Like the exclusive WASP-only country club that opens the door to blacks and Jews after it can no longer raise the money to fix the roof, the I.M.F. is inviting China to play a larger role. The problem is that it is far too late to invite China to be a junior partner in this U.S. dominated institution, a fact that would be more apparent if reporters recognized the true size of China�s economy.
The I.M.F. has been used by the United States to enforce a creditors� cartel against countries that did not follow an economic path that fit the interests of major U.S. corporations. The basic story is that the I.M.F. would lay out an economic program and if countries didn�t follow it, they would be denied credit by not only the I.M.F., but also the much larger World Bank, as well as other international development agencies. In general the private sector would follow suit. The power of the I.M.F. was best illustrated in the East Asian financial crisis, when it imposed harsh conditions, requiring governments in the region to assume responsibility for the debt of private companies to major western banks.
The world has changed since the mid-nineties, as is best illustrated by the case of Argentina. After Argentina defaulted on its debt in 2001, the I.M.F. tried to impose its usual harsh �rescue� package, but the country balked. Instead it managed to circumvent the creditors� cartel, and has now experienced four years of exceptionally strong growth.
Argentina�s success was a huge blow to the I.M.F.�s credibility. Furthermore, with China sitting on $1 trillion in liquid reserves, and feeling no compunction to adhere to the I.M.F�s assessment of sound economic policy in its lending practices, the I.M.F. faces a rapid slide into irrelevancy.
This is the context in which China is being invited into the club. But, there seems little reason that a country with a GDP that is approaching $10 trillion, and whose economy will surpass the size of the U.S. economy in less than a decade, should be anxious to accept the role of junior partner in a dying institution.