As Ukraine faces parallel political and economic crises, the IMF is once again in the spotlight as it seeks to prevent an economic collapse of an emerging market country.
The Fund, over its 70 year history, has stood as the world’s first line of defense for countries facing financial difficulties. From the Latin American debt crisis of the 1980s to the Asian financial crisis of the 1990s to the recent global crisis, the IMF has prevented serious contagion from flowing into the global economy.
Ninety-six percent of the world’s consumers live outside the United States and one in five American jobs are supported by international trade. U.S. economic growth increasingly depends on trade and investment between the U.S. and the rest of the world.
Continuing to support the IMF in its efforts to promote global financial stability is essential for U.S. economic growth and is an important foreign policy tool.
To that end, it is vital that the funding and governance reforms agreed to by the G20 in 2010 be enacted. All major countries, including important U.S. allies, have ratified these reforms except for the United States. The recent crisis in Ukraine should remind lawmakers of the importance of the IMF to U.S. interests and encourage them to enact these reforms into law.
It is important to understand what these reforms mean for the IMF and for the United States. They will not cost U.S. taxpayers a single cent, but will help promote U.S. job creation and economic growth by sustaining global trade.
Under this package, the U.S. would remain the IMF’s largest shareholder and retain its veto power. But it would shift 6 percent of the Fund’s voting shares to emerging market countries. This would ensure the IMF better represents the dynamic and growing contribution emerging market economies make to the global economy, without weakening the United States’ ability to influence IMF priorities the U.S. deems critical.
These reforms will also not increase the U.S. financial commitment to the IMF. By a simple accounting change, the U.S. will increase its quota in the IMF while at the same time decreasing its outstanding loan commitments to the Fund by an equal amount. These are funds already authorized by Congress, which assures U.S. taxpayer dollars will not be added to the deficit.
At the same time, these reforms will increase funding contributions from emerging economies like China, India and Brazil and ensure these countries bear greater responsibility for the IMF’s decision-making.
Congress unfortunately did not include IMF quota reform in its recent two-year budget agreement. And without Congressional action, the IMF will likely have to seek more bilateral lending agreements with other countries. This will result in the U.S. losing influence and oversight at the Fund.
Congress shouldn’t let this happen, especially at this critical stage in the global economic recovery.
Developed economies are beginning to see economic growth pick up, driving overall global economic activity, but risks still threaten the global economic outlook. Many emerging market countries continue to experience turbulence due to external and internal factors. A number of these countries will be able to manage this turbulence through a mix of monetary and fiscal policy actions. But in some cases, like Ukraine, the IMF will need to step in and help.
As the IMF continues to be active in countries around the world, the U.S. should not give up its leading role at the Fund by neglecting to pass these important reforms. Reforms that benefit U.S. jobs and economic growth.
In recent testimony, Treasury Secretary Jack Lew said these reforms offer a “win-win” scenario for the United States. Congress should see it the same way.
Adams is president and CEO of the Institute of International Finance, the globl association of the financial industry.