuvre that benefited both the US and China.
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As China pushed its export-oriented growth model, learning not to repeat the mistakes made by Latin American economies, it ensured that it would never fall foul of the Fund. When the Asian financial crisis struck the newly industrialising countries of Asia, especially Thailand, South Korea and Indonesia, China stepped in over night to help Thailand, but allowed the US to administer its bitter policy medicine on South Korea and Indonesia.
China emerged stronger within the IMF, with Russia and much of East and Southeast Asia nursing their wounds from the crises of 1997-98. So it is not surprising that China has revealed its cards at this point by seeking the Fund’s No. 2 job for Min Zhu, a special advisor to the managing director, for the post of deputy managing director. Mr Zhu was deputy governor of the People’s Bank of China, and like most Fund staffers, has a US degree with a PhD in economics from Johns Hopkins University and a masters in public administration from the Woodrow Wilson School of Public and International Affairs at Princeton University.
For all the talk about a “Beijing Consensus” replacing the “Washington Consensus” in economic policy, the fact remains that China has opted to be a status quo power in the global system. Unlike India, China has been accommodated by the West into multilateral institutions. It secured its seat in the United Nations Security Council (UNSC) and on the IMF board with the support of western powers. It was included in the nuclear Non-Proliferation Treaty (NPT) as a nuclear weapons power. Today, it stands on the threshold of being admitted to the higher management of the IMF.
China has played its cards well. It preserved its accommodative relations with the US and the European Union, striking deals with France that while the latter’s finance minister Christine Laggard will inherit the top job, its own Mr Zhu will become the second in command. On the other hand, in the run-up to the IMF race in Washington DC, it convened a summit meeting of BRICS – Brazil, Russia, India, China and South Africa – and has promoted the idea of a BRICS candidate for the job. Even if Mr Zhu were not to seek the BRICS position, yielding to another country, China has inserted itself into the decision-making process.
Many commentators in India and outside have criticised the Indian government for not playing the game. Theirs is an ill-considered criticism. India has done well to remain on the sidelines. It will take some time for India to accommodate itself in global councils of decision making – be it the UNSC or IMF – or in security regimes like the NPT. India’s leaders should constantly remind the world that this is an unequal and unjust world order and keeping a democracy of a billion like India out does little to enhance the credibility of global institutions.
However, India should resist the temptation to either seek positions of power before it is ready to deal with them or to accept such positions as concessions from the powerful.
The anger and irritation of Indian economists abroad, especially those based in the US, with India’s low-profile approach to the IMF contest, are understandable. Many of them would benefit from India’s activism on the world stage. Many Indian diplomats also become greedy seeking international positions in the name of the country but with an eye on pension and perks. India should, however, remain patient. Its turn will come.