The International Monetary Fund is cautiously climbing aboard President Xi Jinping’s signature Belt and Road infrastructure plan, with the goal of preventing it from becoming a wasteful splurge on white-elephant projects.
Managing Director Christine Lagarde and People’s Bank of China Governor Yi Gang on Thursday jointly opened a joint “Capacity Development Center” that will provide training on policy and economics. Lagarde announced its opening at a joint conference in Beijing that the IMF sponsored with the central bank and others.
Xi’s Belt and Road Initiative, first proposed in 2013 and elevated to an official policy enshrined in the Communist Party’s constitution, involves spending as much as $1.3 trillion by 2027 on railways, roads, ports and power grids, Morgan Stanley estimates. The risk is that the plan, which would build a modern-day Silk Road connecting China with Asia, Europe and Africa through a series of infrastructure projects, becomes a boondoggle that drives up debt in countries where it already is high.
“The first challenge is ensuring that Belt and Road only travels where it is needed,” Lagarde said at the conference. “With any large-scale spending there is sometimes the temptation to take advantage of the project selection and bidding process. Experiences from across the globe show that there is always a risk of potentially failed projects and the misuse of funds.”
China has been ramping up its Belt and Road initiative. Since Xi announced the project, billions of dollars of Chinese investment has been committed to build railways, roads, ports and power plants. He’s touted the plan as a way to foster development and economic integration while critics question the project’s financial viability and express concern about Beijing’s push to spread its influence west.
“We’re concerned about China’s growing lending on the One Belt, One Road around the world,” U.S. Treasury Secretary Steven Mnuchin said Wednesday in Washington, referring to another name for the Chinese initiative. “We’re concerned in certain areas where countries can’t necessarily afford the loans.”
The Belt and Road project risks saddling eight countries with unsustainable debts, including Pakistan and Mongolia, according to a study last month by the Center for Global Development in Washington.
“In countries where public debt is already high, careful management of financing terms is critical,” Lagarde said. “This will protect both China and partner governments from entering into agreements that will cause financial difficulties in the future.”
That’s where the IMF may be able to use its long-standing experience via the new Capacity Development Center, backed by $50 million of funding from China and initiated by the central bank. Its courses will be designed to train officials from Belt and Road, China and other countries on macroeconomic issues.
“The IMF remains well-positioned to provide guidance in these areas, particularly by helping countries improve their overall public financial management,” said Lagarde, referring also to environment standards, dispute resolution and e-procurement systems.
She urged China to improve the transparency of its decision making on the project, such as by creating a “one-stop shop” that provides information to stakeholders.