- While Republicans complain relentlessly about U.S. President Barack Obama’s alleged failure to exert global leadership on geo-political issues like Syria and Ukraine, they are clearly undermining Washington’s leadership of the world economy.
That conclusion became inescapable here during this week’s in-gathering of the world’s finance ministers and central bankers at the annual spring meeting here of the International Monetary Fund (IMF) and the World Bank.
In the various caucuses which they attended before the formal meeting began Friday, they made clear that they were quickly running out of patience with Congress’s – specifically, the Republican-led House of Representatives – refusal to ratify a 2010 agreement by the Group of 20 (G20) to modestly democratise the IMF and expand its lending resources.
“The implementation of the 2010 reforms remains our highest priority, and we urge the U.S. to ratify these reforms at the earliest opportunity,” exhorted the G20, which represent the world’s biggest economies, in an eight-point communiqué issued here Friday.
“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…” the statement asserted in what observers here called an unprecedented warning against the Bretton Woods agencies’ most powerful shareholder.
The message was echoed by the Group of 24 (G24) caucus, which represents developing countries, although, unlike the G20, its communique didn’t mention the U.S. by name.
“We are deeply disappointed that the IMF quota and governance reforms agreed to in 2010 have not yet come into effect due to non-ratification by its major shareholder,” the G24 said.
“This represents a significant impediment to the credibility, legitimacy and effectiveness of the Fund and inhibits the ability to undertake further, necessary reforms and meet forward-looking commitments.”
The reform package, the culmination of a process that began under Obama’s notoriously unilateralist Republican predecessor, George W. Bush, would double contributions to the IMF’s general fund to 733 billion dollars and re-allocate quotas – which determine member-states’ voting power and how much they can borrow – in a way that better reflects the relative size of emerging markets in the global economy.
In addition to enhancing the IMF’s lending resources, the main result of the pending changes would increase the quotas of China, Brazil, Russia, India, and Turkey, for example, at the expense of European members whose collective representation on the Fund’s board is far greater than the relative size of their economies.
Spain, for instance, currently has voting shares similar in size to Brazil’s, despite the fact that the Spanish economy is less than two-thirds the size of Brazil’s. And of the 24 seats on the IMF’s executive board, eight to ten of them are occupied by European governments at any one time.
The reforms would only change the status quo only modestly. While the European Union (EU) members currently hold a 30.2 percent quota collectively, that would be reduced only to 28.5 percent. The biggest gains would be made by the so-called BRICS (Brazil, Russia, India, China, and South Africa) – from 11 percent to 14.1 percent — although almost all of the increase would go to Beijing.
Washington’s quota would be marginally reduced – from 16.7 percent to 16.5 percent, preserving its veto power over major institutional changes (which require 85 percent of all quotas). Low-income countries’ share would remain the same at a mere 7.5 percent collectively, although their hope – shared by civil-society groups, such as Jubilee USA and the New Rules for Global Finance Coalition — is that this reform will make future changes in their favour easier.
Thus far, 144 of the IMF’s 188 member-states, including Britain, France, and Germany and other European countries that stand to lose voting share, have ratified the package. But, without the 16.7 percent U.S. quota, the reforms can’t take effect.
The Obama administration has been criticised for not pressing Congress for ratification with sufficient urgency. But, realising that its allies’ patience was running thin, it pushed hard last month to attach the reform package to legislation providing a one-billion-dollar bilateral aid package for Ukraine during the crisis with Russia over Crimea.
While the Democratic-led Senate approved the attachment, the House Republican leadership rejected it, despite the fact that Kiev would have been able to increase its borrowing from the IMF by about 50 percent under the pending reforms.
House Republicans – who, under the Tea Party’s influence, have moved ever-rightwards and become more unilateralist on foreign policy since the Bush administration – have shown great distrust for multilateral institutions of any kind.
Both the far-right Heritage Foundation and the neo-conservative Wall Street Journal have railed against the reforms, arguing variously that they could cost the U.S. taxpayer anywhere from one billion dollars to far more if IMF clients default on loans, and that the changes would reduce Washington’s ability to veto specific loans.
They say the IMF’s standard advice to its borrowers to raise taxes and devalue their currency is counter-productive and could become worse given the Fund’s new emphasis on reducing income inequalities; and that, according to the Journal, the reforms “will increase the clout of countries with different economic and geo-political interests than America’s.”
Encouraged by, among others, the U.S. Chamber of Commerce and their Wall Street contributors, some House Republicans have indicated they could support the reforms. But thus far they have insisted that they would only do so in exchange for Obama’s easing new regulations restricting political activities by tax-exempt right-wing groups.
Meanwhile, however, the delays are clearly damaging Washington’s global economic and geo-political agenda – persuading other G20 countries to adopt expansionary policies and punish Moscow for its moves against Ukraine – during the meetings here.
“The proposed IMF reforms are a no-brainer,” according to Molly Elgin-Cossart, a senior fellow for national security and international policy at the Center for American Progress. “They modernise the IMF and restore American leadership on the global stage at a time when the world desperately needs it, without additional cost for American taxpayers.”
Further delay, especially now that the G20 appear to have set a deadline, could in fact reduce Washington’s influence.
While she stressed she was not prepared to give up on Congress, IMF managing director Christine Lagarde told reporters Thursday the Fund may soon have to resort to a “Plan B” to implement the reforms without Washington’s consent.
While she did not provide details of what are now backroom discussions, two highly respected former senior U.S. Treasury secretaries suggested in a letter published Thursday by the Financial Times that “the Fund should move ahead without the U.S. …by raising funds from others while depriving the U.S. of some or all of its longstanding power to block major Fund actions.”
C. Fred Bergsten and Edwin Truman, who served under Jimmy Carter and Bill Clinton, respectively, suggested that the IMF could make permanent an initiative to arrange temporary bilateral credit lines of nearly 500 billion dollars from 38 countries who could decide on their disposition without the U.S.
More radically, they wrote, the Fund could increase total country quota subscriptions that would remove Washington’s veto power over institutional changes.
“The U.S. deserves to lose influence if it continues to fail to lead,” the two former officials wrote.