2023-03-31 08:37:09
"China's bailouts are small compared to the IMF's global lending portfolio and dwarfed by the sweeping international USD liquidity support extended by the US Federal Reserve since 2007, primarily to advanced economies. We also find that Beijing has targeted a limited set of potential recipients, as almost all Chinese rescue loans have gone to low-and-middle income BRI countries with significant debts outstanding to Chinese banks."
The authors do so see historical parallels to the period after World War II when the US Ex-Im Bank, the Exchange Stabilisation Fund and the Fed channeled cash to countries with substantial debts to American banks and companies.
(The Exchange Stabilisation Fund has an interesting history in its own right as a piggy bank: It starred in the SVB Financial Group saga as providing funding for a new government backstop. It was put in harm’s way during the days after Lehman’s bankruptcy when mutual funds were in grave jeopardy. In the mid-1990s, the ESF was tapped by the Clinton Administration to help bailout Mexico when Congress was wary.)
Beijing has put considerable resources into the IMF. It's one of the top members of the institution, albeit well short of the US's 17 percent stake. And while the fund has always been headed by a European with an American representative in the number two role, one of the three deputy managing directors is usually Chinese.
It's questionable whether China would want to shoulder the burden of undergirding a really big regional, let alone a series of sprawling rescues.
Better to pick your shots. Sure, politicians in Asia still bristle at high-handedness and misfires from DC during the Asian financial crisis. That doesn't mean they would be comfortable with the leverage China would exert over domestic policy.
Beijing would also have to own the consequences. A Chinese official would probably have been more culturally sensitive than IMF boss Michel Camdessus, who stood over Indonesian President Suharto in 1998 with arms folded ordering him to sign a document in full view of the cameras.
Any supplication to China would have taken place behind closed doors. How would President Jiang Zemin have responded to the communal violence unleashed by the economic crash and Suharto’s fall? China's ally North Korea wouldn’t have been able to resist offering advice on the bailout of Seoul. It's a fascinating series of what-ifs.
Unless and until Beijing can come close to exercising that kind of influence, we are stuck with the dollar’s ubiquity and the financial architecture it has created. The greenback is desired yet not really loved. Fed Chair Jerome Powell isn’t exactly a household name, but he’s more recognized than Yi Gang of the PBOC. Those roles could ultimately be reversed, though probably not in their lifetime.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Views are personal and do not represent the stand of this publication.
Source: Bloomberg
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