The latest World Economic Outlook, released this month by the International Monetary Fund, warns that even though global “flow imbalances” are lower than a few years ago, they are still substantial and so US liabilities to foreigners continue to rise each year. “Stock imbalances” remain a problem.
Widespread recent reports have trumpeted: “China to overtake US as top economic power this year.” The claim is basically wrong. The US remains the world’s largest economic power by a substantial margin.
The story was based on the April 29 release of a report from the ICP project of the World Bank: “2011 International Comparison Program Summary Results Release Compares the Real Size of the World Economies.” The work of the International Comparison Program is extremely valuable. I await eagerly their latest estimates every six years or so and I use them, including to look at China. (Before 2005, the data collection exercise used to appear in the Penn World Tables.)
A long-awaited reform of the International Monetary Fund has now been carelessly blocked by the US Congress. This decision is just the latest in a series of self-inflicted blows since the turn of the century that have needlessly undermined the claim of the United States to global leadership.
The IMF reform would have been an important step in updating the allocations of quotas among member countries. From the negative congressional reaction, one might infer that the US was being asked either to contribute more money or to give up some voting power. (Quotas allocations in the IMF determine both monetary contributions of the member states and their voting power.) But one would then be wrong. The agreement among the IMF members had been to allocate greater shares to China, India, Brazil and other Emerging Market countries, coming largely at the expense of European countries. The United States was neither to pay a higher budget share nor to lose its voting weight, which has always given it a unique veto power in the institution.