Russia rains on Bretton Woods
parade By Zorawar Daulet Singh
Russia's unexpected decision late last
month to pick a non-consensus candidate, Joseph
Tosovsky, from the Czech Republic, to head the
International Monetary Fund (IMF) has once again
brought to the fore the apparent illegitimacy of
the international economic architecture, which has
remained frozen since 1944.
The Russian
Finance Ministry stated, "We believe that Mr
Tosovsky would be the right person at the right
place at the right
time." Former Russian prime
minister Yegor Gaidar wrote, "The countries of
eastern Europe should consider ways of increasing
their influence in key decisions within the EU on
questions of world financial politics."
There are perhaps two overlapping motives
for Moscow. First, the move reflects Russia's
quest to broaden the scope of economic
globalization and advance the agenda for the
equitable management of the international
political economy. Second, at the geopolitical
level, the move is another sign of Moscow's
nuanced foreign policies that are seeking to
restore its influence in the post-Soviet space
without provoking a cold war.
While the
Bretton Woods system of international monetary
management that established the rules for
commercial and financial relations among the
world's major industrial states, as it has
manifested in two large institutional symbols -
the World Bank and the IMF - has been exclusively
managed by the United States and western Europe
for the past six decades, geo-economic patterns
over the past decade have made them close to
irrelevant in dealing with contemporary policy
issues.
Economies outside the Organization
for Economic Cooperation and Development have
emerged as the primary drivers for global economic
growth and net exports. Since 2002, global
foreign-exchange reserves have grown at an annual
rate of 20%, reaching the current stock of US$5.6
trillion. The cumulative surplus (2002-07) of oil
exporters is estimated at $1.7 trillion.
Further, Asian economies account for the
bulk of global foreign-exchange reserves, with
Russia, China and India alone accounting for
almost $2 trillion. And to this must be added
Sovereign Wealth Fund assets, which are estimated
at $2.5 trillion ($5 trillion by 2010), bringing
total foreign assets under state control to about
$8 trillion (15% of global gross domestic
product).
This redistribution of
international capital has led to an extraordinary
situation - the world's foreign-exchange reserves
are almost 20 times the resources available to the
IMF, thereby making the IMF in its present form
incapable in dealing with crises in international
financial markets. As American economist Lawrence
Summers recently remarked, this "large flow of
capital from the developing to the industrialized
world has been the principal irony of the
international financial system".
Since the
adverse policy consequences of the late 1990s,
states have reasserted their role in managing the
contradictions of economic globalization.
Consequently, the IMF's utility as a handmaiden
for US financial objectives has ceased to exist.
Russia's nomination of the former Czech
central banker came a few weeks after the European
Union agreed in late July on its common candidate,
France's former finance minister Dominique
Strauss-Kahn. Moscow's unanticipated move
complicated the de facto arrangement between the
US and western Europe, whereby each provides
reciprocal support to the other in the selection
of candidates to lead the World Bank and the IMF.
Indeed, Russia's principled stand
compelled The Financial Times to note, "It is
depressing when [the IMF's] Russian executive
director speaks more sense about the future of the
IMF than does the EU."
Similarly,
Washington was placed in an awkward situation. US
Treasury Secretary Henry Paulson noted, "We look
forward to working with our colleagues at the fund
to select a new managing director who will
continue the reform efforts at the IMF and provide
leadership to this vital institution," declining
to endorse openly the EU's candidate lest it was
seen as perpetuating "a relic of the colonial
empires of Europe".
Now, irrespective of
whether the EU's candidate is ultimately
successful, Russia appears to have scored a
foreign-policy success. It succeeded in signaling
its intent to act as a leader of the developing
world, and buttressed the widespread call for
institutional reform in the Western monopoly over
global economic institutions. Moreover, despite
Russia's membership in the Group of Eight (G8)
industrialized nations, its dual identity as a
European and Asian power enables Moscow to
position itself as a legitimate voice for the
developing world.
Juxtaposed with these
soft-power goals are the geopolitical benefits
that could accrue to Moscow's policy vis-a-vis the
EU.
Recall that the Czech Republic is one
of the New Europe states (along with Poland) where
the US seeks to deploy elements of its
anti-missile system. Besides an ideological quest
for nuclear primacy, the political rationale for
the United States in advancing the anti-missile
systems in eastern Europe recently are consistent
with Washington's bilateral back-door deals with
New Europe states to ensure leverage over EU
affairs.
Over the past two years, a
disconcerted Washington has witnessed Moscow
succeeding in striking major bilateral energy
investment and pipeline deals with Old Europe,
bypassing the EU and thus US leverage over
Brussels. In general, Russia's strategy is clearly
based on constructing long-term interdependence
between Moscow and EU member states. Thus the
commercial objective of Moscow's energy strategy
that seeks to deepen its integration into global
economic processes coincides with its geopolitical
goals of ensuring that an anti-Russian
trans-Atlantic alignment can never be revived by
Washington.
In the aftermath of the last
G8 summit, there was a palpable dissonance in
Russian perspectives emanating from Old and New
Europe. Germany, France and Italy for instance,
were unwilling to toe the US line vis-a-vis
Moscow; the eastern European states of course were
relatively more eager to conform. Thus, with a
pro-US eastern bloc existing within an enlarged
EU, one consequently sees a de facto US veto on EU
affairs.
The above, in essence,
characterizes the prevailing dynamic in Europe -
the US persevering to institutionalize its
position in eastern Europe, once again to "keep
the Americans in", keep the "Russians out" and,
this time, keep Old Europe down.
Yet we
have seen that Russian opposition to US
anti-missile plans has not come at the expense of
bilateral pragmatism between Moscow and Old
Europe. In sum, Moscow has been adamant in its
refusal to get drawn into a new cold war. Rather,
confident of the levers it possesses in the
geo-economic sphere, Moscow is successfully
bypassing US attempts to confine Russia to a
regional "shell".
In such a flux, it is
hardly a coincidence that Moscow chose to nominate
a candidate from the Czech Republic, this time
taking the game to the heart of the US enclave in
Europe, further complicating the United States'
trans-Atlantic policy.
Zorawar
Daulet Singh, who holds a master's degree in
international relations from the School of
Advanced International Studies, Johns Hopkins
University, is an international-relations analyst
based in New Delhi. He can be contacted at
zorawar.dauletsingh@gmail.com.
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