When Chinese development finance met the IMF's public debt norm in DR Congo
Johanna Malm
Thèse de doctorat de sciences sociales et commerciales (Roskilde University, Danemark) 2016
Abstract
This dissertation explores the following research question: To what extent, how and why do Chinese commercial developmentfinance offers impact on the IMF's power to set norms in terms of public debt management in African countries? The dissertation sheds light upon the subject matter by means of a case study of a 2007-2009 controversy around the so-called Sicomines agreement in the Democratic Republic of Congo (DRC). This agreement challenged the IMF’s public debt norm, embodied in that organisation’s debt limits framework, by bringing in a multibillion Chinese development finance offer from China Exim Bank on commercial terms to finance infrastructure construction and a mining project in die DRC. Theoretically, the dissertation deploys an approach to power, international politics and international organisations which draws on the work of Robert W. Cox. The dissertation’s approach to norms combines Cox’ work on norms with the constructivist literature 011 international norm change. The empirical analysis draws on primary data gathered during a total of six months of qualitative field work in the DRC.
The dissertation conceives of the IMF in Coxian terms as a ‘mechanism of hegemony’, and argues that its power is rooted in the material capabilities of the hegemonic state, the United States, and the other influential states on its board. The Chinese policy bank China Exim Bank is conceived of as a norm entrepreneur who, through its President Li, promotes a Chinese public debt norm, a project-based approach to debt sustainabilitx. This norm, embodied by Chinese commercial development finance offers, is anchored in the commercial ambitions that increasingly characterises Chinese foreign policy ambitions. Chinese commercial development finance offers challenge the IMF's public debt norm because they have lower grant elements than the loans deemed concessional within the IMF's debt limits framework.
Drawing on Cox’ conceptual connection between power in production, power in the state and power in international relations, the dissertation argues that that China’s ability to challenge the IMF’s public debt norm (power in international relations) hinges on the country’s financial clout (power in the state), which in turn derives from the economic growth and trade surplus brought about by the past decades’ changes in the organisation of production in China (power in production). China challenges the material base for the IMF's power in African countries because its financial clout outweighs that of the most influential states on the IMF’s board. Thus, the dissertation’s findings support Cox’ argument that the production process is the locus from which power emerges, as well as the site where change in world orders is instigated.
The dissertation shows that the commercial development finance offers extended by China’s financial institutions fundamentally alter the power dynamics of the development finance arena and has a crucial impact on the IMF's power to set norms in terms of public debt management in African countries. Because of the magnitude of the credit line brought in by means of the Sicomines agreement, the IMF compromised its public debt norm in the DRC in 2009, conducting a grant element so generous that the credit line to be extended by means of the Sicomines agreement was portrayed as highly concessional, which it is not. This compromise was the only way for the IMF to include the Sicomines agreement in the DRC’s HIPC debt relief process, which at this time was of great political importance to the most influential countries on the IMF's board. The dissertation also conducts minor case studies of Chinese challenges to the IMF’s public debt norm in Angola (2009) and Ghana (2011-2012), and of
the formal revisions to the IMF's debt limits framework in 2009. In all three cases, the dissertation identifies compromises on the side of the IMF similar to that made by the organisation in the DRC.
In terms of China’s rationale for challenging the IMF’s public debt norm, the dissertation argues that there are both material and normative reasons to it. In terms of normative considerations, the Chinese public debt norm is truly seen by many stakeholders in China’s financial institutions as a more appropriate approach to public debt management for developing countries. In terms of material considerations, the more permissive approach to using loans on commercial terms to finance Chinese business ventures in African countries serves the interest of a number of actors: the Chinese state, China’s banks, Chinese corporations, and those Chinese workers who can find employment by means of the business ventures that the banks finance.
In terms of China’s rationale for challenging the IMF’s public debt norm, the dissertation argues that there are both material and normative reasons to it. In terms of normative considerations, the Chinese public debt norm is truly seen by many stakeholders in China’s financial institutions as a more appropriate approach to public debt management for developing countries. In terms of material considerations, the more permissive approach to using loans on commercial terms to finance Chinese business ventures in African countries serves the interest of a number of actors: the Chinese state, China’s banks, Chinese corporations, and those Chinese wjorkers who can find employment by means of the business ventures that the banks finance.
In conclusion, while the dissertation shows that Chinese commercial development finance offers have a crucial impact on the IMF’s power to set norms in terms of public debt management in African countries, it also shows that those loans will only have this impact to the extent that they materialise. The Chinese development finance offers are not rolled out as part of an attempt to challenge and altogether replace the IMF’s public debt norm in African countries, because it is not a Chinese foreign policy priority to mount such a norm challenge. Rather, they are extended for commercial reasons, and only if Chinese financiers and SOEs deem a specific commercial opportunity worthwhile.
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