Republicans versus the IMF - the battle continues

IT DID not come as a big surprise to anyone that in the US government Bill recently approved by the Republican-controlled House of Representatives there was no funding for the International Monetary Fund (IMF), just as Representative Hal Rogers from Kentucky, the Republican chairman of the powerful House Appropriations Committee, had made clear a few days earlier.

Similarly, the House and the Senate (that will remain under Democratic control until the end of the year) working together on a House-Senate budget legislation failed to come up with an agreed formula on American financial backing for the Washington-based international financial organisation. (Republican lawmakers have also declined to approve the White House's nominations to six US board positions at the IMF and other international development banks.)

If anything, the conventional wisdom now is that with both the House and the Senate coming under Republican control next year and as politicians prepare for the 2016 presidential and congressional elections, there is a very slim chance that US lawmakers will decide to change their attitudes towards the IMF.

The IMF - one of several institutions to govern the world economy as well as international security that the United States and Great Britain had established in the aftermath of World War II - has always been treated with suspicion by American populists, especially those on the political right, who argued that like in the case of the United Nations and the World Bank, the US had no business funding and empowering international organisations that were beyond direct US control and that were committed to internationalist principles that by definition could challenge American national interests and sovereignty.

The fact was (and still is) that the US and its Western partners have continued to exert almost unimpeded influence over decision-making at the IMF - which is considered the world's major emergency lender - by holding the largest voting share or quota share in the governing body of the institution.

Through the years in response to the changing global economic balance of power, Washington agreed to increase the quota share of other advanced economies, with Europe being the main beneficiary of this gradual change in the IMF leadership. But the US and the other advanced economies that currently hold 60.5 per cent of the quota share have come under renewed pressure in recent years to shift more power in the institution to developing or emerging economies (which currently hold 39.5 per cent of the quota share).

TEA PARTY'S AGENDA

Against the backdrop of the aftermath of the global financial crisis and the ensuing Great Recession, the US and the other 188 members reached a deal in 2010 that would restructure the institution's governing body by granting emerging economies greater power at the IMF that would reflect their growing global economic might by increasing their quota share to 42.3 per cent (and reducing that of the advancing economies to 57.7 per cent). More specifically, economies like China, Brazil, Turkey, South Korea, and Mexico would gain quota share (China by 2.4 per cent), while the US, Canada, and Germany would lose some of theirs (the US by 0.24 per cent).

The deal also required that the US, through its Treasury Department, transfer short-term emergency reserves of about US$63 billion loaned to the IMF by the US during the global financial crisis into the fund's lending account. By not allowing the Treasury to take that step, Congress basically signalled American disapproval of the proposed changes in governance.

In many ways, the 2010 deal doesn't alter the status quo in a very dramatic way. Under the proposed changes in quota share, the US would continue to maintain a veto power in the governing of board of the IMF while some of the European economies could turn out to be the main losers.

The current position by Republican lawmakers reflects the growing power of members of the Tea Party movement who tend to promote a more populist and nationalist agenda on international issues. Many of them believe that the proposed changes would weaken the leading position of the US in the organisation and strengthen the hands of those who challenge American influence, like China, Russia and Iran.

Moreover, Republicans who are committed to strict free-market economic policies are concerned that the policies embraced by the Fund, including the assistance to the bailout of Greece in 2010, run contrary to their economic principles and could force the American taxpayer to subsidise failed welfare states. (The irony is that critics on the political left have accused the IMF of being a tool of capitalist financial and corporate interests.)

In addition, the Republicans have been using the threat of not approving the 2010 deal to press the White House for changes in the national healthcare insurance programme ("Obamacare") and to drop its plan to reform the immigration law by providing the path to citizenship to illegal immigrants. But President Barack Obama has made it clear that he would not bow to their pressure.

Following close to five years of congressional inaction on the IMF Bills, other members of the institution have set a deadline of Jan 1, 2015, for the US to give the green light to the structural changes in the governing body, a deadline that US lawmakers are not expected to meet.

NOT A WEIGHTY ISSUE

Responding to the legislative stalemate on Capitol Hill, there is now some talk in Washington about the possibility that the IMF could try to approve the deal by circumventing the opposition from Republican lawmakers.

"We will now proceed to discuss alternative options for advancing quota and governance reforms and ensuring that the Fund has adequate resources," IMF managing director Christine Lagarde said in a statement following the vote in Congress.

But most of these ideas seem impractical and could ignite a nasty political fight between the White House and congressional Republicans.

Obama Administration officials have warned that failure to approve the deal and shift more power to the emerging economies in the IMF could weaken US status in the institution that has helped Washington advance its foreign policy goals by approving aid to countries in the Middle East and to Ukraine.

Also, failure to respond to the concerns of economies like China, India, and Brazil could lead them to withdraw their backing for IMF's emergency lending reserves. In fact, it could make it more likely that they would take steps to establish alternative institutional frameworks for providing emergency currency-reserve, like those that have been proposed by Beijing in the past.

But President Obama and his aides also recognise that there are probably not a lot of political benefits in going to battle with the Republicans over an issue that most Americans don't care about. In fact, most Americans have probably never heard about the IMF.