It looks like “someone” wants to be left out from the future “world center of economic growth” as with this arrogant attitude, the US will definitely not help itself in rising friendly sentiments in the public.
It is coming in as US heavily depends on far-east markets to sustain the positive momentum of growth that their administration has been able to generate during the last year.
For sure in certain times, if your enemy is too strong to be fought and defeated, you’re better off being allies. This has been the direction that many European countries have taken.
Let’s see if the giant US will at the end “ob torto collo” queue up, take a number and fairly participate with all the others to the next great and exciting adventure that this side of the world is promising to be.
Washington may well have to consider a change in strategy
BY MOHAMED A EL-ERIAN
While most of the world is focused on the challenges to the United States in an increasingly fluid Middle East, a once-unthinkable phenomenon is playing out in Asia.
Having failed to kill the Chinese-led proposal to create an Asian Infrastructure Investment Bank (AIIB), the US is now being openly defied by a growing number of its allies as they signal their intention to join this new institution.
US opposition to an Asia-focused organisation isn’t new. In the late 1990s, it confronted a regional initiative to establish an Asian Monetary Fund.
Even then, the motivations of the two sides were similar to those that drive them today. Countries in the region were extremely dissatisfied and angry about their treatment by the existing, Western-dominated institutions (particularly the International Monetary Fund [IMF], which had assumed huge influence with the 1997/98 Asian financial crisis).
As now, US opposition to a new Asian institution reflected concerns about the fragmentation of the existing multilateral system and the loss of influence that would ensue.
This time, China is leading countries rebelling against the glacial pace of reform at the institutions that arose from the Bretton Woods system, the IMF and the World Bank.
Through the combination of the proposed AIIB, a new development bank and mushrooming bilateral arrangements, China is slowly building small pathways to bypassing the long-standing institutional arrangement. No wonder the US is again worried about the erosion of the existing Western-dominated multilateral system (in this particular case, the World Bank) where its influence is still considerable, if not determinant.
But even though the motivations of both sides are similar as in the past, this time, outcomes may be very different.
Although the US was forced to yield on some small points to help Asian nations save face, it succeeded in quashing the Asian Monetary Fund a little more than 15 years ago. Now, it is finding it much more difficult to get its way.
In recent days, Australia, a stead-fast US ally, signalled its intention to participate in the AIIB. It joins several European countries and a number of emerging economies that have already defied US wishes, suggesting that the creation of the new institution is almost a done deal.
The US’ inability to impose its will reflects both domestic and international factors.
Along with Europe and Japan, the US has become more inwardly oriented as its economy continues to emerge from the global financial crisis. This has occurred in a context of political polarisation that tends to paralyse even the most basic elements of economic governance, such as enacting an annual budget.
On the global scene, the economic realignment of recent years has led to the emergence of a more confident and assertive China. And unlike most Western economies, China is willing to devote considerable funds to regional initiatives.
Meanwhile, the global economic influence of the US, especially in international institutions, has been weakened by the repeated blockage by Congress of a set of relatively minimalist reforms to the IMF that have already been approved by the majority of the fund’s 188 members. And this even though the US spearheaded the reform effort, which neither dilutes America’s voting power nor imposes additional funding.
The US may well have to consider a change in strategy. Rather than steadfastly opposing the AIIB, it may make more sense to join the institutions and work with other members to ensure strategic coherence and effective operational rules.
Doing so would increase the likelihood that the AIIB would be designed as an efficient supplement to existing institutions, rather than a costly substitute. It would also improve the prospects that this new institution would internalise the World Bank’s past mistakes and adopt more modern tools of development.
The US challenge doesn’t end there. The AIIB setback is another illustration of the extent to which dysfunction in Congress is doing more than just holding back America’s economic growth and prosperity. Combined with the damaging opposition to IMF reform, it is also continuously eroding the US’s global economic influence. The longer this persists, the greater the costs to an economy that still runs well below its potential, and that now risks seeing this potential erode. — Bloomberg View
