Tag: IMF

ONE BANK HAS TORN THE WORLD IN TWO

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By Kristopher Klein
Staff Writer 

There is a new institution on the financial landscape. It includes five G7 member states and 26 regional member states and carries an endowment just under $100 billion. But there is one big issue that’s causing a stir—the United States refuses to participate even as its closest allies rush to join.

The rise of the China-backed Asia Infrastructure Investment Bank (AIIB) has fed the ‘American decline’ narrative popular among many news outlets. In the past weeks several notable American allies have agreed to join the bank. On March 12, the United Kingdom became the first US ally to announce that it would join the AIIB after originally deciding against membership. Several European countries, including Germany, France and Italy quickly followed. Two weeks later on March 26, South Korea announced that it too would join the AIIB. After three days, Australia and the Netherlands completed the humiliation. In light of these defections, the media remains transfixed to the unyielding opposition of the United States and its increasingly ‘isolated’ stance. When China first unveiled the AIIB, the United States used diplomatic pressure to prevent its allies from signing on to the new bank. However, those efforts failed in recent weeks after China agreed to scrap its veto power over the bank’s decision-making process in order to attract American allies. Despite the criticism directed towards the Obama administration, the strategy employed by the United States is not one of isolationism, nor has the United States been isolated. The United States is refusing to join the AIIB until China has solidified a system of decision-making that guarantees its actions are apolitical and responsible toward sustainable development.

The United States expressed great dissatisfaction when the United Kingdom joined the bank as its first Western member. According to a senior Obama administration official the United States remains “wary about a trend of constant accommodation of China, which is not the best way to engage a rising power.” The United States is concerned, and reasonably so, that the new bank will serve as a tool for the People’s Republic of China to challenge the established international system and the norms that exist within it.

America Is Not Being Isolated, It’s Being Wise.

China has a history of making loans to regimes that refuse to make the reforms necessary to secure a loan from traditional institutions such as the International Monetary Fund (IMF), World Bank or Asian Development Bank. In the decade from 1998 to 2008, during the worst of the genocide in Darfur, China gave the Sudanese government $1 billion in low or no interest ‘concessional’ loans. In 2004 shortly after Iran announced it would resume uranium enrichment, China agreed to invest $70 billion to develop Iran’s oil fields and to buy the oil they would produce over the next 30 years. Lending habits that place China on the side of abusive and reform-averse regimes have fueled concerns that the AIIB will not uphold existing international requirements to secure loans. In a statement to the UK’s Guardian newspaper, the National Security Council expressed concerns “about whether the AIIB will meet these high standards, particularly related to governance, and environmental and social safeguards.”

In spite of withering criticism, the United State’s decision to withhold support for the AIIB has its merits. It would be unwise for the United States to back an institution that allows China to wield outsized influence over decision-making, particularly when that decision-making could lead to politically, economically and environmentally irresponsible investments. The agreement by Chinese officials to forgo veto power was a step in the right direction. However, more concessions can yet be gained.

Allegations of a hidden Chinese agenda

Concerns that the AIIB will be used to further China’s political agenda were raised last week when China demanded that Taiwan only be admitted to the bank’s membership if it applied with an ‘appropriate’ name. Taiwan, referred to by China as “Taipei, China” and officially known as the Republic of China (ROC), has been in a near constant state of conflict with the mainland since 1949, when defeated Nationalist Chinese forces led by Chiang Kai-shek fled to the island following the Communist Party’s rise to power and the establishment of the People’s Republic of China (PRC). The use of Taiwan’s AIIB membership as a chance to bring up the issue of its sovereignty is not only incredibly dark, but indicative of China’s intentions to use its influence in the AIIB to pursue its own political agendas.

Furthermore, Beijing’s maneuvering of its own bank’s role as an alternative to the IMF, World Bank, and the ADB have led to concerns that contracts funded by AIIB investments might favor firms that support Chinese political positions. China must provide credible assurances, that it will not use the AIIB as a tool of its own power before the institution can be considered politically kosher around the globe.

Suggestions have been made to pressure China to address concerns that its new bank will be used as a political tool, but thus far, China has not acted to assuage such concerns. South Korea recommended moving the bank’s headquarters to Seoul in order to alleviate concerns over China’s political intentions. However, China insisted that the headquarters remain in Beijing. South Korea did not attend the signing of the original document laying out plans for the creation of the bank.

All the scrutiny focused on the rise of the AIIB places substantial pressure on China to facilitate a system that dispels these concerns. It is imperative for the survival of the AIIB that China establishes fair guidelines for the bank. If voting structure and day-to-day operations of the bank are seen as being skewed or unfair, all of the progress China has made toward establishing its own alternative institution will be done in vain.

