Administration sees crisis in Ukraine as opportunity to pass IMF reforms
By Patrice Hill–
The crisis in Ukraine has unexpectedly breathed new life in the Obama administration’s stalled efforts to pass legislation reforming the International Monetary Fund in Congress this year.
Administration aides have seized on the crisis as an opportunity to piggyback the reforms to the global financing agency long sought by President Obama, which give a greater voting share on the IMF board to rising developing economies such as China and Brazil, onto a bill providing $1 billion in loan guarantees for Ukraine’s West-leaning government.
The aid package — and the IMF’s potential role in aiding the new government in Kiev — will likely come up when Mr. Obama meets for the first time with new Ukrainian Prime Minister Arseniy Yatsenyuk at the White House Wednesday.
Under the administration’s assistance plan, the IMF would lead Western efforts to provide Ukraine with as much as $35 billion in loans in exchange for Ukraine adopting much-needed reforms in its corruption-riddled economy. But the quick action that is needed to help Ukraine avert a default within months may be jeopardized if Congress continues to block the reform bill with its $63 billion increase in the IMF’s lending authority.
Moreover, Treasury Secretary Jack Lew said the U.S. cannot take an aggressive leading role in addressing the crisis, as many in Congress demand, unless lawmakers acts on the reforms. The U.S. in the past has had effective veto power over IMF programs, but the administration’s failure to obtain additional lending power to the international agency from Capitol Hill has been eroding its influence there.
“It is imperative that we secure passage of IMF legislation now so we can show support for the IMF in this critical moment and preserve our leading influential voice in the institution,” Mr. Lew told the Senate Finance Committee, noting that many members of Congress have been “at the forefront of international calls in urging the Fund to play a central and active first-responder role in Ukraine.”
Credibility at stake
International finance analysts say the U.S. will lose credibility in the eyes of the world if it continues to call for action to help the new government in Kiev while holding back the IMF reforms that make that possible. In addition to the IMF receiving increased lending authority in the bill, Ukraine would get greater authority to borrow funds it needs from the IMF to stabilize its ailing economy.
“Since it was the U.S. that spearheaded the 2010 IMF reforms, the legitimacy of U.S. leadership is at stake,” said Jo Marie Griesgraber, executive director of New Rules for Global Finance. “Congressional approval is the only remaining impediment” preventing the reforms from taking effect, she said, as most of the IMF’s other 136 members have already approved them.
“We have heard the calls from Congress for stronger U.S. leadership on Ukraine. This would be an excellent time for Congress to approve the IMF reforms,” she said. “This is a win-win for members of Congress who wish to strengthen U.S. global leadership, specifically its position on Ukraine vis—vis Russia, without additional costs to U.S. taxpayers.”
The administration and IMF proponents argue that the increased IMF lending authority would do little to increase the budget deficit since it involves a reprogramming of funds already approved by Congress for emergency IMF loans during the 2009 financial crisis.
While Republican leaders earlier this year were willing to accept the reforms, they sought unsuccessfully for concessions from the administration in return. Some Republican members of Congress have balked at the legislation, contending that the $314 million on-budget cost is not negligible while the IMF lending programs leave U.S. taxpayers open to potentially large costs if borrowers do not repay their loans — something that has never happened in the IMF’s history.
“According to the Congressional Research Service, the U.S. has never lost money on quota commitments. In fact, there is some nominal interest earned on these commitments,” said Ms. Griesgraber.
Ukraine Aid Measure Approved With IMF Link House Opposes
The Senate Foreign Relations Committee approved an aid package for Ukraine that will face opposition from Republicans over changes in U.S. funding for the International Monetary Fund.
The Democratic-led panel voted 14-3 today for a bill that would give Ukraine $1 billion in loan guarantees it’s seeking as Russian forces occupy the Crimean peninsula. It also would authorize sanctions against Ukrainians and Russians deemed responsible for corruption and violence.
The measure, which had bipartisan support in the panel, “sends a message to Russia and the world that we support Ukraine,” said Democratic Senator Robert Menendez of New Jersey, the panel’s chairman.
U.S. House Speaker John Boehner earlier today rejected attempts by Democrats and the Obama administration to tie additional funds for the IMF to a Ukraine aid package.
“This IMF money isn’t necessary for dealing with this Ukraine crisis that we see today,” Boehner, an Ohio Republican, told reporters in Washington. House Republicans have resisted proposals to increase funds for the IMF for years.
The IMF overhaul is backed by the Obama administration, chief executive officers of major U.S. companies and Republican former secretaries of state Henry Kissinger and Condoleezza Rice, who have said funding the IMF would help Ukraine.
Ukraine’s prime minister, Arseniy Yatsenyuk, went to the Capitol tonight after meetings in Washington with President Barack Obama and Secretary of State John Kerry. Speaking to reporters after he met in a closed-door session with Foreign Relations Committee members, Yatsenyuk said he wasn’t concerned about the time that it might take for Congress to approve the requested economic assistance.
“It always takes time to make good things,” he said.
He called the U.S. pledge of $1 billion in loan guarantees “the first real and concrete step how to stabilize the situation in my country, and we praise it.”
While Senate Majority Leader Harry Reid told reporters he hoped the measure approved today can be taken up by the full Senate tomorrow, Adam Jentleson, a spokesman for the Nevada Democrat, said the legislation may not be considered before members leave for a break until March 24. The Senate may depart as soon as tomorrow.
ECONOMICS MARCH 13, 2014
If Ukraine Defaults, They Can Blame House Republicans
Ukraine needs loans to avoid a default and they need them fast. Last week, Secretary of State John Kerry pledged $1 billion to support Ukraine, but that money is now caught up in a political fight in Congress. Democrats want to include long-overdue reforms to the International Monetary Fund that would allow Ukraine to borrow more from the fund, but Republicans are opposed – unless, of course, Democrats will agree to a one-year delay of an IRS rule. “Let’s make sure we all understand something: The IMF money has nothing to do with Ukraine,” House Speaker John Boehner said on Thursday. But they do: They’d allow Ukraine to borrow 60 percent—around $600 million—more from the IMF.
In 2010, the G20 countries agreed to changes to the IMF that would transfer $63 billion from an emergency fund to the main fund and give emerging countries a larger representation on the board. For the U.S., the implications are minor. It does not increase our contributions to the fund and slightly reduces our voting power, but we retain veto power over major policy decisions. More than 130 countries have already approved of these reforms, but they cannot go into effect until Congress passes them.
IMF team to remain in Ukraine
WASHINGTON (AP) The head of the International Monetary Fund says an IMF fact-finding team in Ukraine will begin negotiations with authorities to develop an economic reform program that could lead to financial help from the lending organization.
Christine Lagarde said Thursday the team that went to Ukraine March 4 and normally would return to Washington to report to the IMF board will now remain until March 21.