Photo by: Marko Drobnjakovic
Administration sees crisis in Ukraine as opportunity to pass IMF reforms
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.
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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.
Senate Timing
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.
Three Republicans voted against the Senate measure in the
committee: Senators James Risch of Idaho,
John Barrasso of
Wyoming and
Rand Paul of Kentucky.
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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.
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IMF team to remain in Ukraine
10:35 AM Friday Mar 14, 2014
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.
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Christine
Lagarde said a team would go to Kiev to carry out an independent
assessment of the economic situation in Ukraine in the coming days.
Photograph: Ian Waldie/Bloomberg