What The United States Should Do

If the United States truly wants the AIIB to adopt standards used by existing international institutions, it must first show China that it is willing to be fair with rules and procedures. In 2010 the IMF proposed changes to its voting structure that would increase the voting power of developing countries by 2.6 percent and redistribute voting power among developing and developed countries from over-represented countries to under-represented countries. Among the countries to gain the most voting share from these reforms are China and India. Though this set of IMF reforms has received backing from the Obama administration, it has not been implemented due to resistance from the U.S. Congress, which must ratify any change in the US’s voting quota. If Congress were to ratify IMF reforms, it could turn the current narrative to focus on the structure of the AIIB and place additional pressure on China to endorse both equitable voting power and stricter standards for lending in the new bank.

The focus of the United States should not be on the maintenance of its own voting power alone, it should be on the improvement of lending standards that it helped create to bring greater efficiency and reform progress to the international financial system. In order for the current regime of international standards to survive, the United States must show a willingness to allow its role within that structure to evolve. The perfect way of sending that message would be to ratify IMF reforms, while continuing to pressure China into accepting existing norms. Until the AIIB can prove itself to be impartial and responsible, the United States should limit its interactions with the institution.

SISI’S EGYPT: REPRESSION AT A CROSSROADS

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By Matt M. Joye
Senior Editor

In Egypt, it remains a very good thing to be a general. Even the protestors who occupied Tahrir Square and brought down the former general-turned-dictator Hosni Mubarak courted the support of the army. Now, after just over a year of rule by President Mohamed Morsi, the coup that unseated him has placed another former general in the presidential palace. Indeed, since the toppling of the monarchy in 1952, Morsi remains the only civilian elected to Egypt’s highest office. Yet despite the clamoring of average Egyptians for a return to stability, the landslide electoral victory of President Abdel Fattah al-Sisi has not been a harbinger of democratic transition. It may in fact signal a dark road ahead for the country that cast off a 30-year despot less than four years ago.

Much has transpired since the momentous swell of popular protest and revolution—known collectively as the Arab Spring—began in Tunisia on Dec. 18, 2010, and exploded onto the world stage. Indeed, even now its imprint extends from the current Occupy Central movement in Hong Kong, to the unseating of President Blaise Compaore in Burkina Faso after 27 years of rule, and more ominously in the continuing civil wars in Ukraine and Syria. Nowhere became more synonymous with this global movement than Egypt: hundreds of thousands gathered in the streets of Cairo, centered on the iconic Tahrir Square, to demand the ouster of President Mubarak. In the end, after withstanding a brutal and deadly crackdown, they remained; gone was the former general who had ruled the country for almost 30 years.

The celebration of that victory would certainly have been tempered if protestors had known three years later another former general would occupy the presidential palace. Elected with 96.1% of the vote, President Sisi seemed to gain some form of democratic legitimacy after leading the coup that deposed President Morsi in July 2013. In one sense it ended an aberration: the military has been the dominant institution in Egypt since at least the overthrow of the monarchy in 1952. After being sidelined for a year by the electoral victory of Morsi’s Muslim Brotherhood—the only other viable organized political institution in Egypt—it would appear the generals have escaped banishment to the barracks and returned to the field, albeit with somewhat bruised egos. [1]

Indeed Sisi’s ascension has taken on aspects of a jilted institution determined to re-establish the power and prestige of a group that has long dominated the Egyptian state. At times this has bordered on the bizarre. Sisi and the regime have advanced a cult of personality built around the president as Egypt’s savior. The Egyptian media coverage of his recent United Nations speech portrayed a triumphant and overwhelming response by the assembly to his address; the New York Times version was less glowing, noting the applause came almost exclusively from his entourage. Egypt’s private media outlets have vowed to observe a self-imposed gag order on criticism of his government. One satellite network even stated, “…freedom of expression cannot ever justify ridicule of the Egyptian Army’s morale.” After the United States briefly suspended some military aid to Egypt, US Secretary of State John Kerry was subjected to security wands on visiting the presidential palace—unusual for a visiting dignitary. In the midst of protests in the aftermath of the death of Michael Brown at the hands of a Ferguson, Missouri police officer, Egypt’s Ministry of Foreign Affairs even issued a statement advising the US to undertake “respect for the right of assembly and peaceful expression of opinion.”

Obviously at times it pays to have a short memory. The violent attack on Pro-Morsi demonstrations by the military in the aftermath of his overthrow killed over eight hundred people, according to Human Rights Watch, and was unlikely to have occurred without at least tacit approval from Sisi: he was in charge of the military and deputy prime minister at the time. The Muslim Brotherhood is now banned as a “terrorist” organization, which has swept up many non-Brotherhood supporters in the subsequent raids. Perhaps most ironic, the leader who has only risen to power because of a series of protests now bans demonstrations of more than ten people without a special permit, and these are hard to procure.

