The International Monetary Fund has never been all that popular with developing nations. Sure, the IMF loans countries money when they most need it, but it comes with nasty strings attached. In return for cash, the IMF demands reforms – market liberalization, financial restructuring, budget cuts — many of which are politically unpalatable. But in the past, governments running a bit short had no other option, so they had to swallow their IMF-prescribed medicine (and often their pride). Those who dared to defy the IMF, such as Mahathir Mohamad, prime minister of Malaysia during the 1997-98 Asian financial crisis, have been treated as international pariahs.
But now those down-and-almost-out countries might have somewhere else to turn: China.
According to a report in The Wall Street Journal, Venezuela has benefited from an oil-for-credit deal with China. Venezuela, it turns out, has gotten $8 billion in loans from China, which the Latin American nation used for infrastructure projects that helped its sagging economy during the global recession. It looks like Venezuela is asking for more, perhaps near $20 billion. And best of all, it all comes with no questions asked. Here’s what Venezuelan President Hugo Chavez had to say about it, according to the Journal:
When Venezuela used to get financing, the IMF would come here and impose conditions and rules, and sometimes it would even dismantle our laws. But now, with China and Venezuela, we’re on equal footing.
This case is yet another example of how China is translating economic power into political power. And it’s using its financial muscle in ways that can challenge the dominant financial systems and institutions of the West. Obviously, it’s a trend with huge, huge implications for the future of the world economy.