Over the past year, US Treasury Secretary Janet Yellen has traveled around the world seeking to inject new vitality into the World Bank, the 79 year old pillar of the US led international order.
These efforts stem from the sincere desire to help developing countries eradicate poverty, recover from the COVID-19 and cope with climate change. But there is another motivation: to convince these countries that the US led international order is still superior to the Chinese led international order.
Last year, when many members of the 'Global South' refused to condemn Russia's invasion of Ukraine or refused to sanction Russia with the West, the West painfully realized that these countries' thoughts may not be the same.
In April, British Chancellor of the Exchequer Jeremy Hunt told me, "The greatest success in responding to Russia's invasion of Ukraine is the unity demonstrated by advanced democratic countries." He said, "The biggest disappointment is the lack of support from the 'global south'
In some cases, the lack of support from the 'global south' reflects the historical connections between some countries and Russia. But in other cases, this stems from the dissatisfaction of some developing countries with the West, who believe that the West has less urgency and generosity towards their problems than it has towards Ukraine. What makes some countries resentful is that the United States imposes its own national security agenda on the world by controlling the US dollar, and insists on requiring all other countries to comply with international rules.
Ultimately, money is persuasive. In the past decade, China has provided more funds than the World Bank. Addressing this gap is one of Yellen's main goals.
Developed countries are definitely paying attention to these countries, "Yellen said in an interview last month. We heard their voices clearly
The shareholders of the World Bank have approved measures to increase the bank's lending capacity by $50 billion over the next decade; The United States is the largest shareholder of the World Bank. At the World Bank's annual meeting held in Marrakech, Morocco this week, World Bank shareholders will discuss measures to increase lending capacity by approximately $100 billion. As of June this year, the outstanding balance of loans issued by the World Bank and its subsidiaries was $460 billion.
The World Bank and International Monetary Fund (IMF) were established in 1944 at an international conference in Bretton Woods, New Hampshire, with the aim of establishing a post-war economic system. The IMF is responsible for providing short-term loans to alleviate temporary financial difficulties; The World Bank is responsible for providing long-term loans aimed at accelerating economic development.
In the 1970s and 1980s, many developing countries owed high amounts of debt to Western lenders. The debts of these countries were ultimately restructured. In 1996, the World Bank and IMF launched an initiative aimed at completely eliminating the debt of the poorest countries.
The solution from now on is that most aid will be provided in the form of grants and relatively lenient repayment conditions through preferential loans.
Brad Setser, an international finance expert at the Council on Foreign Relations in the United States, said that the World Bank did not have the funds to provide more loans and no longer believed that its policy mission was to provide funding for infrastructure in the poorest regions of the world. Setser stated that at that time, the World Bank hoped to provide more funding for strengthening the health sector and inclusive development strategies, rather than mainly for old-fashioned highways.
China has just filled this vacuum. According to Setser's calculations, from 2011 to 2019, the World Bank and other multilateral banks lent $241 billion to low-income and middle-income countries. During the same period, Chinese banks lent $473 billion to other countries. Setser stated that these numbers are not strictly comparable as some of China's loans are provided to wealthier borrowers or reflect the government's indirect management of exchange rates.
Unlike the World Bank and other regional banks, most Chinese banks lend on commercial terms, usually for the benefit of Chinese enterprises, such as those participating in the the Belt and Road Initiative, a global infrastructure project. Chinese banks are also unlikely to raise awkward questions about corruption, human rights, or environmental impacts.
Former US Treasury Secretary Larry Summers tweeted earlier this year: "A person from a developing country said to me, 'What we get from China is an airport. What the United States teaches us is a lesson.'.
Now, the situation has begun to change. Multilateral lending institutions have increased their lending efforts during the pandemic. According to Setser's data, as many past loans have turned bad, Chinese banks have begun to shrink their lending scale. The efforts of some poor countries to restructure their debts have been hindered by the unwillingness of Chinese banks to reduce their debts.
Meanwhile, over the past year, the Biden administration and Ajay Banga, an Indian American financial executive who took office as the President of the World Bank in June this year, have urged the bank to expand its lending capacity by increasing financial leverage, issuing mixed capital such as subprime bonds, or allowing shareholder countries to provide guarantees for more loans. The United States' participation in the World Bank's capital increase and stock expansion requires approval from the US Congress, which is very difficult.
Although China is a member of the World Bank, it has been striving to establish a platform led by China rather than the United States to compete with the World Bank, such as the BRICS, which is composed of Brazil, Russia, India, China, and South Africa. The group aims to compete with the Group of Twenty (G20), which is composed of developed industrial and developing countries.
Therefore, officials from the Biden administration were quite satisfied to mention the group photo of Biden and Peng Anjie with leaders from India, Brazil, and South Africa at the G20 summit held in New Delhi last month, which accounted for three-fifths of the BRICS countries. The absence of China and Russia from this summit is eye-catching.