US resists IMF funding boost

Bloomberg

The US is opposing an increase to the IMF’s permanent capital levels, President Donald Trump’s latest snub of multilateral organisations as he pursues his “America First” foreign policy.
The International Monetary Fund is examining its capital levels under a regularly scheduled review. The Washington-based fund is mostly financed by shares, known as quotas, paid by its 189 member nations.
Managing Director Christine Lagarde has argued that an adequately funded IMF is a key pillar of the financial “safety net” that the world relies on during crises. The fund agreed to the biggest loan in its history this year, lending Argentina $57 billion after the nation’s currency collapsed. But a senior US Treasury official said the administration doesn’t support any changes to the fund’s quota levels.
“We are opposed to changes in quotas, given that the IMF has ample resources to achieve its mission, countries have considerable alternative resources to draw upon in the event of a crisis, and the post-crisis financial reforms have helped strengthen the overall resiliency of the international monetary system,” David Malpass told US lawmakers in testimony before a House subcommittee that focusses on monetary policy and trade.

SLOWING GROWTH
The administration’s decision throws into question efforts to boost IMF’s capital at a time wh-en global growth is levelling off and rising rates are causing turbulence in emerging markets.
Trump has vowed to put “America First” in the nation’s foreign policy, and he has been critical of multilateral institutions such as the World Trade Organization and NATO. Several of Trump’s top advisers have criticised global institutions in the past, including National Security Advisor John Bolton, who in a 2016 article cited arguments for abolishing the IMF and privatising the World Bank.
America is the biggest shareholder in the fund, with a 16.5 percent voting share that effectively gives it a veto on major changes such as quota increases. The Trump administration supported a $13 billion capital increase earlier this year for the World Bank, which lends to developing countries.
“We will be seeking a constructive size for IMF resources that contributes fully to the stability of the international financial system, but recognises that the IMF is just one part of the global financial system and its various support mechanisms,” Malpass said.
US rejection of a funding increase represents a diplomatic challenge for Lagarde, who has openly defended the existing global economic order but until now has gotten along well with Treasury Secretary Secretary Steven Mnuchin.
An IMF spokesman said the fund will continue discussions with its members on the quota review, with the goal of completing it by the IMF’s annual meetings in October 2019. The fund could still see its funding increase through temporary borrowing arrangements it has with groups of countries or individual nations.
“We look forward to continuing to work with the US as well as with all our memberships to ensure that the IMF is sufficiently and efficiently resourced,,” IMF director of communications Ger-ry Rice told reporters. ‘It will be for our membership to decide.”
The IMF was conceived during the Second World War to help prevent the beggar-thy-neighbour policies that followed the Great Depression. The US played a leading role in developing the IMF system, along with the UK. The fund has since evolved into the lender of last resort for countries in financial distress.
But in recent years, it has been difficult for the IMF to secure support in Congress, where some lawmakers have questioned the need to finance other countries. Congress approved a doubling of the IMF’s quota in late 2015, five years after the Obama administration agreed to the increase. The boost gave the IMF about $1 trillion in financial firepower, but capital levels have been shrinking as a share of global output.
A former US executive director at the fund said it’s a mistake to oppose a quota increase. “The IMF has strongly supported American interests throughout its history, as exemplified by the recent Argentine loan. Even if Fund resources are ample at this moment, that is no guarantee of the future,” said Mark Sobel, who was the US representative on the IMF’s executive board from 2015 to early 2018.