Michael Hudson: IMF Showdown with China in Morocco

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is The Destiny of Civilization. Originally published in the Investigación Económica (Economic Research), produced by UNAM (Autonomous National University of Mexico)

This year’s annual IMF/World Bank meetings in Morocco are the most explicitly confrontational yet by US/NATO diplomacy toward China and its fellow BRICS+ allies. It is not really rivalry, because US neoliberal financial policy is so different from the aims that the BRICS+ countries have been developing at their own recent international meetings.

At issue is not only what countries will be the major beneficiaries of future IMF and World Bank loan operations, but whether the world will back US unipolar dominance or start to move explicitly toward a multipolar philosophy of mutual support to increase living standards and prosperity instead of imposing anti-labor austerity in an attempt to maintain a trade and investment system that is now widely seen to be dysfunctional and financially predatory US demands to use these two organizations as arms of its New Cold War policy.

At issue is an increase in the US drive to increase quotas of IMF and World Bank member countries. Quotas reflect voting power, with 85% of the votes required to enact a policy. A 15% veto is able to block any policy change. And ever since the inception of these two organizations in 1944-45, the United States has insisted in having veto power in any organization it joins, so that no foreign countries will ever be in a position to dictate its policy – while enabling it to block any policy that it deems benefiting other nations more than itself. Its 17.4% quota (and 16.5% of the vote) gives it veto power in the IMF.

It was inevitable that the original distribution of quotas has not kept pace with the shifts in international financial power since 1945. Rising economies have asked for a larger quota and hence voice in settling IMF and World Bank policy. But each round of quota increases has seen US strategists insist that any increase in overall quotas must not reduce its own quota to less than the 15% enabling it to maintain its unique veto power.

No other country remotely approaches U.S. power. US strategists were glad to let Japan obtain the second largest quota, now 6.47 percent. That reflects not only its great industrial takeoff in the 1970s and ‘80s, but US confidence that Japan will be like a “second US vote.” (That is why it tried to add Japan to the UN Security Council. The Soviet delegate vetoed this, citing Japan’s role as a US political satellite.)

China is in third place, with 6.40%, closely followed by the weakening economies of Germany and Britain, thoroughly reliant on US gentleness as it imposes tightening US-centered dependency on their economies.

What makes this issue so pressing this year is the emergence of BRICS+ countries and the collective alternative that they are in the process of juxtaposing as they move to de-dollarize their economies so as to protect themselves from the threat that US diplomats will impose sanctions, confiscate their official monetary reserves (as they have done with those of Iran, Venezuela and Russia) in punishment for their seeking national self-sufficiency instead of reliance on US suppliers and creditors.

For countries seeking a multipolar world order instead of US-centered unipolar economy, the widely used term “dedollarization” has evolved rapidly to mean much more than simply using other currencies to settle their trade and investment transactions. A fundamentally different philosophy of international finance, creditor/debtor relationships and national self-sufficiency to protect themselves from trade sanctions and other US-sponsored economic warfare. For many decades, countries sought to avoid running into debt to the IMF in fear of being subjected to its anti-labor austerity policies imposed in the junk-economics belief that any volume of foreign debt service could be squeezed out by reducing labor’s wages by a sufficient degree.

US Treasury Secretary Janet Yellen and her US neoliberal gang at Marrakesh have thrown down the gauntlet when it comes to giving China a stronger voice – that is, quota – in the IMF. The Financial Times published the most explicit statement of their position on October 12 in an article by former US Treasury official Edwin Truman. “Like it or not,” he points out, “any deal must satisfy the US Treasury.” Its primary concern is that while ideally each member’s quota would increase by at least one-third, “the com­bined size of these selec­ted increases must not threaten the US vot­ing share, or Wash­ing­ton will block the com­prom­ise.”[1]

Furthermore, Mr. Truman explains, the planned increase should not apply to “the emerging market and developing countries.” They are debtors and hence would support policies that help debtor countries recover instead of fall into deepening dependency on international bondholders and new US dollar loans from US/NATO creditors and the IMF.

The problem is that “Under the cur­rent for­mula, the quotas of [the strongest] 25 IMF mem­bers should be at least 50 per cent lar­ger than their cur­rent ones, led by China.” But in addition to threatening to “reduce the US vot­ing share to close to 15 per cent,” it would give China increasing influence. “The US has made clear that it will not sup­port an increase in any mem­ber’s quota share unless that coun­try respects the rules and norms of the IMF, which in the US view China does not. To remove this obstacle, China should agree not to accept the select­ive increase in its quota to which it would oth­er­wise be entitled, and the US should sup­port the com­prom­ise.”

