Rumors are swirling that the Obama Administration could try to push the International Monetary Fund (IMF) “reform package” through the lame duck Congress. As they have in the past, conservatives should again stand firm in opposition. They should insist that the IMF reform package itself be reformed to retain American sovereignty at the IMF, and that U.S. control over tens of billions of taxpayer dollars be reserved for IMF lending in extreme emergency cases.
The reform package would reduce U.S. control over certain “supplementary” IMF funds that can be tapped when demand for IMF resources is particularly strong, such as during major financial crises. There are two supplementary funds: the New Arrangements to Borrow (NAB) and the General Arrangements to Borrow. The U.S. currently funds the largest portion of the NAB—about $103 billion, or about 18 percent.
The Administration and its supporters in Congress badly want Congress to approve the IMF reform package. It would have the effect of transferring about $63 billion from the NAB to the regular IMF quota (out of the U.S. share of about $100 billion in the NAB)—and thus beyond the reach of a future U.S. Administration.
If such a lame duck attempt were made, it would likely be via slipping the IMF reform package into an omnibus appropriations bill if the House goes down that road.
Although the IMF reform package would mostly shift funds that have already been obligated and would require relatively little new money, it would roughly double the U.S. quota, from $63 billion to $126 billion, making those funds available for loans that could be morally hazardous, such as loans to countries that the IMF has reason to believe will not be able to repay the money. Unlike the NAB, the U.S. has no veto power over IMF quota lending.
The Old World autocracies that morphed into the mega-welfare states of the European Union are hard up for cash. They fear they might need to fund another round of bailouts for the eurozone.
That is why the EU is pushing hard for the reforms, too—to break free from the old IMF lending limits and, especially, to do an end-run around the IMF’s “exceptional access framework” constraints that were put in place by Stanford Professor John Taylor when he was U.S. Under Secretary of the Treasury in 2003.
Think of it as a kind of “Taylor Rule” for the IMF. As Taylor notes on his “Economics One” blog, its purpose “was to place some sensible rules and limits on the way the IMF makes loans to support governments with debt problems—especially in emerging markets—and thereby move away from the bailout mentality that came out of the 1990s…and end the terrible crisis atmosphere that then existed in emerging markets.”
The Eurocrats never like those rules, and when their eurozone experiment started to come crashing down, they pressured the Frenchman who then headed the IMF to break that rule and lend more taxpayer money to Greece than was prudent.
Never mind that the 2010 IMF bailout of Greece—the morally hazardous one that IMF officials themselves admitted had failed—was not enough to save Greece. Now the EU simply wants to raise the limits.
The IMF already has access to about $1.4 trillion—about 2 percent of world GDP. Removing all remaining constraints on those funds (such as the U.S. veto power over the NAB) could increase morally hazardous lending. That is not in the interest of the U.S. or the rest of the world.
Earlier this spring, something unusual happened in Washington. Conservatives in Congress ignored the usual log-rolling, grandstanding, and cynical gimmickry that are the hallmarks of American politics in 2014. They saw a bad piece of legislation—one that would reform the rules of the IMF in ways that would ill-serve the United States. They took a principled stand against the IMF “reform” package. And they prevailed.
They may have to do it again before this year ends.