Foreign and domestic non-governmental organizations, under the guise that they provide a conduit for foreign interference, have also faced new restrictions. NGOs that are based in Egypt will now need the approval of the government before accepting any foreign funding. When HRC tried to deliver its findings on the Rabaa Square massacre, its representatives were turned away at the airport and prevented from even entering the country: this was the first time HRC had been denied entrance to Egypt. Former US President Jimmy Carter’s NGO, which promotes free elections and human rights, has already withdrawn, with Carter citing an environment so antithetical to democracy that it “could be extremely difficult, and possibly dangerous, for critics of the regime” to remain.

Two Egyptian institutions that were critical to the development of resistance and opposition to Mubarak were universities and mosques. Both have been targeted by repressive government measures. Muslim imams and preachers must now have approval from the government, and many smaller houses of worship have been closed. At Friday prayers, every preacher must deliver the same sermon. Universities, once a space free from police and thus safe to demonstrate after the restrictions, have been rocked by arrests and violence now that security forces have returned. Now long lines and searches are mandatory just to enter campus, staff may be fired for “inciting” demonstrations, and the head of each university is appointed by the president under new restrictive policies. A wave of preemptive arrests and protests has resulted.

In the aftermath of an attack by militants in the Sinai Peninsula on Oct. 24 that left more than 30 soldiers dead, the Egyptian Army bulldozed hundreds of houses to create a buffer at the Gaza border—initially giving only 24 hours advance notice—and leaving thousands homeless. The Sinai has long been a battleground between militants and the Egyptian military. But the attack has upped the ante, as the military had claimed until now it was winning the war against the insurgents. The Egyptian government has responded with additional repressive measures. One such policy, which hands prosecution for violations of public utilities over to military courts, is broad enough that marches on public roads could fall within the new jurisdiction.

Under even the most enlightened leadership, Egypt faces numerous challenges that would test the functionality of the state. Economic pressures are almost at a breaking point, with the collapse of the tourism industry, the decline of export revenues as gas and oil production decline, and a bloated bureaucracy and huge debts that siphon off much of its budget. Recent cuts in fuel subsidies, which caused gas prices to spike by 80 percent while electricity costs also rose, are not popular and thus speak to the extent of the crisis. The violence in the Sinai is unlikely to diminish in the near future. The specter of a Muslim Brotherhood re-emergence from the shadows is equal parts convenient spook and real fear in the minds of military brass.

Yet in the overwhelming crackdown on any entity that remotely threatens the rule of the military, there are potential seeds of opposition sown. Public support of the military has fallen dramatically, and the underpinning of earlier support—the wish for a return of stability after the chaos of the revolution and the Morsi regime—largely hinges on whether Sisi can deliver both stability and the economic growth that might accompany it. The removal of fuel subsidies was in part directed at the IMF, which is currently withholding a $4.8 billion loan critical for debt payments. Some investment has returned, but Sisi has not shed the state-centric economic model of old. Egypt has a history of cronyism based on state protections for favored industries: the military has often been the biggest beneficiary of state-directed economic ventures (Mubarak was personally connected to at least 469 businesses). It is possible that the stability of a Sisi regime will restore the stability necessary for economic growth and investment, which might be the biggest panacea for the ills of Egyptians.

There is a more dire option. With so much pressure on every avenue of dissent and political organization, overwhelming repression might produce far more determined—and risk-adverse—adversaries. The designation of the Muslim Brotherhood as a terrorist organization is no doubt politically expedient, but the wider net of oppression might alienate much larger segments of the population. Cracking down on universities, mosques, demonstrations and the like leaves little room for opposition within orthodox political channels. The domestic situation also limits the support that Egypt can garner from its longstanding allies, namely the US. The attempts by Sisi to foster closer ties with Russia stem in part from the hesitancy the US showed—read temporary suspension of military aid—after the coup that brought him to power. Egypt needs to address its structural deficiencies and attract investment to deliver on the growth that is the justification for its authoritarian rule—trading freedoms for the sake of stability. If Sisi cannot deliver an economy that at least partially fulfills the promises of the revolution and coup, it may take all of the qualities of the general in him to hold onto power. For those who occupied Tahrir Square four years ago, this might seem all too familiar.

1. Bahgat, Gawdat and Robert Sharp. “Prospects for a New US Strategic Orientation in the Middle East.” Mediterranean Quarterly 25.3 (2014): 27-39. Project MUSE. Web. Oct. 29, 2014.

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