If it does not submit quietly, he threatens, is for the IMF meeting to end in “another stalemate.” By that word he means a refusal by China and other countries to acquiesce in U.S. Cold War strategists hijacking even more Asian and Global South resources to support their international diplomacy.

In one sense, I wonder what all this kerfuffle really is about. Who really cares what the IMF’s articles of agreement stipulate and what its staff recommends? We are no longer in a rule of law, but in a “rules-based order,” with US officials setting the rules on an ad hoc basis. This already had made a travesty of IMF rules and procedures.

The IMF’s recent loans to Ukraine have raised its borrowing to seven times its quota. The IMF no longer feels obligated to follow its articles of agreement, and quite openly acts as an agent of the US State Department and military to finance the US/NATO war Russia and China (and really, of course, against Germany and Western Europe).

In addition to IMF loans to Ukraine violating its stated limits to member-country borrowing, it is lending to a country at war, also forbidden. And third, it violates the “No more Argentinas” rule that it is not supposed to make a loan to a country without some calculation that the country will be able to repay the loan. Does anyone believe that Ukraine can repay – except perhaps by selling its agricultural land to Monsanto, Cargill and other US agribusiness companies.

 In view of the fact that US strategists at the IMF and World Bank are bound to continue to weaponize their loans to promote a US-centered neoliberalism, I have a modest proposal for China. I know that it does not want to use the present state of international tension to emphasize its willingness to break. So perhaps it should indeed give the US precisely what it wants – and even more!

It can indeed go on record as suggesting that it be given a quota reflecting its economy equality with the United States. That certainly would seem to be warranted by being designated America’s Number One long-term adversary. But if the US refuses, then I would like to see China simply withdraw its IMF and World Bank subscription altogether. Walk away.

Why should China help subsidize international organizations whose policies are adverse to those of China and its fellow BRICS+ allies? The World Bank is always headed by a US diplomat, usually from the military, and hopes to finance the US/NATO backed alternative to China’s Belt and Road initiative. And the IMF’s neoliberal “stabilization” policies are anti-labor and hence most amenable to US client oligarchies, not the reforms that BRICS+ countries are seeking to put in place.

If Chinese and fellow BRICS+ dedollarization is indeed a broad system-wide effort to replace the US unipolar predatory asymmetry with a more positive-sum philosophy of mutual gain, why not take this opportunity to accept the US challenge that has just thrown down the gauntlet to China? That would avoid a “stalemate.” It would make clear the philosophical distinctions that have led the world economy to today’s crossroads.

In diplomatic terms, let’s call it an agreement to disagree.


[1] Edwin Tru­man, “Another impasse on IMF quotas is not accept­able,” Financial Times, October 12, 2023.

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  1. fjallstrom

    Why should China help subsidize international organizations whose policies are adverse to those of China and its fellow BRICS+ allies?

    Checking the table for current voting shares of the 25 countries with most votes on Wikipedia, BRIC has together currently 13,5%, excluding South Africa and the new members.

    So a question is if they would start voting as a bloc if they get more than 15%? If so that could be a reason to stay and increase voting share.

  2. Lex

    I think that the next five years will see an implementation of the walk away strategy. It looks like Russia and China are making very obvious attempts to play by “the rules” scrupulously. They clearly know that it doesn’t work like that, but are setting the stage for the walk away strategy to be widely accepted by the RoW. I also assume that they don’t actually want to walk away until they are as prepared as possible and – potentially – that they’d prefer not to walk away at all. If that’s the case, then these situations can be seen as opportunities for the US to in good faith. See the Russian proposal for a European security architecture.

    1. Colonel Smithers

      Thank you, Lex.

      Further to that Russian proposal, I must e-mail Yves some tidbits from an EU diplomat..

  3. Watt4Bob

    For some reason this brings to mind an old Irish joke;

    Paddy and Mike have gone to the dog races with their dogs and lost all their money betting betting on them.

    On the way home they stop by the side of the road and discuss their sorry situation.

    “Ah Mike, it’s a sorry couple of mutts we have here. What in the world can we do with ’em?

    Maybe we should run away from them.”

    If things keep going the way they are, and it’s sure they will, the BRICS group is going to get to the point where it’s no longer useful, or sensible to have anything to do with the IMF.

