Treasury Secretary Jacob J. Lew urged Congress to fulfill a U.S. pledge to reinforce the war chest of the International Monetary Fund, saying the lender has helped mitigate financial crises from the Middle East to Europe.
“When financial instability occurs in many places around the globe, such as in Europe, it creates headwinds for our economy,” Lew said in testimony to a House Appropriations subcommittee today. “Without IMF support, more countries would experience even larger financial stresses, and the U.S. economy would suffer through reduced demand for U.S. exports and lower foreign investment in the United States, threatening millions of jobs.”
President Barack Obama earlier this month asked for Congress to approve a plan on the IMF’s lending capacity that tries to make good on a pledge made 2 1/2 years ago. The 2010 agreement, signed by all IMF member nations, also gives emerging markets such as China a bigger voting share at the global lender.
In his prepared remarks, Lew said American national-security interests were at stake in the governance and funding changes at the Washington-based fund.
“The IMF is now working to help bring about economic stability in the Middle East, in Egypt, Jordan, Morocco, Tunisia, and Yemen, by providing critical policy advice and financial support to help secure the political gains of the Arab Spring,” he said. “Avoiding a financial crisis during this delicate period of political transition will help these countries avoid more destabilizing political upheavals.”
IMF Managing Director Christine Lagarde last week said Obama’s move to include the request in his 2014 budget gave her confidence the U.S. would “join the club of the many, many member states that have ratified the reform.”
The agreement can’t take effect without approval by the U.S., the fund’s largest shareholder.
The pact doubles the amount the IMF readily has available for lending to about $717 billion. It in turn decreases a pool of supplementary resources that is used only during crises and needs to be activated every six months.
“The U.S. may soon find itself in an embarrassing situation of being the only” country among Group of 20 peers not to have passed the measure, Brazil’s Finance Minister Guido Mantega told IMF member nations last week in Washington.
To play its part, the administration is seeking to boost the U.S.’s share, or quota, at the Washington-based IMF by shifting about $63 billion from an existing credit line. While the administration says the transfer will have no impact on the budget, it will be up to Congress to decide whether to appropriate a share of the total as loan-loss reserves.
“These actions are necessary to maintain strong U.S. leadership and influence in the IMF, and to restore the IMF’s core capital structure,” Lew said. “Our investment is safe and smart, and it is secured by the IMF’s rock solid balance sheet in which total assets exceed total credit outstanding.”
Four years ago, the Congressional Budget Office determined an appropriation of about $5 billion was necessary to cover the new commitments under the temporary line of credit of about $100 billion.
The timing of the request is less than ideal as Congress grapples with the effects of automatic spending cuts known as sequestration. What’s more, the IMF needs new champions on Capitol Hill after the departure of two longtime supporters, Republican Senator Richard Lugar and Democratic Representative Barney Frank.
© Copyright 2022 Bloomberg News. All rights reserved.