Will Obama Finally Honor This IMF Agreement?
To put it crudely, the International Monetary Fund is a giant bucket. Nations pour money into the bucket based on a quota systems, and struggling economies can borrow funds from the bucket in times of need. The whole mechanism was devised at the 1994 Bretton Woods Conference with 29 founding countries, and has since grown to 188 members.
The power structure of the IMF is determined in part by who contributes how much money to the bucket. The more money you pour in — the more important your nation’s economy is in the global context — the more weight your words have. Understandably, the power structure at the IMF is constantly evolving and was deeply shaken by the 2008 financial crisis.
In 2010, IMF member nations reached a historic deal that would make China the third-largest voting member, as well as increase the influence of emerging economies like Brazil and India. As part of that agreement (and specifically as part of the shift in the cash-determined power structure) the United States, keen on keeping its dominant position in the organization, agreed to increase its quota in the IMF by approximately $63 billion.
Outside of the summary tables, the International Monetary Fund is mentioned in just one section of President Barack Obama’s fiscal 2014 budget proposal, and it addresses this very agreement that was never actually honored. Dramatic budget fights in Washington and political gridlock has made politicians unwilling to move forward on the arrangement, even though there would be no additional cost to taxpayers…
Here is how the situation is addressed in Obama’s budget:
“The Budget includes provisions to implement the December 2010 IMF agreement by increasing the U.S. quota in the IMF by approximately $63 billion and simultaneously reducing by an equal amount U.S. participation in the New Arrangements to Borrow (NAB), in addition to instituting other reforms that the United States has sought. The NAB is a set of standing IMF borrowing arrangements with 38 members and institutions to supplement IMF resources as needed to respond to financial crises that threaten the stability of the global financial system. The 2010 agreement results in no overall change in U.S. financial participation in the IMF, while preserving U.S. veto power and restoring the primacy of the IMF’s quota-based capital structure in which the United States has the largest share.”
Last month, Obama asked the Senate and House appropriations committee to include the IMF funding shift in separate government funding legislation. However, both panels rejected the idea, saying that they didn’t want to include controversial provisions in a necessary federal funding bill.