Obama Administration’s Claims on IMF Quota Increase are Patently FalsePosted by Staff on March 14, 2014
By Rep. John Campbell
Chairman of the Subcommittee on Monetary Policy and Trade
The Obama Administration is deliberately holding up economic assistance to Ukraine by trying to make permanent a temporary U.S. investment in the International Monetary Fund. The Administration is not being honest about what the IMF quota increase would actually mean for Ukraine, nor is it being transparent with the American people on the risks that this new investment will carry.
The fact is that the IMF currently has assistance programs that would allow Ukraine to borrow billions of dollars, and would have the added benefit of being paired with much needed technical assistance. The Administration’s push to make additional funds available through the IMF’s Rapid Financing Instrument (RFI) does nothing to correct the serious structural challenges that will continue to face the Ukrainian economy. In fact, increased access to the RFI would merely provide one month’s worth of assistance to Ukraine. This is not a serious approach towards providing the kind of relief that Ukraine needs. Additionally, the loan guarantees that the House passed last week would provide more than double the assistance that the marginal increase in RFI access would provide.
The fact of the matter is that Ukraine needs more sustainable financial assistance and serious economic reforms. We have seen in the IMF’s experience with Greece that by not forcing private creditors to shoulder significant losses, debt burdens could remain unsustainable even with an IMF loan. The Administration should be forcing these creditors to the table, many of whom are Russian, in order to negotiate a debt restructuring. Failing to do so is effectively allowing the IMF to perform a backdoor bailout of Russian investors.
The Administration argues that by ratifying the increase in quota, the IMF will implement some governance changes. What the Administration is not saying is that the governance changes only incrementally address a fundamental problem of outsized European influence on the Board of Directors. Even if the reforms are implemented, Europe would continue to have at least six times more representation than the United States. Europe has wielded this influence to force the IMF to shoulder more of the financial burden in European bailouts, sparing losses for European banks.
If the Administration wants to have an honest discussion about its role in the IMF, the role of the IMF in the world, and what should be done to improve its governance, then we should engage in these debates in a thoughtful manner removed from the pressure of quickly providing assistance to Ukraine. Congress only recently received an official request from the President on the quota increase, when he included it in his late budget submission a few weeks ago. What the Administration should do is seek stronger IMF reforms that include more balanced representation on the Board of Directors and is less reliant on U.S. taxpayer funds.