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From The Times

March 25, 2009

China wants influence and has

money to buy it
Bronwen Maddox: World View

This is the year when once-rich countries realised they needed

China’s money. But it will extract a high price. It will change the
character of the International Monetary Fund, and other old
institutions — if it agrees to help them out at all.

Gordon Brown has made much of wanting to rebuild the IMF at next
week’s G20 meeting. It won’t be a quick conversation. China, India,
Russia and Brazil want more voting rights over how the IMF spends
its money, to reflect their rising share of the world’s economy. How
much will they put in? There is a danger in expecting much. From
China’s point of view, it may win more influence by investing directly
in troubled countries, rather than in one of the creaking institutions
built after the Second World War. Two years ago critics of the IMF
argued that it had had its day. The World Bank, too, and the satellite
organisations, such as the European Bank for Reconstruction and
Development, came under sceptical attack from those who thought
they no longer had a role. The opening up of capital markets had
made their provision of finance redundant, the argument went. The
conditions they used to attach when they offered funds now seemed
patronising — an imposition of Western-style capitalism. Meanwhile,
the leap that countries in Eastern Europe, Latin America and parts of
Asia had taken towards open markets and democracy was some kind
of answer to those who thought they needed more lessons.

But the financial crisis has revived these institutions. It’s now clear
that the fund’s resources may not be enough to prop up all the
countries wanting help. Yesterday the fund’s managing director,
Dominique Strauss-Kahn, said that the fund would be much more
flexible in lending to well-run emerging economies.

For months Brown has been suggesting that China should plug the
gap. It has cash; the fund does not. He has not explained why China
should do this. It might win more influence from the deals it has been
exploring on its own with troubled countries (for instance, probing
opportunities in energy in Iraq and Pakistan). Before the economic
turmoil crash, it had bought itself big footholds in the resources of
African and Latin American countries. It could do that even more
cheaply now.
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It will have to be given a reason to work within the IMF, and that
price will be more influence. Under the current IMF rules, the EU has
32 per cent of the voting rights and the US, 17 per cent, compared
with China’s 3.7 per cent and India’s 1.9 per cent. Those are bound to
change — and there will be other demands. A call yesterday by
China’s central banker for a new reserve currency for the world — an
alternative to the dollar — is symbolic rather than sensible. But it
represents China’s determination to make itself heard.

It won’t be the last time.