The US House Financial Services Committee is holding a hearing today at 2 pm on whether the United States should pony up an additional $65 billion to double our quota contribution to the International Monetary Fund. We should just say "No!"
The Subcommittee on Monetary Policy and Trade will hold this "Evaluating U.S. Contributions to the International Monetary Fund" hearing to examine the Obama Administration's request to Congress to authorize governance reforms at the International Monetary Fund (IMF) and increase the U.S. quota share by about $63 billion. The only witness at the hearing will be Lael Brainard who is the Under Secretary for International Affairs, United States Department of the Treasury. The committee website should webcast it live. As of 10 am, the testimony has not been made public on their site.
The memo helpfully summarizes:
The IMF has not been without controversy, and increased attention on its activities since the global financial crisis of 2008-2009 and subsequent Eurozone crises have revived long- standing debates about the institution's role in the global economy. Some analysts argue that with the end of fixed exchange rates, the IMF is no longer needed and it should be abolished. [emphasis added] Others say the IMF is still vital, but needs to be restructured and refocused. Still others suggest that new functions should be added to the IMF and its role in the international monetary system should be expanded.
Of course we recognize systemically that the IMF isn't doing it's job so we give them not one but two lines of credit to US taxpayer money at the US Treasury:
In addition to quota, the United States has also committed resources to "supplementary" funds at the IMF. These are funds that can be tapped when demand for IMF resources is particularly strong, such as during major financial crises. The IMF has two supplementary funds: the New Arrangements to Borrow (NAB) and the General Arrangements to Borrow (GAB). The United States has committed about $103 billion to the NAB (18.67% of total NAB resources), and about $6 billion to the GAB (25% of total GAB resources). U.S. financial contributions to the IMF, including to IMF quota and the supplementary funds, are not grants. Instead, they are lines of credit extended by the United States to the IMF. The United States earns a small amount of interest when the IMF taps U.S. commitments to fund IMF programs.
For appropriating all of this money, the US Congress does try to add some accountability:
Over the years, Congress has also passed several legislative mandates that have shaped U.S. policy at the IMF. Legislative mandates typically fall into three categories. First, "voice and vote" mandates direct the U.S. Executive Director to promote specific policies at the IMF and to vote for such policies. Second, directed voting mandates require the U.S. Executive Director to vote against or abstain in votes relating to certain types of programs or policies. The final type, reporting requirements, requires the Treasury Department to report to Congress on issues related to U.S. participation in the IMF.
Some live in a Pollyanna world where the IMF does no wrong and is a great vehicle for the US to lord over other countries' foreign policies through financial intimidation, much like loan sharks act to the ones they lend money too (but without the exemption from paying taxes on their salaries like IMF employees get, right Mr. Geithner?).
Others are more skeptical and see the IMF as an enabler of moral hazard. They are concerned that taxpayer dollars are being used to fund IMF programs to bail out governments that have implemented irresponsible fiscal and monetary policies. They argue that the availability of funding from the IMF reduces incentives for governments to adopt difficult, but prudent, economic policies. Opponents also point out that the IMF is often unpopular in countries receiving IMF assistance, typically because of the conditions attached to IMF loans which often require recipients to adopt unpopular austerity measures. In some cases, public anger is also directed towards the United States, which is seen by some citizens of borrowing countries as responsible for the policy prescriptions imposed by the IMF as a condition for receiving funds.
Short version: the Obama Administration wants us to DOUBLE our quota contribution to the IMF so it can help more countries act irresponsibly (Greece, etc.) and wreak financial havoc around the world in exchange for reforms that dilute our say in how the IMF would spend the money.
I have long and publicly criticized the IMF's commitment to oppose property rights with designs on helping usher in a global financial surveillance network and beforehand at the Cato Institute and as a vehicle for global corporate welfare. It's reassuring to me to know that I'm in the good company of now Pope Francis who witnessed and publicly opposed the effects of the IMF's misguided policies of bad reverse income redistribution from the poor to the elite and the inherent corruption.
In a forthcoming post, I'll revisit the debate over the IMF quota increase from 1998-1999, but the single most important statement would be the Dissenting View I wrote for then Congressman Ron Paul.
If the US is even going to entertain this notion (and we shouldn't), I have a few suggestions for them to consider:
One, I think we should demand as a condition that they restitute all IMF First Articles of Agreement gold (I'm sure the Europeans and others could use it at least as much as we can!) We are talking about (back of the envelope) 90 million ounces at SDR35/oz.
That restituted gold should then go to the Social Security Trust fund with gold-denominated bonds. The US Gold Commission Report explained the restitution question. Alan Greenspan and Judy Shelton, among others, have explained how these bonds might work.
Two, relatedly, in order for gold bonds in the Social Security Trust Fund to work, Congress would have to demand that the IMF remove the three words from its Second Articles of Agreement that prohibit member states from using gold as money.
After President Nixon took the US off the gold standard internationally ("temporarily"! just as FDR took us off it domestically only temporarily!), the IMF members reached a "Second" Articles of Agreement that did a 180 on the first one's requirement to use gold as money (at least for payments to the IMF, etc.). The Second Articles of Agreement includes a three word phrase that needs to be struck.
Article IV: Obligations Regarding Exchange Arrangements
Section 2. General exchange arrangements
(b) Under an international monetary system of the kind prevailing on January 1, 1976, exchange arrangements may include (i) the maintenance by a member of a value for its currency in terms of the special drawing right or another denominator, other than gold [emphasis added], selected by the member, or (ii) cooperative arrangements by which members maintain the value of their currencies in relation to the value of the currency or currencies of other members, or (iii) other exchange arrangements of a member's choice.
Congress should reject a moral hazard on steroids and stand for sound money.
The committee has issued a background memo on the issue here