Support the IMF


I suspect that the number of issues on which Condi Rice, Henry Kissinger, Bob Rubin, Paul Volcker, Tony Lake and James Baker all agree is small. But earlier this week, they and eight others of similar stature signed a letter to congressional leaders urging support for additional US funding for the International Monetary Fund.
These former leaders from State, Treasury, the Federal Reserve and the National Security Council argued that the severe impact of the global financial crisis on developing countries has endangered America’s own hopes for an end to the recession and that a “stronger and more responsive IMF is essential to the restoration of confidence in the global economy and financial system and thus to our own economic recovery.”
And yet, in spite of this unambiguous, high profile, bipartisan support, congressional approval remains uncertain.
Those who oppose increased IMF funding argue that it costs too much, it unfairly benefits other countries on the back of the US taxpayer and the funding process is opaque. Others simply hate the IMF.
It is important to understand the nature of the funding being sought, how it is being accounted for and the crucial role that the IMF plays in today’s fragile global economy — a role that benefits not only recipient countries to which the IMF provides financing, but also to the US.
First, in spite of arguments about how much IMF participation costs the US, in fact, we make money from our stake in the fund. According to the US Treasury, over the past five years, the direct financial benefit of US participation in the IMF to the US taxpayer has exceeded $1.5 billion. That’s because the IMF is a monetary agency – not a special interest, charity or even a development bank. As such, the US benefits directly from both the payment of interest and from increases in the valuation of its share of IMF reserve assets.
The current request before Congress calls for $108 billion in additional funding for the IMF, but this is actually misleading. Given the fact that, as noted above, these funds have proven to be more like profitable investments than traditional budgetary outlays, there is a credible argument that they should not be counted as anything more than an exchange of assets with one of the most creditworthy entities in the world.
The majority of the current funding request is for what is known as the IMF’s “New Arrangements to Borrow,” or the NAB. The NAB acts as an emergency contingency fund and is only tapped when all other IMF resources are exhausted. If the increased US commitment to the NAB is actually utilized, the US would receive an IMF issued interest bearing security in return.
That’s why the current request for over $100 billion in authorization is being ascribed a “score” of $5 billion in the budget. While critics howl that allocating $100 billion while accounting for it as only $5 billion is financial trickery and obfuscation, the reality is that even this number is probably too conservative. For the US to actually lose money on the funding, the IMF would need to default. I can’t imagine a scenario where the global financial system had been so decimated that even the IMF, backed by virtually every sovereign around the globe, could not repay its biggest lenders.
Far more important than the outright profit the US makes from the IMF or the way Congress and the OMB decide to account for it, is the very necessary role that the IMF plays in providing a safety net for developing countries. Not only does that provide security benefits to the US by lessening the risk of creating failed states, but it also provides enormous economic benefits, primarily by creating more demand for US goods. It also provides surplus countries an alternative to hoarding vast amounts of precautionary reserves.
A sustainable economic recovery depends on greater demand for US exports. The US Treasury estimates that for every one percent increase in foreign output, US GDP grows by between 0.25 and 0.35%.
Exports accounted for almost 70% of US economic growth in 2008, but as demand from the emerging world fell last autumn and the dollar strengthened, American exports have fallen steadily. First quarter real exports this year were 23% lower than the year earlier.
If exports were to remain at that depressed level over the full year, our GDP would decrease by around 2.75%. That means that even if the stimulus package passed by Congress earlier this year does everything it was intended to do and stimulates domestic demand, unless exports bounce back as well, we are not likely to see any real impact on overall economic growth and job creation here at home.
The US has been working closely with many other countries to try to coordinate our responses to the crisis and spur global demand and growth. But it has been the emerging market economies, which were previously the drivers of strongest growth in US exports, that are suffering the worst of this crisis. Last year, 51% of all merchandise exports and 65% of all farm exports from the US went to emerging markets and developing countries. Their economic health is vitally important to the US economy.
Unlike the US and other developed nations, the financial crisis that originated in the US and in Europe has dramatically limited developing countries’ ability to access traditional sources of funding needed to keep themselves afloat. It is precisely in these cases that the IMF is of crucial importance as a provider of financial stability and as the lender of last resort. It is a role that they have already played with great skill and speed in Pakistan, Hungary, Ukraine and elsewhere.
When President Obama attended his first G-20 Leaders Summit in London last month, the world’s economic picture was even more clouded than it is today. After two days of meetings, the announcement of increased funding for the IMF caused a collective sigh of relief around the world, both for its size — which was even more than many had hoped for — and for the leadership that President Obama showed in driving the effort for the IMF increase.
By that act, the president showed that he understood the global nature of the crisis and the yearning for big, bold steps on the part of the US to address the needs of those countries most at risk of failure.
While the IMF has not always been popular, or even successful in all of its previous endeavors, during this crisis, it has shown itself to be creative, flexible and forward looking. In particular, the creation of a new flexible credit line earlier this year was announced just in time to provide a boost to countries like Poland, Colombia and Mexico — before they actually needed it.
In seeking additional funds for the IMF, President Obama has shown that he recognizes its importance and the stabilizing role that it plays. It is crucial that Congress approve the IMF funding authorization. Failure to do so would send a terrible signal across the globe that the US can’t be counted on to lead in a time of crisis. It would significantly weaken President Obama’s (and the US) claim to global leadership and could well spark another round of uncertainty in emerging markets, just as they are beginning to show signs of stability. Besides, not only is funding the IMF something that even political opposites like Bob Rubin and Henry Kissinger can agree to, we might even make a profit.
— Douglas Rediker


