As U.S. Treasury officials quickly note: IT WON’T COST ANY MORE MONEY!
It will, however, change the nature of a roughly $63 billion loan that the United States made available to the IMF at the peak of the financial crisis, converting it into a permanent increase in the IMF’s capital base.
Treasury Secretary Jack Lew testified this week that congressional approval would reaffirm the U.S. commitment to the IMF and to a financing structure for the organization that gives the country a veto in major policy matters.
IMF funding is always a politically treacherous subject. While considered a low-risk investment (the IMF is a first-in-line creditor for the troubled nations to which it lends), the optics are tough when the agency is providing historic sums to countries in the euro zone — an economic zone that collectively rivals the United States in terms of wealth.
But the delay in U.S. approval has gummed up larger changes at the fund. The capital increase is linked to an overhaul of the IMF’s governing board that trims Western Europe’s oversize membership and redistributes some voting power to developing countries.
Developing nations have argued — and the United States agrees — that the current board doesn’t reflect the state of the global economy and gives too much weight to old-line industrial countries. A handful of major powers, including the United States and China, have individual seats on the IMF’s 24-member governing board. The rest of the world is carved into constituencies in which the largest members typically rotate representatives.
The reforms, approved by the IMF in 2010, would likely shift two board seats traditionally held by Western Europeans to developing nations.
Enough countries have approved the change that the U.S. vote is the last one needed to move forward. And American officials are likely to be reminded of that in meetings this week among the IMF and Group of 20 top economic powers.
“Your political system is becoming a global concern,” said Ksenia Yudaeva, the staff person coordinating Russia’s current chairmanship of the G20, which meets on the sidelines of the IMF and World Bank sessions underway this week. “We observe some uncertainty in policy.”
A group of the top 24 developing nations on Thursday night expressed “regret” that the IMF reforms had not been enacted and said that the current division of power in the agency has “serious flaws.” Major developing nations have proposed forming a separate development bank and financial arrangements viewed as a rival to the IMF and World Bank.