With countries making beeline in joining the China led Asian Infrastructure Investment Bank; the development may reactivate the stalled reform of the IMF. For the last five years, the US Congress was opposing the 14th quota revision of the IMF which gives more voting share to the EMEs including China and India by reducing that of the European countries.
Washington was arrogant in blocking the 14th quota revision for a long time. Thus it was not allowing the present international institutions to better reflect the importance of China which is the richest in the world in terms of international reserves.
Even a largely dissatisfied India at the US stand has joined the AIIB as a founding member. Not surprisingly, the US itself has the chief responsibility for countries to quickly embrace the Chinese leadership in the world economic arena.
Latest development indicates many countries suggesting alternative plans for IMF reforms. Brazil, who actively supported Chinese efforts within the BRICS, has proposed a Plan B which suggests a shocking reduction of US quota share in IMF from more than 16 per cent to less than ten percent.
The chief attraction for the countries to join the AIIB is the nearly $ 4 trillion foreign exchange reserve with China. Compared to this, the IMF’s reserve is just around 500 billion in terms quotas. Managing Director of the World Bank, Mulyani Indrawati recognizes the ability of China to form and led international institutions in an interview to the CNBC TV- “China is now the leader of the world.”
Over the last one decade China was searching for options for its safe investment. It is not happy with putting the money in US treasures because of the probability of concentration of risk. AIIB may allow Beijing to better deploy its reserves through sovereign loans rather than dumping it on US treasuries.
The idea of AIIB with its headquarters in Beijing has already isolated the US in its own alliance group. Most of the US allies including UK have decided to join the AIIB. Asian powers Japan and Australia have already intimated their support to the new bank.
Formation of AIIB and the rush in which countries have joined it indicate that for the IMF to be the leading institution, it should better accommodate the rich China as early as possible. If it doesn’t happen, it will signal slow decline of the Washington led global economic order. On the other, China will accent to the throne of the creator of international institutions.