A Fiscal Cliff for the IFIs?

As Washington waits for a fiscal cliff deal, negotiations on the FY13 appropriations bills are moving. The deal is likely to affect the final numbers in those bills. But barring a series of continuing resolutions, we can expect to see minibuses or an omnibus appropriations bill once a deal is reached. What the State and Foreign Operations appropriations will look like is being negotiated now. And if the House has its way, the US won’t be fulfilling all of this year’s portions of its multi-year commitments for paid in capital to the international financial institutions.There’s a roughly $10 billion difference between the Senate and House versions of the State-Foreign Ops bills. Not including OCO funding, the Senate would provide about $50 billion in regular discretionary funds; the House $40.1 billion. And one of the largest discrepancies between the two bills is in funding for the IFIs:  the Senate bill would provide $2.971 billion to the House’s $1.961 billion.Last year, Congress supported the once-in-a-generation general capital increases for the IFIs needed as a result of the global financial crisis. So, it was a bit unexpected to see such low numbers come out from the House.What are the problems with not funding the paid-in capital for the IFIs?

• The House numbers, even if they don’t end up in legislation, send a signal to the IFIs and to other donor countries that the US can’t be counted on.
• If the House version of the numbers passed and this limited funding pattern continued, it could shrink the preservation of US shareholdings, and therefore influence, across some of the institutions. (This isn’t necessarily a bad thing. After all, a concern with some of the IFIs is a lack of influence for developing countries. A shrinking of US voting power would allow a corresponding increase in voting power for other countries).
• US arrears to the soft loan windows have previously had a bandwagon effect. For example, according to CRS, unpaid US contributions to IDA triggered pro-rata withholdings of contributions by three other IDA donors.

There should be room for compromise in conference negotiations. The President’s Budget request was for $2.625 billion, a slight increase over the FY12 appropriated amount of $2.622 billion but still less than the Senate numbers for FY13. And, the House FY12 bill also rejected several administration requests on funding for IFIs, but the final omnibus ultimately prevented any serious arrears.So, it’s likely that the final numbers for the IFIs will be closer to the President’s Budget request and the Senate bill than the House bill. But if we are going to see cuts, I hope conference negotiators will consider the value for money we get from the IFIs as they figure out where best to cut.