Goodbye Vasco, now we call the tune

Image via WikipediaIf there is a moment when an epoch ends, perhaps it was last weekend in the Portuguese capital, Lisbon, the port from which Vasco da Gama sailed in 1497 on his voyage of conquest that set up the first European empire in Asia.
The visiting President of China, Hu Jintao, offered to help bail out Portugal from the threat of default on its huge sovereign debt. ''We are ready to take concrete measures to help Portugal overcome the global financial crisis,'' Hu declared.

The week has also seen more symbolic and historical shifts. David Cameron, the British Prime Minister, found the Remembrance Day poppy in his buttonhole reminded the Chinese of the Opium Wars when he came to spruik British products.
At least he didn't get the response the emperor Qianlong sent back to George III in 1793: ''I set no value on objects strange or ingenious, and have no use for your country's manufactures.'' Today's Chinese are probably thinking: ''We'd rather buy your companies and transfer production here.''
Then in Seoul over the past two days, there's been a further shift of global financial authority from the US and Europe towards Asia and emerging economies from elsewhere - all former colonies of European powers or subjects of Western occupation and depredations.
The Group of Twenty or G20 has put out of business the old top economic club of the North Americans, the big Europeans and the Japanese, the Group of Seven or G7 (which sometimes added another European imperial power, Russia, to become the G8). The G20 rose to ascendancy after the 2008 global financial crisis shattered the myth of New York and London as financial masters of the universe, marshalling the global stimulus to avoid another great depression.
This week its leaders met in Seoul, another bit of symbolism. South Korea stopped being an aid recipient several years back, and now runs its own foreign aid program. The G20 membership includes five other Asian economies, China, Japan, India, Indonesia and Australia (as we are now regarded), plus six important emerging ones, Brazil, Argentina, Mexico, Saudi Arabia, South Africa and Turkey.
It's still an informal group with no institutional powers to enforce agreements, but the weight of new power in Seoul is set to force changes to the institutions that have underpinned the global financial system since the end of the Second World War. These include the International Monetary Fund (a kind of global reserve bank), the World Bank (an international financier of development) and the US dollar, the main reserve currency.
All are run from Washington. The IMF is allowed to have a European managing director, but conforms to American directives (its rescue packages often come with conditions that recipients buy US capital goods like aero-engines and power plants). The World Bank's chief must be an American citizen (the Australian banker James Wolfensohn had to change his passport to qualify). The US dollar is of course supplied by the US Federal Reserve.
In the lead-up to this week's G20 summit, two Canadian scholars, Barry Carin and Peter Heap, asked (in the East Asia Forum Quarterly, put out by the Australian National University), ''why Asians continue to acquiesce to outdated ineffective global institutions designed by Westerners more than 50 years ago in very different circumstances''.
''Why does Asia assent to the US Federal Reserve as the de facto 'world financial authority' and the US treasury secretary as the de facto head of the IMF? Why does Asia seem resigned to bear disproportionate costs in bailing out OECD [a rich-country grouping, based in Paris] countries' financial institutions? Why does Asia tolerate OECD agricultural subsidies of hundreds of billions of dollars and resign itself to accepting the World Trade Organisation's intellectual property regime? And why does Asia accept the implicit insult of the continued existence of the G8?''
Looking at failed banking regulation, stalled Western growth, deadlocked climate change and trade negotiation, seeping nuclear proliferation and faltering Millennium Development progress in the Third World, Carin and Heap suggest world affairs are in the wrong hands. ''A Martian would conclude that on Earth, the borrowers run the international financial institutions, the polluters manage the environment and the inmates run the asylums,'' they write.
The answer is that the Asians won't tolerate it much longer. The Seoul meeting started a rejigging of voting rights in the IMF and World Bank, and an expansion of IMF ''special drawing rights'' as an alternative to the US dollar for reserves. They will insist that the enhanced economic supervisory powers of the IMF are applied as firmly to European countries as they were in the 1997 Asian financial crisis (when the IMF chief, Michel Camdessus, was famously photographed standing over the Indonesian president, Suharto, with folded arms as he signed a bailout document).
The Chinese in particular, sitting on $US2.65 trillion in foreign reserves, are in no mood to take American jawboning about being ''currency manipulators'', and indeed are throwing it back at Washington by arguing that the Federal Reserve chairman Ben Bernanke's latest $US600 billion ''quantitative easing'' is as much intended to drive down the dollar as deliver a direct domestic stimulus.
Vasco da Gama's successors, the US Navy, still rule the seas of Asia. China's recent strategic overreach has given American warships a warmer welcome from worried smaller powers. Barack Obama presented America in a way more respectful of Asia in his visits to India and Indonesia this week.
But pro-American euphoria could wear off, especially if the Chinese are sensible enough to revert to the Deng Xiaoping ''low profile'' dictum. And money talks. The US Navy called off exercises in the Yellow Sea to avoid upsetting Beijing before the G20 summit. The day before Obama arrived in his old childhood home of Jakarta, a Chinese delegation announced a $US6.6 billion investment in Indonesia's infrastructure.
Source: Sydney Morning Herald