Russia, China seek greater international clout

June 16, 2009 7:04:08 AM PDT
China and Russia sought greater international clout at a summit Tuesday, with China promising $10 billion in loans to Central Asian countries and Russia challenging the U.S. dollar's dominance as a global reserve currency. Chinese leader Hu Jintao said China will offer the loans to several countries, including Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, to help them through the global financial crisis.

The move, announced at the meeting of the Shanghai Cooperation Organization, adds muscle to China's role in the group, which Russia and China use to counter Western influence in resource-rich, strategically placed Central Asia.

The leaders of Afghanistan, Iran, India and Pakistan were also at the table, underscoring Russia and China's reach for broader global influence. The Shanghai group members released a summit declaration saying that global "multi-polarity is irreversible," a reference to their opposition to perceived U.S. domination in international affairs.

Russia gave a prominent platform to newly re-elected Iranian President Mahmoud Ahmadinejad, a show of support for a leader facing major protests at home and questions from the West about the legitimacy of the vote count.

Russian President Dmitry Medvedev sought to further raise his country's leverage in geopolitical issues by separately meeting with Afghan and Pakistani leaders late Monday to discuss the stabilization of Afghanistan.

Medvedev said Russia offered help in carrying out joint transport, energy and other economic projects in the region to help eradicate poverty and remove feeding grounds for terrorism.

Russia signaled its intention to offer stronger assistance to the U.S.-led efforts in Afghanistan. Russia will continue to cooperate with the U.S.-led coalition there and provide transit corridors for supplies, but no new initiatives were announced.

At the same time, Medvedev pushed against U.S. domination of financial markets by calling for new global reserve currencies to complement the dollar.

"No currency system can be successful if we have financial instruments denominated in just one currency," Medvedev said. "We must strengthen the international financial system not only by making the dollar strong, but also by creating other reserve currencies."

Medvedev said new currencies will take a long time to emerge, but emphasized that the world will feel the growing need to hedge financial risks. "The main reserve currency, the dollar, has failed to serve its purpose," he said.

After wrapping up the two-day Shanghai Cooperation Organization meetings, Medvedev was to host later Tuesday the first full-fledged summit of emerging economies Brazil, Russia, India and China, collectively called BRIC.

Medvedev's economic adviser Arkady Dvorkovich said Russia may diversify its currency reserves investments by buying bonds issued by Brazil, China and India. He told a briefing that Russia could make the move if the other three BRIC members reciprocate.

Dvorkovich also proposed revising the way the International Monetary Fund's obligations are valued. He said the ruble, the yuan and gold should be part of a revised basket of currencies to form the valuation of the IMF's special drawing rights (SDRs), international reserve assets that supplement countries' existing official reserves.

Dvorkovich denied any rift on the issue with Russian Finance Minister Alexei Kudrin, who this week helped the dollar rebound in value by saying over the weekend that the dollar's status as the world's main reserve currency wasn't likely to change soon.

"No one wants to bring the dollar down," he said.

He added, however, that the creation of new reserve currencies should help distribute global wealth more fairly and also encourage economic leaders to pursue a more balanced economic policy.

The talk about global reserve currencies has been prompted by concerns in China and Russia that soaring U.S. budget deficits could spur inflation and weaken the dollar, debasing the value of their holdings.

"Those who issue reserve currencies today don't always take the interests of the global economy into account," Dvorkovich said

Officials from Russia, China and Brazil have said in recent weeks that they would invest in bonds issued by the International Monetary Fund to diversify their dollar-heavy currency reserves.

China is Washington's biggest foreign creditor, holding an estimated $1 trillion in U.S. government debt. But the Treasury Department this week said foreigners - including China and Japan, the two biggest buyers of U.S. government debt - had trimmed their Treasury holdings in April.

Russia's Deputy Foreign Minister Sergei Ryabkov said that the BRIC summit was "not an attempt to compete with anyone."

While BRIC members share a desire to play a bigger role in creating a new global financial order and counterbalancing the West and Japan, their often contradictory interests would make forging a common policy a difficult task.

China and India have sizable labor resources, while Russia and Brazil are rich in natural resources. China is a major consumer of natural resources, unlike Russia and Brazil, which are top producers. While China wants lower oil prices, Russia and Brazil would seek higher oil prices.

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