U.S. Leans Toward Backing $500 Billion Bump in IMF Firepower
(Bloomberg) -- The U.S. Treasury is leaning toward backing a boost of as much as $500 billion to the International Monetary Fund’s resources, helping it support developing nations against the Covid-19 crisis, according to people familiar with the matter.
Treasury Secretary Janet Yellen could make a decision as soon as the end of February, when finance ministers and central bankers from the Group of 20 meet, the people said on the condition of anonymity. That event, hosted by Italy, will be held virtually on Feb. 26.
The proposed amount falls below the threshold that would require the Biden administration to seek congressional approval for the move. IMF Managing Director Kristalina Georgieva has been calling for a “sizeable” increase in reserve assets, called special drawing rights or SDRs, since March.
A Treasury spokesperson declined to comment on the department’s thinking.
Yellen and Georgieva spoke Tuesday about “the need to find multilateral solutions” to global economic issues including Covid-19 and recovery in low-income countries, according to a Treasury readout of the call.
Ex-IMF official advising
David Lipton, a former IMF first deputy managing director, on Wednesday started on Yellen’s team as a counselor on a temporary basis and is expected to help her navigate the decision, according to people familiar with the matter.
Boosting the IMF’s firepower proved a political battle in Washington in the past, and some have declared their opposition this time around as well. Yellen’s immediate predecessor, Steven Mnuchin, opposed the move, saying that because reserves are allocated to all 190 members of the IMF in proportion to their quota, some 70% would go to the G-20, with just 3% for the poorest developing nations.
As long as the total SDR issuance boost is kept to less than about $650 billion, the administration would only need to consult with Congress -- rather than get approval -- Mark Sobel, a former career Treasury official, said last year.
Yellen pledged last month, in a written response to questions from Senate Finance Committee members, to indeed consult with Congress before making a decision. She said the IMF and World Bank must do everything “they can to ensure that developing countries have the resources for public health and economic recovery.”
While many House Democrats support boosting SDRs, the Biden administration is already facing calls from Republicans to align with Mnuchin’s opposition.
French Hill, an Arkansas Republican on the House Financial Services Committee, wrote an opinion piece in the Wall Street Journal this week calling it a “giveaway to wealthy countries and rogue regimes.”
Issuance would send billions of dollars to Iran, Russia, China, as well as rich nations with large shares in the IMF.
China would reserve additional funds “even as it perpetrates genocide in Xinjiang, locks up pro-democracy advocates in Hong Kong,” Hill wrote.
The U.S. is the linchpin for approving the move because the nation holds 16.5% of the voting power at the fund’s 24-member executive board, almost three times the sway of any other country. Passage requires 85% of votes -- giving the U.S. a de-facto veto.
After four years of predecessor Donald Trump’s unilateral policies, President Joe Biden has pledged to revive global cooperation.
Supporting the IMF’s bid to help low-income nations is a signal that the U.S. is ready to commit to multilateralism, according to Josh Lipsky, policy director of the Atlantic Council’s GeoEconomics Center.
The move “shows that this administration will not allow the geopolitical concerns regarding Iran and other countries to outweigh the broader global economic recovery,” he said.
©2021 Bloomberg L.P.