World needs to stop dragging its feet, economist says
Developed economies should take urgent action to give emerging economies a greater say in international governance, a senior economist at Turkey’s central bank has said.
The rich countries have been dragging their feet on this issue, according to Yuksel Gormez.
“First, the International Monetary Fund should accept the renminbi into the currency basket,” he said.
The IMF was supposed to decide on the renminbi being brought into such a basket before the G20 leaders’ meeting, but the decision has been put back until the end of the month.
Sources say that if a decision is not forthcoming or if the IMF board rules against such a move, the matter will not be revisited for another five years.
“The internationalization of the renminbi has been happening a lot more quickly than many observers had expected, so I think the IMF should approve the move,” Gormez said.
However, international decision-making can be a fraught process, he said.
“And that applies to global financial institutions, including the IMF.”
Though China is the world’s second-biggest economy, it still has just 3.81 percent of the voting rights in the IMF. The United States has 16.74 percent, which gives it veto power among the 188 participants of the IMF’s special drawing rights department.
“I think many emerging countries are in the same boat as far as bringing global financial governance into line with reality is concerned, including reform of all institutions,” Gormez said.
Despite the slowness in bringing the way the financial system is run up to date, there is a lot to be said in the system’s favor, he said.
“Instead of moving quickly and heading in the wrong direction, it is better for these kinds of decisions to be made deliberatively and correctly.
“Nevertheless, reform is needed, and the current global financial architecture is not delivering. Change will come. I don’t know how, and I don’t know when, but it will come. It may not be as fast as next year, but I believe it will definitely be before 2020.”
Gormez said China’s Belt and Road Initiative will be a great help in boosting global trade and improving connectivity.
The world is going through a golden age in upgrading global infrastructure, and China’s proposals have offered a viable financing vehicle for many countries, he said.
“This is not only because China has been offering investment resources, but also because this initiative will be pooling financial means globally.
“Many developing countries have long complained about lacking resources for long-term infrastructure investment, and that is not the case any more because of the Belt and Road Initiative.
“Long-term infrastructure projects are going to be invested in on a global scale, and the cost of global investment funding is falling. That’s good for everybody.”
The Belt and Road Initiative offers finance for the biggest of projects and can help create a global financing vehicle, he said.
“This is a fantastic period for all of us. I hope China will be extremely successful and will find many friends to support what it is doing.
“China has the capacity to invest in extremely costly infrastructure projects, and it can draw on its expertise to deliver them.”
In delivering success with the Belt and Road Initiative, China’s major challenge is credibility, he said.
“If all projects are implemented smoothly, China will have built a reputation for itself. That credibility is much more important than financial resources. It is the best asset for this generation in China and for the next generations.”
Once China has built credibility, money is a secondary consideration, he said.
“Pure cash will never be a problem for a credible country, or person, or company. ... The real magic for China is in not having a huge amount of resources, but in having the credibility to deliver results.”
Gao Shuang contributed to this story.