16 comments on “Support the IMF

  1. Mr.Murder says:

    Getting the dollar through traditional channels to the extent we level the fiscal playing field regarding currency valuations, that is quite a task to try and take.
    We flipped the yields under Bushco. several times over. That should have set up a fire alarm drill from the start. Instead the exploitative capitalists stayed the course.
    Have fun paying mercs to take you kids to private schools forever. Walled gated communities. The mercenary state is here just like it is there. The IMF will fund it all.
    Tap water will cost like gasoline in the 70’s, within a decade.
    The Evita Peron poster and lotteries for the poor to meet leaders, how prescient. No wonder Kissinger approves.
    What Would Other War Crimnials Do?


  2. texas dem says:

    “Others simply hate the IMF.”
    Huh. It’s that irrational, is it? Just simple hatred?
    The author is certainly right that the IMF is a very good deal for the American owner class. The Congress would be self-sabotaging fools if they failed to fund it.
    But the IMF is a terrible, violent institution when considered from the perspective of a human-dignity progressive intellectual, only one rung down the pyramid from the actual owners of capital. To someone who believes that greater human development is the only semi-peaceful path forward for the world, the conspicuously predatory behavior of the IMF is part of the problem, not the solution. The structural adjustment program that the IMF just imposed on Pakistan would be laughable if the consequences for the people of Pakistan, and all of our future security, weren’t so dire.
    If the IMF were to be defunded, it would need to be because of a choice to fund something better, not because of an even denser selfishness that replaced it with nothing at all. So I guess I’m not rooting for it to fail, this time. But I can’t say I’m inspired by the state of mind that produced the arguments in this post. I guess now that we’re not all forced to fight off John Bolton, we’re finding out where everybody actually stands on the real questions.


  3. AC says:

    Southeast Asia is going to need IMF money, as will some of the developing post-conflict areas in AfPak in the near future. I actually learned what helped me understand this article over on a new news site, Asia Chronicle. You guys should check it out,


  4. IJ says:

    A trial of strength between the US congress and the rest of the world? Should the UN – in the form of its key agency the Washington-based IMF – be allowed to discipline all states equally, including the US? Even the EU wrestles with a similar problem.
    However prior to releasing new funding it might be helpful to audit the performance of the overall guardian, the UN’s ‘Economic and Social Council [ECOSOC]. But who has the power to order such an audit?


  5. Paul Norheim says:

    It would be futile to speculate about whether Nietzsche – another
    admirer of “power” and “beasts”, and a likely source of inspiration
    for the prose above this comment – would have been delighted or
    disgusted, if he had witnessed the bloodstained spectacle called
    “US global leadership” during the last decade. But we`ve all
    noticed that the intellectual constitution of Mr. Kotzabasis is
    perfectly adjusted for the task of applauding his heroes from the
    peanut gallery.


  6. kotzabasis says:

    Those who revolt against, and get sea sick at, the phrase “U.S. leadership” should take note that powerful nations do not lead the world because they are asked or invited to do so but by the nature of the ‘beast.’ They should re-read Thucydides’ tour de force, the Melian Dialogue. And those who “want to puke” whenever they hear or see the “phrase,” puke as a result of their maladjusted intellectual constitution.


  7. Dan Kervick says:

    You know, I would have liked this essay much better if Douglas Rediker had just used the term “G-20” in every place in the last paragraph where he chose to use “President Obama” or “the US” instead.
    I agree the IMF needs to get the committed money. But why make this some off-putting “US leadership” thing? It’s the G-20 that made the commitment collectively, didn’t it?


