This week Senate appropriators failed to include an OK for an International Monetary Fund quota increase in the Senate version of the continuing resolution—the spending bill to keep open the US government for the remaining six months of the fiscal year 2013. The administration had requested Senate appropriators approve a transfer of previous US commitments from one IMF account to another -- a transfer involving virtually no cost for US taxpayers.
This should be a routine matter. Most other IMF members have long since given their agreement to increase support for the IMF. In an era where Republicans and Democrats agree on little, there is a wide consensus that moving forward with this plan is the right thing to do. Indeed, former senior US Treasury officials who served in both Republican and Democratic administrations were among the more than 100 experts in international finance and related fields who signed this letter urging the Senate appropriators to act. I, too, signed the letter, because a strong, adequately resourced IMF is crucial to the global financial stability necessary for continued progress in the fight against global poverty.
What's the fuss all about? Why should anyone care about an IMF quota increase?
More than three years ago, the United States and the other 187 members of the IMF agreed to double IMF “quotas” (the shares that provide the basis for IMF lending) and to make modest changes in the allocation of those quotas across countries. The increase and reallocation of quotas makes eminent sense in a global economy that is much bigger and interdependent than ever, and in which the IMF is the closest thing we have to a lender of last resort.
Senate approval to move forward with this agreement would involve no new US funds for the IMF. However, it might need to be shown in an eventual budget as a small cost, depending on how US budget gurus decide to “score” the infinitesimally small risk that the financially rock-solid IMF itself could get into trouble and default on the US reserve claims. (For the arcane details on this point, go to minute two of this podcast with Ted Truman of the Peterson Institute.)
Here’s the short version of why this won’t cost American tax payers any new money: In 2009 the United States committed $100 billion to a special fund at the IMF to help stave off panic in global markets following the Lehman Brothers crash. The United States can participate in the quota increase by simply shifting $65 billion from the special fund into the formal, permanent IMF quota reserves. The result: while most other members are making new commitments to double their quotas, the US retains its current proportionate "quota share" at no cost.
Unfortunately, the increase in IMF lending capacity and the reforms in quota allocations (go here for more about those reforms) cannot proceed without US agreement. The increase in overall quotas and the modest accompanying reallocations require approval of 85 percent of the weighted country votes at the IMF, and the United States holds about 16 percent of the votes. That gives the United States a burdensome veto—and a special responsibility.
The Senate’s failure to approve the funds transfer means that the United States is now holding up the works. Most other members have approved the changes. This is starting to get embarrassing. Let's hope the next time there's an opportunity, this no-cost addition to the IMF's quota resources gets dealt with on Capitol Hill. As the letter I signed says:
Additional quota resources for the IMF are essential to preserve its central role in a global financial system that benefits the United States. Realignment of IMF quota shares, while preserving U.S. influence in the IMF, will enable the IMF to respond to shifts in the global economy, involving emerging powers more deeply in the institution and avoiding their disengagement.
Positive action by the U.S. Congress on both elements will also unlock financial contributions from other countries.
Congressional enactment of the proposed IMF legislation will sustain U.S. leadership in global financial matters. Failure to act would diminish the role of the United States in international economic policy-making and undermine U.S. efforts to promote growth and financial stability.