Funding the Fund
Congress should support promised aid to the IMF.
Thursday, June 11, 2009
NOT LONG AGO, the International Monetary Fund looked very much like an institution without a mission. Then came the global financial crisis, and a series of countries around the world found themselves flirting with national bankruptcy. The potential ripple effect for the world economy was grave, and the IMF’s available resources looked too small to meet the challenge. At a meeting of the Group of Eight countries on April 2, President Obama joined other leaders in pledging to triple IMF funds to $750 billion, including $100 billion in new U.S. money.
To speed the fulfillment of his promise, Mr. Obama attached his request for IMF money, which is not a cash outlay but a line of credit, to a supplemental appropriations bill for operations in Iraq and Afghanistan.
Actually, as any Member of Congress or staff can tell you, the Administration attached the IMF money to the war supplemental because the chances of getting the House to vote for it on a straight up-or-down vote were slim to none. By attaching the IMF money, which has nothing to do with war spending, to this bill, the Administration was putting Members of Congress who want to vote against the IMF money in a position where they could be accused of “voting against money for the troops.”
It should be noted that there is no urgency for this money; the IMF has hundreds of billions of dollars available for any emergencies that might arise during the time it would take to approve this funding through a normal legislative process.
The Senate has approved it, but the House is balking. At a time when many Americans are losing their jobs, the IMF is vulnerable to populist attack.
The funding is particularly vulnerable to “populist attack” because it is very likely that the money will be used to bail out European banks, something that was already done under the TARP program through AIG, and is not generally considered by the citizenry to be a good use of U.S. tax dollars.
Republicans have denounced the president’s proposal as a "global bailout" and spread the canard that the IMF helps regimes that support terrorism. Yet the aid is also opposed by 41 liberal Democrats, who want the United States to oppose IMF loans that force countries to cut spending or raise interest rates.
These are old arguments;
This is like saying, “Malaria kills a million people each year” is an old argument. The arguments against the IMF requiring countries to cut spending or raise interest rates, during an economic downturn, are old because the Fund has been doing this for a long time. But the arguments are still valid from the viewpoint of standard economic analysis: in general, government should not adopt policies that shrink the economy during an economic downturn. And the Fund is still requiring many countries to do this; in fact, almost all of the IMF’s Standby Arrangements of the last year contain such contractionary conditions.
the fact that support for the IMF helps purchase a public good — global financial stability
It would be difficult to find economists outside the IMF who would argue that the Fund promoted “global financial stability” during the last major international financial crisis that began in East Asia 11 years ago. This did not appear to be the case in Indonesia, Thailand, South Korea, the Philippines, Russia, Brazil, Argentina, and other countries hard-hit by the crisis in the late 1990’s.
– gets less frequent mention. As the administration has argued, IMF support does not add to the projected budget deficit
Actually, the administration argued this but did not convince the non-partisan Congressional Budget Office, which scored the IMF money as a net cost of $5 billion to the U.S. government. And even this was a gross underestimate, apparently arrived at through a process of political bargaining.
because it is more like a revolving loan than an expenditure. President Obama has correctly observed that "other countries are looking to the United States to deliver on our commitment"; Congress should not undermine him.