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China goes it alone?

Analysts said the long delay in U.S. approval of what amounts to a modest and incremental modernization of the IMF will only encourage China and other major emerging powers to go it alone or create alternative international forums to exercise their growing economic clout. China already extends more loans each year to developing nations in Africa, Latin America and Asia than does the World Bank, the IMF’s sister institution.

China also has suggested marshaling the sizable resources of major emerging economic powers to create an alternative lending fund, which could compete with the U.S.-dominated IMF in providing emergency lending to nations in economic straits. Such an alternative lending authority could enable China and other economic powers that are less market-oriented to exert potentially enormous influence over smaller nations in times of crisis, placing them firmly in a China-centered orbit outside the influence of the U.S. and other Western powers.

Republican leaders with jurisdiction over the IMF were prepared to agree to the reforms in the spending package, but they wanted the White House to make concessions, the analysts said. When the administration failed to so, the Republicans pointed to lingering opposition to the IMF among conservative populists, some of whom oppose any more funding or authority for the Bretton Woods institution.

“It’s no small matter,” House Appropriations Committee Chairman Harold Rogers, Kentucky Republican, told reporters about the IMF funding request. The administration was seeking to “reprogram” $63 billion in emergency lending authority that the U.S. gave the IMF during the global financial crisis. Congress approved the lending authority in 2009, but the IMF reforms required the U.S. contribution to be shifted to a permanent fund for any other global financial emergencies.

“It’s a huge monetary item, fiscally — $63 billion,” Mr. Rogers said, though supporters argued that the measure would have a relatively small impact of $314 million in the budget over the short term.

Under the reforms, most of a proposed doubling of IMF lending authority to $733 billion would be underwritten by other nations, including China, which in return would receive a modest increase in its voting power in IMF decisions, an increase that still falls far short of reflecting Beijing’s real-world economic clout.

U.S. still dominates IMF

Beyond that, U.S. supporters of the reforms said the changes would do nothing to dilute the substantial voting power of Washington on the IMF’s executive board, and would maintain the effective U.S. veto authority over IMF activities. Even if nearly every other country approves the reforms, U.S. inaction or opposition would effectively kill them.

While the 17 percent voting share for the U.S. would not be affected, small European countries such as Belgium would have to accommodate the increased share for emerging economic powers. China’s voting clout would almost double to about 6 percent, making it the third-largest voice in IMF votes.

“It is pretty big slap in the face of the IMF by the U.S. at a time when the U.S. is trying to re-establish its leadership in these global organizations,” Douglas A. Rediker, U.S. representative on the IMF board from 2010 to 2012, told the Peterson Institute.

“The U.S. reluctance to move ahead with this is causing some friction” at meetings of the Group of 20 economic powers, which includes China, India and other major emerging nations as well as European allies who reluctantly made substantial concessions by agreeing to the reforms, he said.

Officials in India, China and South Korea were among those expressing disappointment at the U.S. failure to endorse the IMF overhaul last week.

U.S. inaction undermines efforts to modernize and beef up the IMF so it can deal with the increasingly large-scale financial crises that have caused global economic turmoil in recent years, he said.

Moreover, with the administration in the midst of negotiations with the European Union and a host of other nations in the Asia-Pacific region over potentially far-reaching trade agreements, “It is probably a pretty decent slap at President Obama’s ability to go ahead with commitments” like those, he said.

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