Rebecca Liao :
Longtime American Group of 20 allies and fellow Western industrialized nations did not join the Asian Infrastructure Investment Bank simply because of the potential return on investment in Asian development projects. Rather, they joined because the global economic order is slowly and surely subscribing to China’s view that the International Monetary Fund and World Bank are antiquated when it comes to development and international economic cooperation.
Support for the Asian Infrastructure Investment Bank backs China’s view that the I.M.F. and World Bank are antiquated when it comes to development and economic cooperation.
These offspring from Bretton Woods grant a disproportionate voice to the United States and condition their aid on countries adopting Western economic and political institutions. After taking some responsibility for globalization’s failures in the late 1990s, the I.M.F. and World Bank now allow developing countries a longer time frame to implement reforms. However, it is never in doubt that the ultimate goal is a market economy with social values and institutions found in liberal democracies.
China, on the other hand, promises to give developing countries more seats at the decision-making table and to refrain from interfering in their domestic policies. Whether these promises are kept is another matter, but the U.S. should take note that they now hold weight.
The U.S. response to Asian Infrastructure Investment Bank expansion has been clumsy. When the bank was first announced at the Asia-Pacific Economic Cooperation summit last November, America pressured Australia, South Korea and Japan to stay out, fearing that China would use the bank to encroach upon U.S. influence in Asia. After its closest allies joined, the U.S. had to face the failure of its efforts to contain China. Treasury Secretary Jacob Lew reassured Beijing in his visit this week that the U.S. was willing to work with the bank. Last week, Nathan Sheets, Treasury under-secretary for international affairs, sounded unwittingly high-handed when he said U.S. cooperation would ensure, “high-quality, time-tested standards are maintained.” Christine Lagarde at the I.M.F. and World Bank President Jim Kong Kim expressed similar sentiments. In other words, the U.S. would work to ensure the primacy of its approach to the global economy and development.
Instead of continuing to fly this decaying standard, the U.S. should acknowledge both the rise of China’s alternative vision and, more important, its unique position to lead this new order. First, the U.S. should expand funding for the World Bank and the I.M.F. and increase the voting power of China and developing economies on the rise. Second, it must refocus these organizations on the original Bretton Woods goal of coordinating international monetary policy, free of conditionality.
The U.S. should capitalize on its ability to facilitate this cooperation within the existing international financial architecture. And remember, though significant, the Asian Infrastructure Investment Bank is still young, without a governing framework and woefully underfunded at $50 billion (compared to Asia’s $1 trillion infrastructure need).
(Rebecca Liao is an international corporate lawyer, writer and China analyst.)
