Paola Subacchi is Professor of International Economics at the Queen Mary Global Policy Institute at the University of London and most recently author of “The Cost of Free Money”.

Among the many changes that COVID-19 has accelerated, the way the United States-based International Monetary Fund and the World Bank carry out policy has been among the most notable.

Gone are the harsh conditions the two institutions have attached to project funding since the 1980s, a policy approach known as the Washington Consensus. These often included fiscal austerity, cuts in social assistance, the removal of price subsidies and privatization, all in countries already in dire economic and financial conditions.

Often, governments had no choice but to accept, creating resentment all over the world – especially in Asia – as the Washington consensus had come to symbolize how unelected institutions can impose draconian conditions to sovereign nations.

But things are changing. In response to COVID, the IMF made $ 250 billion available for various loan facilities and to help with debt service relief, with an additional $ 107 million in financial assistance going to 85 countries.

These measures have been made available through a variety of programs with little or no conditionality, and have instead focused on protecting lives and supporting people who have lost their livelihoods.

Like the flexible unconditional line of credit that the IMF established after the global financial crisis to help countries trapped in a liquidity crisis, current measures are aimed at relieving countries in debt distress due to of the pandemic.

This policy shift is welcome, even though it comes after some important policy failures to help countries get out of debt crises – one of the most recent and prominent cases being Greece. But would such a turning point have happened without China’s transformation into a very important lender to countries in need?

China is now the largest official source of development finance in the world, surpassing loans from any multilateral institution or other bilateral lenders, including the U.S. About 70% of these loans are made by international banks. State, including the China Development Bank and China. Export-import bank.

The former now has total assets, national and international, which exceed the combined total assets of the World Bank, the European Investment Bank and the four major regional development banks combined. In the 10 years leading up to 2019, the China Development Bank and the China Export-Import Bank provided loans to developing countries in Asia-Pacific totaling nearly $ 120 billion, compared to a total of $ 220 billion. that the World Bank granted between 2012 and the first quarter of 2021.

China has a variety of lending instruments, each with distinct characteristics and functions. Since the mid-2010s, two initiatives have come to embody China’s growing role in cross-border lending: the Belt and Road Initiative and the Beijing-based Asian Infrastructure Investment Bank led by China.

Both initiatives have gained high visibility due to a combination of financial resources, a large network of signatory countries and hostility from the United States. Yet the amount of money actually deployed so far has been relatively small. BIS loans represent only about 10% of China’s total loans.

Although loan terms are often not disclosed – China is not a member of the Paris Club – available evidence suggests that BIS loans, unlike those offered by the World Bank, offer terms similar to those offered by the BIS. associated with normal business loans. Beijing does not impose economic or social reforms as loan conditions, which appeals to countries with debt or governance problems.

Chinese financial aid has also been deployed in the lesser-known but extremely effective form of bilateral currency swap agreements. According to the US Federal Reserve handbook, the People’s Bank of China, the central bank of China, has so far signed currency swap agreements – bilateral liquidity lines – with at least 32 countries, the latest being Myanmar. For countries with limited foreign exchange reserves, these agreements have been a godsend.

Pakistan has activated its swap line with China on several occasions, once in 2013 and then again in 2017, which has enabled it to head off financial instability.

Bilateral lending and liquidity arrangements have enabled China to advance quietly and without threatening its goal of playing a greater role in international finance within the constraints posed by its own currency, the yuan, which has limited international traffic.

China will continue to provide short-term liquidity to emerging markets and developing countries, thereby closing the gap in the current system. In Asia, for example, no country to date has ever accessed the IMF’s flexible credit line. There have been only a few IMF programs for small developing countries in the Asia-Pacific region over the past two decades, and in East Asia there have been none.

By making friends in countries that feel ignored or mistreated by other international financial institutions, and implicitly by the United States, China is taking control of the main streams of regional cooperation in Asia. After watching the United States use loans and swap lines to selectively provide funding and liquidity in dollars, China is now doing the same.

It is still too early to call this the start of the Beijing Consensus, as the limitations of the yuan as an international currency limit China’s bilateral lending capacity and increase credit risk.

However, while these limitations mean that China cannot yet establish an alternative system to the current US-led system, its widely expanded position in bilateral lending is now prompting international action to focus on the need. improve the way the IMF and other multilateral development banks provide financing and how to ease the conditions attached to these loans.