A Fragile Order

Anwar’s announcement landed at an inconvenient moment for the IMF. In the wake of the pandemic, the IMF embarked on a lending spree as cash-strapped governments across the developing world wrestled with the pressures of containing the fallout of the virus and keeping investors happy. As of the latest report, the fund is sitting on about $260 billion in total commitments.

Yet most of those loans came with strings attached. The IMF has always pushed vulnerable countries to open markets, liberalize exchange rates, privatize state companies, and slash vital public spending. These measures (according to the IMF’s own research) only worsen poverty and inequality, but are good at protecting private investors who have money on the line and need to be paid back.

Hopes that the fund would soften its approach after a global emergency were immediately dashed. Oxfam, a charity and advocacy group, calculated that over the course of the virus (from 2020 to 2022), 87 percent of lending came with new demands for austerity.

In May of this year, Ghana unlocked a $3 billion credit facility in return for a “large and frontloaded fiscal consolidation” — IMF speak for massive austerity. In December, Egypt got a $3 billion program as well, but the IMF pushed harder for the country to sell stakes in several state-owned companies and shift to a flexible exchange rate. Pakistan late last month liberalized markets, raised taxes, and cut energy subsidies in a bid to unlock another $3 billion in a standby arrangement.

Cumulatively, the programs have done little more than continuously bail out private creditors at the expense of locals who are left to pick up the tab. “The IMF has become an institution that prolongs and lengthens the extent of crises rather than dealing with them up front,” said Tim Jones, the head of policy at the charity Debt Justice. Spokespeople for the IMF did not respond to requests for comment.

Over the past year, massive protests against the IMF and its austerity policies have erupted around the world, from Argentina to Sri Lanka and everywhere in between. That’s left campaigners and governments alike grasping for alternatives, or at least something that can shake the persistent cycle of never-ending bailouts and crises.

Murky Details

The Asian fund isn’t the first attempt at an alternative to the IMF. Regional lenders abound (there’s already an Arab Monetary Fund), yet tend to work in lockstep with the IMF-dominated system. Lenders that were supposed to present a real alternative have also dramatically scaled back their ambitions. The New Development Bank, backed by the “BRICS” nations (Brazil, Russia, India, China, and South Africa), was launched to much fanfare in 2015, but ended up financing a collection of infrastructure projects and not much else.

“If you look at the New Development Bank, it’s not a departure from the model used by the Global North, and there are strong linkages to the IMF,” said Luiz Vieira, the coordinator of the Bretton Woods Project, an advocacy and research group in London.

Then there’s China itself, which lends across the developing world through a web of state banks. This type of lending is normally for projects as well but has happened on such a scale that China has become a major player in debt negotiations — and a frequent stumbling block for the IMF in places like Ghana and Zambia.

The first AMF proposal in 1997 faltered under heavy opposition from the United States. With China on board from the beginning, however, the proposal may now stand a real chance.

Malaysia’s pitch is light on details. Anwar has said only that an AMF could respond better to the needs of the region as it’s outside of the control of foreign powers, but has thus far given no concrete indications of what the structure or lending of such a fund would look like.

“We cannot have the international infrastructure being decided by outsiders,” Anwar said during a speech in Thailand. A spokesperson for the Malaysian government did not respond to a request for comment.

Without more details, the prospects for challenging US and European dominance of the world’s financial architecture, undermining the power of the dollar, or fostering regional integration is uncertain. The region already has a mechanism for mutual financial assistance in the Chiang Mai Initiative, which counts China, Japan, and South Korea among its members and includes regional heavyweights like Indonesia, Singapore, and Malaysia.

Reluctant Hegemon

The AMF nations also risk trading one power imbalance for another. If the new fund imitates the IMF’s shareholder model — which gives more voting power to countries that can pledge more money — the inclusion of countries like China, Japan, and South Korea could end up replicating the IMF’s core problem.

“There’s a North among the Global South countries, there are political asymmetries that will exist,” Buenaventura told Jacobin. “If it’s going to have the same democratic deficits as the IMF, that’s a big problem.”

Then there’s the question of whether the de facto regional hegemon, China, even wants the job to begin with.

The first issue is the lending itself. The nation’s current system of lending operates under the oversight and control of the government. Embarking on loans that are open to the input of a wider range of nations, all with competing interests that may not necessarily match, brings with it a range of new difficulties.

Meanwhile, a challenge to the dollar-dominated world order is a tough sell for China, which has built an export behemoth on the back of a relatively cheap currency that trades under tight controls. For the renminbi to replace the dollar, China’s government would need to embrace an entirely new currency regime.

“The Global South definitely has an interest in challenging dollar hegemony, but I’m not so sure the Chinese are keen to take the role of the reserve currency for a variety of reasons,” Vieira told Jacobin. “It would result in them losing control — they would have to have much more open financial market access. I think the process will likely be more gradual and complex.”

Institutional Tinkering

Still, the development does offer a few reasons to be excited. The AMF’s proponents say that far from undermining the IMF, it will simply provide nations another avenue for lending, one that has actual regional expertise.

“From an economic perspective, I don’t see the AMF as undermining the IMF if both are designed to help developing countries overcome a financial crisis,” said Benny Teh, an associate professor at Universiti Sains Malaysia, adding that much depends on the final structure. “I see it as providing an option for Asian countries.”

Then there’s the fact that Malaysia famously resisted IMF guidance back in 1997, preferring to clamp tight controls on capital rather than embark on neoliberal reforms like its neighbors in Thailand and Indonesia. Likewise, the Chinese government is well versed in the slow, uphill battle tactics of the fight against the US-dominated global financial system.

The AMF proposal “is coming from this history of distrust, increasing distrust, increasingly questioning the relevance and legitimacy of the IMF,” said Buenaventura. “But there are still major questions to be clarified.”

Buenaventura says that while she understands the desire for a regional alternative, a better focus is scrapping the IMF and its project entirely and building a debt settlement mechanism within the United Nations that’s focused on debt sustainability and grounded in human rights.

It’s a tall order. The IMF is so ingrained in the architecture of the financial system that it’s much easier to picture an Asian version: one that trades one basket of currencies for another, reiterates a call for austerity, and swaps American for Chinese hegemony. But for nations around the world groaning under the weight of unsustainable debt burdens, that isn’t enough.

An AMF “must be part of a practice of transformative change,” said Buenaventura. “It can’t just be tinkering with institutions.”