U.S. Defends Support for IMF Reserves After GOP Criticism
(Bloomberg) -- The Treasury Department released a detailed rebuttal of Republican criticism of support for an increase in International Monetary Fund reserve assets, saying that it will help support the global and U.S. economic recovery.
The proposed issue of $650 billion in the reserves, known as special drawing rights, or SDRs, will benefit low-income countries and impose no direct cost on the U.S., the Treasury said in a statement Thursday. Should the U.S. purchase SDRs from another country, the Treasury would earn interest that might offset any additional costs, and the U.S. can refuse to purchase reserves from any country whose policies it opposes, according to the statement.
The message came after Treasury Secretary Janet Yellen last week in a hearing sparred with Republican Senator John Kennedy, who said that American taxpayers will need to pay $180 billion for that increased allocation and direct money to American adversaries like China, Russia and Venezuela. It also came ahead of next week’s IMF and World Bank spring meetings, where the reserves will be a main focus of discussion.
The U.S. won’t buy SDRs from countries for which it applies sanctions, the Treasury officials said. The U.S. currently applies sanctions to nations including Cuba, Iran, Syria and Venezuela.
The Treasury is sending Congress notice Thursday of its support for the reserves creation, meaning the soonest that the nation can formally support it at the IMF based on a 90-day advance notice requirement is around the start of July, according to Treasury officials. That means central banks globally would begin to receive the assets by August, the officials said. The U.S. move requires notifying Congress, but it can be done without holding a vote.
In response to the Republican criticism that an SDR allocation would benefit dictators, the Treasury said that the U.S. has the right to refuse to buy SDRs from any nation. While some countries whose policies the U.S. opposes would receive SDRs, they won’t necessarily be able to use them, the Treasury said.
The Treasury wouldn’t support the allocation if it doesn’t include transparency and accountability provisions that the U.S. is asking for regarding how SDRs are used, but the department sees no indication that there will be opposition to their inclusion, the officials said.
Pat Toomey, a Republican senator who is the ranking member on the body’s banking committee, reiterated Thursday that the allocation is “inappropriate” and “inefficient.”
“It will be helpful to repressive regimes and state-sponsors of terrorism and do little for impoverished countries,” he said in a statement. “Like other forms of foreign aid, this should be subject to congressional approval rather than unilateral administrative action. I strongly urge Secretary Yellen to abandon her support for this proposal.”
Momentum has been building for the injection of funds after Yellen leaned toward supporting the action, reversing opposition last year under President Donald Trump. Her predecessor, Steven Mnuchin, blocked the move in 2020, saying that because reserves are allocated to all 190 members of the IMF in proportion to their quota, almost 70% would go to the Group of 20, with just 3% for the poorest developing nations.
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