  4. truly

    So what happens if China, Russia, and several other nations join together and make a statement:
    “We declare that IMF and World Bank are so inherently undemocratic and predatory that no entity should be obligated to repay any debts to them. We the undersigned agree to support and defend any entity that chooses to immediately cease repayment of debt. Furthermore, we are prepared to step in with financial support to anyone making this choice.”

    Basically debt Jubilee?

    1. Michael Mck

      Yes, and how large are China’s reserves relative to the sane world’s IMF etc debts? Could China pay them off and everyone start over?

  5. ex-PFC Chuck

    Otto von Bismarck:

    “The task of the statesman is to put his ear to the ground, listen for the hoof beats of the horse of history, determine which direction he’s running, and prepare yourself such that when he comes by you are ready to jump on his back and hang on for dear life.”

    If the USA was governed by statesmen we would get on board with the multi-polar world. However, governed we are by greed-ridden mediocrities, it’s not gonna happen.

  6. The Rev Kev

    It seems that the IMF and World Bank are creating the conditions where they will become moribund. This whole financial structure is nothing more than a rigged deck where the house always win so there gets a point where you look at what you have sunk into it, turn around and then walk away. Every country can see that these two institutions are only there to enforce the Neoliberal order so when the big countries like China and Russia no longer have anything to do with them, how long until it collapses?

  7. Ian Greig

    This is interesting when placed in the context of the recent announcement of Sri Lankan debt restructuring with China’s EXIM Bank which seems to have blindsided Western policymakers and propaganda outlets.

  8. RabidGandhi

    At issue is… whether the world will back US unipolar dominance or start to move explicitly toward a multipolar philosophy of mutual support to increase living standards and prosperity instead of imposing anti-labor austerity

    Objection, assumes facts not in evidence.

    Hudson would be more honest to include at least a footnote saying that the BRICS he stans consist of: an India that is home to the world’s largest population of workers bereft (thanks to years of ‘leftist’ Congress Party misrule) of health care and social security; a Brazil led by a Workers Party that cut its teeth executing 2 brutal rounds of austerity that led to the famous 2013 public transit protests; a South Africa that (under the tender ministrations of the ‘progressive’ ANC) is the world’s most unequal country and where the poor are lucky to get a few hours of electricity, if their neoliberal pay-as-you-go power metres permit them; a Russia led by one of the most orthodox central bankers going (‘economically orthodox but politically risky—slashed inflation and was praised by the IMF’)…. Egypt? Saudi Arabia?…

    US/IMF/World Bank neoliberalism is blatantly evil, no argument there; but whether the elites of the countries Hudson is boosting even care about ‘ mutual support to increase living standards and prosperity instead of imposing anti-labor austerity’ is (beyond cute slogans), from the evidence on record, yet to be seen.

    PS working link for Hudson’s footnote 1: https://archive.ph/dYMov

  9. Revenant

    Can a country leave the IMF and, if so, would its quota be cancelled and the quotas of the remaining countries swell? If so, the BRICS countries should leave the IMF so that at least one other country has a quota exceeding 15% and the US loses its primacy.

    Unfortunately, it would take a lot to increase 6.47% to 15%, you would need over half the other quotas to be cancelled, so it may not be politically possible. It’s nice to dream though….

    1. IntlrntBastrd

      Yeah, but if they all leave, will it not leave the US, EU, et all alone in their sorry western camp? They don’t need to borrow from the IMF, so what purpose shall the IMF serve in this case?

      1. Yves Smith Post author

        There is not a non-Western facility that can or is close to stepping into the role of the IMF. It will take years. The BRICS facility has made hardly any loans, is slow to lend (the reverse of what you need in a currency crisis) and there are pretty deep seated reasons why. I need to run and so am being bad and not finding the link right now, but one of the people involved involved in its creation is highly critical and says pretty much everyone there needs to be fired, which is na ga happen.

  10. lambert strether

    I don’t see why multipolarity necessarily implies “a philosophy of mutual support,” or, more importantly, an operationalization of that philosophy (one once might have seen the “Western Alliance” as embodying mutual support, but when push came to shove, who was the Lord and who was the vassal became crystal clear).

    “We have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow.” –Lord Palmerston

    A multipolar world will certainly be different, and may well be better, but the nation-state isn’t withering away any time soon, and my guess is that they will follow the philosophy embodied in Palmerston’s maxim, and nothing new.

    One might argue, of course, that mutual aid is self-interest, at which point I would urge that the issue then becomes whether the elites of (enough) States can be brought to recognize this truth or at least concept, and then operationalize it, doubtless in the face of local opposition (depending on who is being asked to take one for the team). I’m dubious,

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