UK Urges US Congress to Stop Blocking IMF Reforms as China and Russia Lead Efforts to Bypass US

U.K. Treasury Chief George Osborne

The failure of the U.S. Congress to ratify reforms to the International Monetary Fund is bad both for the institution and the international community, U.K. Treasury Chief George Osborne said on Monday in Rio de Janeiro.

“I urge the [U.S.] Administration and Congress to act to pass them now,” he said in a speech as he kicked off a three-day trade trip to Brazil ahead of the IMF spring meeting in Washington, D.C. at the end of the week.

IMF Managing Director Christine Lagarde urged the same last month in The Wall Street Journal, saying the fund’s continued ability to fight economic and financial crisis rested on the approval of the reforms.

A large majority of the fund’s 188 member countries have ratified the changes which aim to strengthen the resources and governance of the fund, she said.

The changes would give developing countries, like Brazil, and China, more voting power to reflect their growth and larger role in the world economy. Increasing their voting power would also mean their financial contributions would rise, thereby broadening the IMF’s funding base and making it more representative of the membership, Ms. Lagarde said.

The U.S. is the only IMF member with veto power over major overhauls of its rules and governance and the changes cannot move forward until Congress ratifies the deal. However, some IMF members have set an informal deadline for looking at alternatives: the fund’s semiannual meeting on April 11-13, when finance ministers and central bank chiefs gather to discuss the state of the global economy.

“Let’s implement the reforms we have agreed to in our international institutions like the IMF so that countries like Brazil have the enhanced status and say that your economic strength earns you the right to,” Mr. Osborne said.

The British Chancellor of the Exchequer said the risks in the world economy, the situation in Ukraine, and the challenges of how to manage the withdrawal of Western monetary stimulus would be discussed at the IMF meeting.

“And we should agree both that those monetary authorities like the Federal Reserve and the Bank of England should continue to communicate their exit plans clearly with forward guidance; but that emerging markets must also continue with their crucial structural reforms,” he said. “We will look to see what more we can do together to build resilience in our financial systems and support growth in our economies.”

Mr. Osborne’s government has looked to boost British exports to Latin America and other fast-growing regions in an effort to offset the impact of the slowdown in Europe. The U.K’s trade deficit stood at £26.6 billion ($44 billion) in 2013, down from £33.4 billion a year earlier.

The Bank of England said Monday it will start accepting some export-finance securities as collateral for loans to commercial banks. Mike Rees, deputy group chief executive at lender Standard Chartered PLC, said the move will give banks “an increased level of comfort” over financing exports, which Mr. Osborne said should help spur greater lending to British firms trading overseas.

Russia, China Leading Efforts to Bypass U.S. as IMF Reforms Stall on Capitol Hill

By Patrice Hill, The Washington Times – April 6, 2014

http://tinyurl.com/nx59hmg

Russia, China and other major developing countries — angry about the stalemate on Capitol Hill that has blocked approval of a reform plan that would give them a bigger voting share at the International Monetary Fund — are pushing to go ahead with the reforms without waiting for the United States.

U.S. and IMF officials insist that the reforms — including changes in voting shares designed to reflect shifts in the global economy and a doubling of the IMF’s lending authority — cannot go into effect without approval by Congress, as the U.S. continues to wield veto power over major decisions and activities of the IMF under current voting formulas.

Russia reportedly is leading efforts by the emerging nations to steer around the U.S. In February, Moscow secured a pledge from the Group of 20 major industrialized nations to move ahead if the legislation doesn’t pass before the annual meeting of the IMF, which starts in Washington this week.

“It is obvious that the quota of emerging-market economies and developing countries should be increased as their influence on the global economy has increased,” said Russian Finance Minister Anton Siluanov, who is leading the effort to set the deadline, according to the Reuters news service.

Most of the IMF’s 188 member nations have approved the reforms, which originally were negotiated in 2010, and have waited patiently for Washington to act before proceeding with talks on a second round of voting changes to further increase the power of rapidly developing countries.

But opposition from House and Senate Republicans have blocked efforts by the White House and Senate Democrats this year to attach the IMF reform package to other legislation, trying the patience of major developing nations such as China, which for years has been contributing funds to the IMF beyond what is formally required in hopes of gaining greater influence on its decisions.

“The rest of the world was remarkably tolerant of U.S. political processes” until it became clear last month that Republicans would continue to block the legislation, said Edwin M. Truman, senior fellow at the Peterson Institute for International Economics. “The rest of the world’s toleration has worn out.”

Mr. Truman blames the Obama administration for not pushing for the IMF reforms hard enough, as well as the “acid political climate” in Washington that has made Republicans reluctant to give Mr. Obama any victory.

Although some conservative lawmakers have raised objections, including concerns about U.S. exposure to IMF loan defaults and worries about the loss of influence at the Bretton Woods institution, Republican leaders behind the scenes have said they are willing to accept the reforms if the administration drops a proposed Internal Revenue Service rule curbing political activity by tax-exempt conservative groups.

Tarnished reputation

But the failure of the two sides to reach a deal is now tarnishing the U.S. reputation at the IMF. The fight is even more puzzling given that the drive to reform the IMF started during the George W. Bush administration and is backed by many luminaries from the Bush and Reagan administrations, Mr. Truman said. Moreover, support for the IMF in the past has been overwhelmingly bipartisan in Congress. Leading Senate Republicans, including John McCain of Arizona and Bob Corker of Tennessee, were prepared to vote for the IMF reforms as part of the Ukraine aid package.

The White House has rejected the Republican demands, and congressional Democrats are vowing to keep pushing the IMF bill.

“It’s simply irresponsible that the Republican leadership insisted on holding IMF reforms hostage in an effort to protect their special interest campaign contributors’ ability to pour money into the system unchecked,” White House senior adviser Dan Pfeiffer said after the reforms were stripped out of the Ukraine aid legislation.

Meanwhile, the international lending agency is under the gun to begin exploring what one IMF official speaking on background said were various “bad options” of moving ahead without the U.S., to avoid further upsetting China and other major emerging countries. Whether the IMF will break ground may depend on how hard Russia, China and the bloc of emerging countries press their demands.