Summers Says U.S. IMF Inaction Gives China’s AIIB Legitimacy

(Bloomberg) -- http://www.bloomberg.com/news/articles/2015-03-30/summers-says-u-s-imf-inaction-gives-china-s-aiib-legitimacy

Former U.S. Treasury Secretary LawrenceSummers said congressional inaction on a plan to overhaul theInternational Monetary Fund has helped China gain support amongother countries for its own regional development bank.

http://www.bloomberg.com/news/articles/2015-03-30/summers-says-u-s-imf-inaction-gives-china-s-aiib-legitimacy

“They can quite legitimately ask, ‘excuse me, you guyshave had 5 ? years to support a reasonable role for us in theIMF, and you have not done it,’” Summers, a Harvard Universityprofessor, said at a campus forum in Cambridge, Massachusetts.“So we have basically ushered in that change with legitimacy onChina’s part, and it is a terrible reflection on our politicalsystem that we have not been able to find a compromise.”

European nations including Germany and the U.K., along withother U.S. allies such as Australia and South Korea, are seekingto join China’s new institution in defiance of U.S. warningsthat it may lack the standards of institutions such as the WorldBank, based in Washington.

While China made it clear it would welcome the U.S. in theAsian Infrastructure Investment Bank, the U.S. still prefers tocollaborate through existing international financialinstitutions, a U.S. Treasury official told reporters in Beijingon Monday after Treasury Secretary Jacob J. Lew held a day ofmeetings there with leaders including Premier Li Keqiang.

China, the world’s second-largest economy, currently rankssixth in its voting shares at the IMF, behind Japan, Germany,France and the U.K. Under a plan forged in 2010, China wouldjump to third, while India would climb to eighth from 11th andBrazil would move up four spots to 10th.

Global Order

“While we have all this rhetoric about shaping a newglobal order -- the truth is that China still only has 2.5percent of the vote at the IMF -- and we have taken the positionunsuccessfully that China should not be able to start a globaldevelopment bank to do infrastructure in Asia,” Summers said.

Republican lawmakers in the U.S. Congress have declined toapprove the changes that would recognize the growing economicmight of countries including China, India and Brazil. Most ofthe IMF’s 188 member nations support the 2010 plan, as does theObama administration.

The lack of U.S. approval for the IMF changes is also“holding down the capacity of the IMF to add confidence to theworld at a moment when there are substantial questions inemerging markets,” Summers said.

“It is a symptom of a broader problem, which is that wehave great difficulty getting the executive branch and thelegislative branch together on international organizations,international trade agreements and the kinds of steps that arenecessary for the United States to be a leader in the globaleconomy,” he said.

To contact the reporter on this story:Brendan Murray in Washington

at [e-mail]

To contact the editors responsible for this story:Chris Wellisz at [e-mail] DeGeorge, Alister Bull