  8. David says:

    I have long been troubled by much of the nature of US global leadership, something which came with our emergence as the most powerful kid on the block, but it is a reality from which we do not have the option of stepping back. We must step forward into a more cooperative, wiser role as a first among equals of the western hemisphere’s global leaders, with that being a considerate, not arrogant, first. By some measures, China stands as the potential future first among equals, at least among the eastern hemisphere’s global leaders. But ultimately the United States and China are so entertwined that neither can function, let alone lead, without the other. I’m not sure either the United States or China has fully grasped that fact. WalMart, of which I am no great fan, probably has.
    The IMF seems to me to be something we can’t live with, if we place the human condition in the developing countries first, at least based on much of its history, but also which we can’t live without. I think the rules for IMF assistance need to change rather significantly, and who is put in charge needs to be a matter of intense scrutiny, a person held to the very highest standards of both integrity and primary commitment to the human condition, not the profits that can be extracted. And I think the IMF needs to be driven more by the long view of eventual returns because of the actual improvement of the economy of the nation receiving IMF funds, not by draconian extraction of repayments through methods that make the human condition worse, not better, for ordinary citizens of that nation. And I take great exception to the idea that we are fiscal missionaries whose function is to save their sociopolitical souls.


  9. Robert Morrow says:

    Condi Rice, Henry Kissinger, Bob Rubin, Paul Volcker, Tony Lake and James Baker
    Those folks are all globalists, just like you. Most Americans are not globalists. They correctly see the IMF as a waste of their money and a plaything of the elites.
    What do a rural rightwing religious conservative Texan and an inner city Detroit Obama supporter have in common: THEY COULD NOT CARE LESS ABOUT THE IMF !!
    that … and they both thing “gay marriage,” whatever that is, is a joke.


  10. JohnH says:

    Yes, the US should lead…by taking the same medicine it has zealously prescribed to others. No more making rules that everyone but itself–the Washington consensus applied to Washington.


  11. Susan says:

    I think the IMF has done FAR more damage than it has done good, and should be ended.
    But the point about applying IMF discipline on the USA is somewhat appealing….. wonder how Americans will react when they can no longer afford tap water?


  12. Paul Norheim says:

    A responsibility to repair after the orgies of destruction, to
    apologize for the irreparable.
    In my book, “responsibility” is not connected to a nation`s crazy
    ambition to lead on a global scale – regardless of the size of it`s
    economy or population.
    Global leadership? Look up “hubris”, “arrogance”, “Empire”,
    “Planetarische Führershaft”, “Il Duce”…


  13. Ben Rosengart says:

    These are all good points, but on the other hand, does the world’s
    largest economy not have some responsibility to lead?


  14. Paul Norheim says:

    Obviously Condi Rice, Henry Kissinger, Bob Rubin, Paul Volcker,
    Tony Lake and James Baker all share this dangerous obsession
    about “US global leadership” – no surprise there.
    The Obama administration seems to be energized by the same
    self-aggrandizing idea. Unfortunately, some of the many
    brilliant people in the New American Foundation seem to have
    an affection for the same concept – another depressing sign.
    With Cheney, Bush, Rumsfeld and Wolfowitz gone; hundreds of
    thousands dead in an illegitimate war; a global economy almost
    collapsing — no time for afterthought in the think tanks?
    No self-reflexion?
    No other thoughts than: How can we regain our legitimate role
    as leaders of the planet?


  15. JohnH says:

    If Congress chooses to fund the $100 Billion, it will probably have to be borrowed from China anyway.
    Sad to say, it’s the rest of the world that should be giving the IMF money to subject the US to IMF discipline, not vice-versa.
    As Simon Johnson, former chief economist for the IMF, wrote in last month’s Atlantic: “In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay.”
    And, “the challenges the United States faces are familiar territory to the people at the IMF. If you hid the name of the country and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up as necessary.”
    If the US were to exercise true leadership, it would take a dose of the medicine its IMF has been meting out to emerging markets for decades. Instead, we can look forward to hopelessly corrupt politicians continuing to pander to their underwriters in the finance industry, praying that the country can muddle through a la Japan. The only apparent alternative, as Johnson says, is that things get so bad as to concentrate the minds of the leadership and make them dramatically change course, forcing them to make decisions in the public interest, offering up a few of their underwriters in sacrifice.


  16. Paul Norheim says:

    “Failure to do so would send a terrible signal across the globe
    that the US can’t be counted on to lead in a time of crisis…”
    Well, the terrible signal that has already reached us who actually
    live on this globe, is that the crisis originated in and was
    created by the US.
    “It would significantly weaken President Obama’s (and the US)
    claim to global leadership…”
    Good – at least something positive could come out of this mess
    then. Who on earth, Mr Rediker, asked US to lead the planet?
    This idee fixe, this “claim” to global leadership is stupid,
    dangerous, and unfounded and should be weakened. To
    support this claim in public at the end of a decade where
    America has done it`s utmost to destabilize the world,
    demonstrates a mentality that is completely out of touch with
    I don`t want to sound anti-American here, but sometimes I am
    stunned by the hubris of certain Americans — this time
    Douglas Rediker, who even has lived in Europe for more than 16
    I repeat what I`ve often said: I like America. But I have to admit
    that the phrase “US leadership”, used in a global context,
    sometimes makes me want to puke.


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