But at a Group of 20 summit of world economic powers in France last month, U.S. officials played a key role in developing proposals that would increase the IMF’s financial clout without requiring the United States to dip into its own purse to help pay the bill.
The ideas under discussion include direct loans to the agency from wealthy European countries or perhaps other cash-rich governments. Another measure, specifically suggested by U.S. officials, is an increase in the IMF’s special drawing rights, or SDRs, which act as a pool of credit that member countries can quickly tap at a low interest rate. Countries usually use SDRs to confront short-term cash flow problems or related difficulties.
SDRs are separate from the funds that member countries contribute to the IMF. Instead, SDRs give a country the right to turn to other countries and borrow a limited amount in major currencies, such as dollars and euros. The country that borrows the money must later repay the lending countries with interest.
As the IMF’s dominant shareholder, the United States must approve any major change in the agency’s funding or use of money.
G-20 leaders agreed last month to develop a plan by February for “deploying a range of various options” that the IMF could use to combat the crisis. By mid-winter, Italy and other indebted countries will need significantly more help with financing their government bonds.
Not included in the list, and opposed by the United States, was any general increase in IMF funding, which would require the United States to pay more to the agency. The U.S. share of funding for the IMF is proportional to Washington’s roughly 16 percent voting share on the agency’s board.
President Obama said Wednesday that Europe’s problems have become a preoccupying concern for his administration. In recent weeks, turmoil in European markets has pushed euro-zone countries toward restructuring their currency union and marshaling more money to help weaker members such as Greece and Italy. European leaders are heading toward a summit meeting late next week that could be a turning point for the euro zone.
“I’m spending an awful lot of time making transatlantic calls,” Obama said at a New York fundraiser. “When you look at what’s happening in Europe . . . that can have a profound impact on what happens here.”
U.S. officials are eager to see their European counterparts finally defuse the threats posed by over-indebted governments, undercapitalized banks and an anemic economy. But despite the administration’s lobbying — Obama has been a frequent phone caller to German Chancellor Angela Merkel in particular — the free advice has generally stopped at just that.
“When the president says we are ready to help . . . it is not that we are going to take your case to the American taxpayer,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and a former adviser in the Obama White House.
With U.S. budgetary politics afflicted by bitter partisan divisions, there’s little chance that Congress would spend taxpayer money to help Europe. But the IMF offers another way to help.
On a trip this week to Latin America, IMF Managing Director Christine Lagarde gained a commitment from Mexican officials to put a boost in the fund’s resources high on their agenda. Mexico currently chairs the G-20.
Of the approximately $950 billion that the IMF has at its disposal through a variety of programs, about $385 billion is uncommitted and available to lend.
“Lending capacity remains substantial,” IMF spokesman Gerry Rice said at a briefing Thursday, but “downside risks are increasing.” Those include slower growth and the possibility that large amounts would be needed if the euro region is not able to reverse the financial slide in such large countries as Italy and Spain.
The changes being debated in Europe regarding the future of the currency union could represent a long-run solution. But Europe may still need short-term help that the IMF or the European Central Bank could provide.
“The United States, along with non-Europeans, feels the fund should help Europe, but that the Europeans have to do more to help themselves,” said Ted Truman, a senior fellow at the Peterson Institute of International Economics and a former Treasury Department adviser. Boosting the IMF’s ability to help “could be a grand bargain” if the European summit next week achieves a breakthrough, he said.