The Great Lending Game: IMF vs. China


The loan is at the forefront of the emerging power politics game between the West and China that is set to define the 21st century.

Beijing began offering huge loans to countries in the developing world in the early 2000s, and since then “suspicions have swirled that these loans compete with the International Monetary Fund, offering comparable sums of money in exchange of very different promises,” Boston University’s Global University said. Development Policy Center.

The IMF’s approach has proven “deeply unpopular” in recent years, the Financial Times (FT) said, but Beijing’s opaque lending practices are now prompting growing concern and accusations that Beijing is pursuing a deliberate policy of lock emerging countries into a vicious cycle of debt. for strategic leverage.

What are the terms of IMF loans?

Founded as a central pillar of the post-war “Washington Consensus”, the US-based International Monetary Fund (IMF) has functioned as the primary lender of last resort for nation states around the world for more than 70 years old.

Yet since the collapse of the Bretton Woods system in the 1970s, the organization has been synonymous with a liberal form of liberal “shock therapy”. Under its strict “conditionality” requirements, countries must agree to bailout terms that include open markets, the removal of government subsidies, deregulation of key sectors, privatization and debt management.

“The conditions attached to an IMF loan, which officially go by such innocuous names as ‘conditionalities’ and ‘structural adjustment programmes’, have in the past created social chaos around the world, while claiming to develop the economy of the host country to which it relates,” said The Business Standard.

“For years, the IMF has prevented low-income countries from taking out large non-concessional commercial loans,” said Good Governance Africa. “While other Western lenders often rely on the international financial organization’s assessment of countries’ macroeconomic policies and their readiness for reform,” the nonprofit organization added, developing countries particular “are increasingly looking elsewhere for funding”.

How does this differ from Chinese loans?

Over the past two decades, China has sought to increase its economic influence in the world by offering specific long-term loans for infrastructure projects, mainly in emerging countries in Africa, Southeast Asia and South America.

Between 2000 and 2016, for example, China provided about $125 billion in loans to African countries, according to the China-Africa Research Initiative at the Johns Hopkins School of Advanced International Studies. This process has been accelerated since 2013 through Beijing’s flagship $838 billion Belt and Road Initiative, “a program that has made it the world’s largest public works funder, eclipsing the World Bank,” the FT said.

In recent years, China, through its state-controlled agencies and strategic banks, has changed its strategy. It has “disbursed tens of billions in opaque ’emergency loans’ to at-risk countries, indicating a shift toward short-term emergency lending rather than longer-term infrastructure lending,” Fortune said. .

“Critics of the IMF may hail China’s lending as a source of ‘policy space’ for governments to choose their own development strategy,” said BU’s Global Development Policy Center, but “whatever their normative interpretation, most observers agree on the basic logic at play: Chinese loans present a new option for countries that would rather not go to the IMF”.

“Debt Trap Diplomacy”

Western policymakers are increasingly concerned that this is part of a deliberate policy of “‘debt trap’, trying to trap low- and middle-income countries in dependency”, said James Sundquist in Development and Cooperation .

The so-called “debt trap diplomacy” was first coined by Indian scholar Brahma Chellaney in 2017 to describe what he called China’s predatory lending practices. Through these, the country “wields bilateral influence by bankrupting partner countries with unsustainable debt, then demanding major concessions as part of debt relief – or so the government thinks. diplomat,” reported The Diplomat.

“In retrospect, China’s designs may seem obvious,” Chellaney wrote in 2017. “But the decision by many developing countries to accept Chinese loans was, in many ways, understandable. Unable to obtain financing from Neglected by “institutional investors”, they welcomed Chinese overtures. “Only later did it become clear that China’s real goals were commercial penetration and strategic influence; by then it was too late and countries were trapped in a vicious circle.

“Opaque and secretive” lending practices

Beijing’s opaque and secretive loan terms are also raising concerns at a time when “pressure is mounting on China to play a more active role in helping struggling economies ease their debt crises”, it said. AsiaFinancial.

“Unlike the IMF, which announces details of its credit lines, debt relief and restructuring programs to debtor countries, China operates largely in secret,” the FT said.

“As global interest rates rise and concerns about developing countries’ debt risk grow, ‘sustainability’ and ‘transparency’ have become buzzwords at organizations like the IMF and the World Bank,” the South China Morning Post reported, putting Western financial institutions on a collision course with China.


About Author

Comments are closed.