US Congress criticised over delay of IMF reform plans

[donsutherland1]

From the BBC:

Plans to reform the International Monetary Fund (IMF) have stalled because of
a divided US Congress.
Reforms to the IMF that would give more power to emerging economies are
awaiting Congress approval.

BBC News - US Congress criticised over delay of IMF reform plans

Criticism of the U.S. Congress has also come from U.S. allies. For example, The Sydney Morning Herald reported:

In rare public criticism of the close ally, Mr Hockey said Australia - the current chair of the Group of 20 major economies - was "deeply disappointed" by the failure of a 2010 IMF reform plan to come into effect and said the blame lay "firmly and uniquely" with the US Congress.

"The United States drove the reform agenda of the IMF and the United States Congress is now the biggest impediment to that reform being delivered," Mr Hockey said on the sidelines of annual IMF/World Bank spring meetings in Washington.

Joe Hockey blasts US over delay in IMF reforms

IMO, failure to enact legislation supporting the IMF reforms reflects a growing provincialism among elements of the U.S. Congress, not a newfound commitment to fiscal responsibility. The proposed reforms do not have a fiscal impact on the U.S. In other words, the U.S. would not be saving any money from its failure to adopt the reforms.

The reforms would allow the IMF to transfer funds from its temporary account to its permanent resources. In an op-ed published in the March 24, 2014 edition of The Wall Street Journal, IMF Managing Director Christine Lagarde explained, "The IMF reforms come at no additional cost or risk to the American taxpayer. Money that Congress already appropriated five years ago will simply be transferred from a temprorary fund at the IMF into its permanent resources."

 

[tlmorg02]

As we all know, the US Congress is gridlocked constantly and has become essentially worthless at this point. Congressional members have basically said that Congress will not take-up any real legislation this year due to mid-term elections, and thus the country is left with a branch that is not only a disappointment to Americans, but now the international community.

 

[donsutherland1]

As we all know, the US Congress is gridlocked constantly and has become essentially worthless at this point. Congressional members have basically said that Congress will not take-up any real legislation this year due to mid-term elections, and thus the country is left with a branch that is not only a disappointment to Americans, but now the international community.

At the conclusion of the G20 summit, the communique noted that an alternative approach would be explored if the U.S. fails to ratify the reforms, which continue to be blocked by the Congress. Such an alternative might well lead to the U.S. influence on the IMF being reduced.

From the communique:

We are deeply disappointed with the continued delay in progressing the IMF quota and governance reforms agreed to in 2010 and the 15th General Review of Quotas
(GRQ) including a new quota formula. We reaffirm the importance of the IMF as a quota based institution. The implementation of the 2010 reforms remains our highest priority and we urge the US to ratify these reforms at the earliest opportunity. We are committed to maintaining a strong and adequately resourced IMF. If the 2010 reforms are not ratified by year-end, we will call on the IMF to build on its existing work and develop options for next steps and we will work with the IMFC to schedule a discussion of these options.

https://www.g20.org/sites/default/f...overnors Washington DC 10-11 April 2014_0.pdf

From Australian Treasurer, Joe Hockey, who chaired the summit:

We are all very disappointed by the ongoing failure to bring these reforms to conclusion. They have consistently been blocked by the US Congress and I will take this opportunity to urge the US to implement these reforms as a matter of urgency.

There is no question about the current adequacy of the IMF’s resources. And there is consensus on the absolute importance of maintaining a strong and adequately resourced IMF.

At our meeting we agreed on a way forward which keeps the focus on the priority of passing the 2010 reforms in the US Congress. But we have also decided that, if these reforms are not ratified by year-end, we will trigger a process to examine alternative options to improve IMF representation.

Statement on the conclusion of the G20 Finance Ministers and Central Bank Governors Meeting in Washington | The Hon Joe Hockey MP

 

[tlmorg02]

At the conclusion of the G20 summit, the communique noted that an alternative approach would be explored if the U.S. fails to ratify the reforms, which continue to be blocked by the Congress. Such an alternative might well lead to the U.S. influence on the IMF being reduced.

From the communique:

We are deeply disappointed with the continued delay in progressing the IMF quota and governance reforms agreed to in 2010 and the 15th General Review of Quotas
(GRQ) including a new quota formula. We reaffirm the importance of the IMF as a quota based institution. The implementation of the 2010 reforms remains our highest priority and we urge the US to ratify these reforms at the earliest opportunity. We are committed to maintaining a strong and adequately resourced IMF. If the 2010 reforms are not ratified by year-end, we will call on the IMF to build on its existing work and develop options for next steps and we will work with the IMFC to schedule a discussion of these options.

https://www.g20.org/sites/default/f...overnors Washington DC 10-11 April 2014_0.pdf

From Australian Treasurer, Joe Hockey, who chaired the summit:

We are all very disappointed by the ongoing failure to bring these reforms to conclusion. They have consistently been blocked by the US Congress and I will take this opportunity to urge the US to implement these reforms as a matter of urgency.

