Trump Snubs Global Order Again as U.S. Rejects IMF Funding Boost

(Bloomberg) -- The U.S. is opposing an increase to the IMF’s permanent capital levels, President Donald Trump’s latest snub of multilateral organizations as he pursues his “America First” foreign policy.

The International Monetary Fund is examining its capital levels under a regularly scheduled review. The Washington-based fund is mostly financed by shares, known as quotas, paid by its 189 member nations.

Managing Director Christine Lagarde has argued that an adequately funded IMF is a key pillar of the financial “safety net” that the world relies on during crises. The fund agreed to the biggest loan in its history this year, lending Argentina $57 billion after the nation’s currency collapsed.

But a senior U.S. Treasury official said the administration doesn’t support any changes to the fund’s quota levels.

“We are opposed to changes in quotas, given that the IMF has ample resources to achieve its mission, countries have considerable alternative resources to draw upon in the event of a crisis, and the post-crisis financial reforms have helped strengthen the overall resiliency of the international monetary system,” David Malpass told U.S. lawmakers on Wednesday in testimony before a House subcommittee that focuses on monetary policy and trade.

Slowing Growth

The administration’s decision throws into question efforts to boost the IMF’s capital at a time when global growth is leveling off and rising interest rates are causing turbulence in emerging markets.

Trump has vowed to put "America First” in the nation’s foreign policy, and he has been critical of multilateral institutions such as the World Trade Organization and NATO. Several of Trump’s top advisers have criticized global institutions in the past, including National Security Advisor John Bolton, who in a 2016 article cited arguments for abolishing the IMF and privatizing the World Bank.

America is the biggest shareholder in the fund, with a 16.5 percent voting share that effectively gives it a veto on major changes such as quota increases.

The Trump administration supported a $13 billion capital increase earlier this year for the World Bank, which lends to developing countries.

“We will be seeking a constructive size for IMF resources that contributes fully to the stability of the international financial system, but recognizes that the IMF is just one part of the global financial system and its various support mechanisms,” Malpass said.

U.S. rejection of a funding increase represents a diplomatic challenge for Lagarde, who has openly defended the existing global economic order but until now has gotten along well with Treasury Secretary Secretary Steven Mnuchin.

Financial Means

An IMF spokesman said the fund will continue discussions with its members on the quota review, with the goal of completing it by the IMF’s annual meetings in October 2019. The fund could still see its funding increase through temporary borrowing arrangements it has with groups of countries or individual nations.

“We look forward to continuing to work with the U.S. as well as with all our memberships to ensure that the IMF is sufficiently and efficiently resourced,,” IMF director of communications Gerry Rice told reporters Thursday. ‘It will be for our membership to decide.”

The IMF was conceived during the Second World War to help prevent the beggar-thy-neighbor policies that followed the Great Depression. The U.S. played a leading role in developing the IMF system, along with the U.K. The fund has since evolved into the lender of last resort for countries in financial distress.

Congressional Support

But in recent years, it has been difficult for the IMF to secure support in Congress, where some lawmakers have questioned the need to finance other countries. Congress approved a doubling of the IMF’s quota in late 2015, five years after the Obama administration agreed to the increase. The boost gave the IMF about $1 trillion in financial firepower, but its capital levels have been shrinking as a share of global output.

A former U.S. executive director at the fund said it’s a mistake to oppose a quota increase.

“The IMF has strongly supported American interests throughout its history, as exemplified by the recent Argentine loan. Even if Fund resources are ample at this moment, that is no guarantee of the future,” said Mark Sobel, who was the U.S. representative on the IMF’s executive board from 2015 to early 2018. “Turning our backs on a Fund quota increase will be seen across the globe as another U.S. snub of multilateralism, global institutions, and a rules-based order.”

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