WASHINGTON: The massive $1.1 trillion omnibus spending bill presented to lawmakers Tuesday night contains provisions for new funding and governance reforms at the International Monetary Fund. The House could vote as early as Thursday on the package, which is expected to pass. Approval is also likely in the Senate and President Obama’s signature is assured. The president pushed hard for the IMF deal, calling it vital to US leadership and security.
The measure doubles to $670 billion the resources available to the IMF to lend to countries in distress like Ukraine or Greece. The US contribution is put at $300 million.
The legislation gives key developing countries like China, India and Brazil a bigger share of the weighted votes in the IMF while preserving the sole veto power of the United States. The US has 16% of the votes in the 188-member Washington-based IMF. China’s share rises from 4% to 6%.
The governance reforms date from 2010 but because 85% of IMF votes are needed for implementation it has been blocked by US inaction. Former treasury secretary Larry Summers blamed US delay for creating space for China to create alternative institutions that challenge the IMF. Despite US opposition, China this year led in the formation of a China-based Asia Infrastructure and Investment Bank. Last year it joined other BRICS countries (Brazil, Russia, India, and South Africa) in forming a new development bank as well as an arrangement for mutual financial support should it be needed.
Despite being the dominant player in the IMF, which was founded in Bretton Woods, New Hampshire in 1944, congressional support for the powerful agency has always been lukewarm. In recent years some lawmakers have accused the IMF of bailing out big banks that made loans that couldn’t be repaid. Others argue that US sovereignty is diluted when US money is pooled into IMF lending.
Randall Henning, a professor at American University and specialist on the IMF, rejects that critique saying, “the IMF reflects US economic policy preferences more faithfully than perhaps any other international organization.” Henning says the IMF promotes free markets and requires borrowers to put in place appropriate, prudent economic policies. The IMF played a central role in resolving the Latin American debt crisis in the 1980s and the Asian crisis in the late 1990s.
Former IMF official and financial analyst Mohamed El Erian has argued that US approval was overdue. He says the recalibration of votes “better reflect the realities of today’s global economy and entail neither new US funding commitments nor any dilution of its power within the institution.” Economic historian Liaquat Ahamed says it is absurd that tiny Belgium has had as many IMF votes as Brazil, or that Belgium and Holland together had more votes than China.
Policy makers including Chinese vice central bank governor Yi Gang and British Chancellor of the Exchequer George Osborne lamented the long delay in US action. Yi called “failure to deliver this reform a threat to IMF legitimacy.” Osborne said recently in New York that “it is a tragedy that an agreement reached across all the members of the IMF was being blocked by the US congress.”#