There is no question about the current adequacy of the IMF’s resources. And there is consensus on the absolute importance of maintaining a strong and adequately resourced IMF.

At our meeting we agreed on a way forward which keeps the focus on the priority of passing the 2010 reforms in the US Congress. But we have also decided that, if these reforms are not ratified by year-end, we will trigger a process to examine alternative options to improve IMF representation.

Statement on the conclusion of the G20 Finance Ministers and Central Bank Governors Meeting in Washington | The Hon Joe Hockey MP

These are very unfortunate developments and I can only hope that better heads prevail in Congress and that what reasonable leadership remains, can begin to navigate the Legislative Branch to once again govern before it is too late.

 

[Ahlevah]

In an op-ed published in the March 24, 2014 edition of The Wall Street Journal, IMF Managing Director Christine Lagarde explained, "The IMF reforms come at no additional cost or risk to the American taxpayer. Money that Congress already appropriated five years ago will simply be transferred from a temprorary fund at the IMF into its permanent resources."

What Ms. Lagarde is not telling us is the U.S. is the largest provider of funds into this "temporary" account, and, as such, it has the ability to block loans that it deems ill advised. This so-called reform takes $63 billion (collected from U.S. taxpayers) from the New Arrangements to Borrow fund and transfers it into the U.S.' regular quota, where only a simple majority of the IMF's executive board can determine how the money is used. Obama doesn't seem to have a problem handing over tens of billions of dollars collected from U.S. taxpayers to an IMF board that could be unresponsive to U.S. interests or desires. Apparently, the U.S. Congress does.

U.S. Congress Should Block the Hazardous IMF "Reform" Package

 

[donsutherland1]

What Ms. Lagarde is not telling us is the U.S. is the largest provider of funds into this "temporary" account, and, as such, it has the ability to block loans that it deems ill advised. This so-called reform takes $63 billion (collected from U.S. taxpayers) from the New Arrangements to Borrow fund and transfers it into the U.S.' regular quota, where only a simple majority of the IMF's executive board can determine how the money is used. Obama doesn't seem to have a problem handing over tens of billions of dollars collected from U.S. taxpayers to an IMF board that could be unresponsive to U.S. interests or desires. Apparently, the U.S. Congress does.

U.S. Congress Should Block the Hazardous IMF "Reform" Package

The reason Ms. Lagarde did not mention that the U.S. contribution to the temporary fund was the largest is that the U.S. has the largest quota among IMF members (and largest vote). Contributions are made in proportion to the IMF's quotas. The audience she was seeking to reach are policy makers and those who are influencial in the world of finance and economics. Presumably all of them understand how the quota system works.

For more details on the quota system:

https://www.imf.org/external/np/exr/facts/quotas.htm

With respect to the IMF's operations, the IMF makes loans not grants.

In terms of national interests, the IMF was co-founded by the U.S. with a purpose aimed at facilitating trade and financial flows, sustaining economic growth, and promoting financial and economic stability. Those principles are spelled out in IMF charter, which can be found at: Articles of Agreement of the International Monetary Fund -- 2011 Edition

President Truman was far from a naive idealist. Indeed, he recognized the nature of the Soviet threat for what it was early on and played a leading role in organizing NATO. With regard to the IMF, the Truman Administration believed that global trade, economic prosperity, and financial and economic stability were in the U.S. national interest in the larger scheme of things. The Truman Administration also believed that promotion of such conditions would mitigate, but not eliminate, the risks of big wars and some of those arguments were again laid out in advocating the Marshall Plan to help Europe reconstruct itself. On the former front, there is broad economic consensus that, in general, the founding purposes are compatible with most nations' interests, even as those nations may have widely diverging interests in many areas. The latter matter is more complex, as other issues can often trump economics when it comes to conflicts. Overall, it is difficult to see how an effective IMF is not in the U.S. national interest. Congress is acting in a petty fashion that does not serve the American interest and does not save taxpayers money. If anything, it is creating a risk where the IMF might, over time, deploy an alternative approach that reduces U.S. influence below where it would otherwise be.

The real question is not one of fiscal savings. Instead, it concerns whether the Congress is on a deliberate course aimed at reducing U.S. engagement in the world. Certain members of the House and Senate e.g., Senator Paul, want to downsize the U.S. role abroad, so there is some support for such a stance. In any case, that question won't be answered for some time, but future legislative choices will provide insight.

 

[American]

Seems this is really in ther purview of the US Senate, where gridlock is king. Nevertheless, the USA should not cater to pressure if the action being considered is unwise.

 

[donsutherland1]

Seems this is really in ther purview of the US Senate, where gridlock is king. Nevertheless, the USA should not cater to pressure if the action being considered is unwise.

I agree with the idea of not making policy choices that are harmful to the American interest. However, this case does not qualify. There is broad consensus among senior American economic, financial, and foreign policy leaders who served in both Democratic and Republican administrations in favor of the agreement. One example:

BWC Top Cabinet and National Security Officials Letter on IMF | The Bretton Woods Committee