Lew, Brainard Urge Congress to Reinforce IMF’s Loan Capacity

Treasury Secretary Jacob J. Lew urged Congress to fulfill a U.S. pledge to reinforce the war chest of the International Monetary Fund, saying the lender has helped mitigate financial crises from the Middle East to Europe.

“When financial instability occurs in many places around the globe, such as in Europe, it creates headwinds for our economy,” Lew told a House Appropriations subcommittee today. “Without IMF support, more countries would experience even larger financial stresses, and the U.S. economy would suffer through reduced demand for U.S. exports and lower foreign investment in the United States, threatening millions of jobs.”

President Barack Obama earlier this month asked for Congress to approve a plan on the IMF’s lending capacity that tries to make good on a pledge made 2 1/2 years ago. The 2010 agreement among IMF member nations would double the amount the IMF has readily available for lending to about $717 billion and gives emerging market countries such as China a bigger voting share at the global lender.

In separate testimony today, Treasury Undersecretary for International Affairs Lael Brainard pledged to push the IMF to toughen its analysis of member countries’ exchange rates.

“The IMF is now providing much greater in-depth coverage of exchange rates, as well as related analysis on reserves, current-account imbalances and capital measures,” she said in prepared remarks to a House Financial Services subcommittee. “We will continue to urge the IMF to actively exercise its oversight role in this area.”

IMF Backers

The timing of the request is less than ideal as Congress grapples with the effects of automatic spending cuts known as sequestration. What’s more, the IMF needs new champions on Capitol Hill after the departure of two longtime supporters, Republican Senator Richard Lugar and Democratic Representative Barney Frank.

While Brainard said the request doesn’t change the U.S. financial participation in the IMF, John Campbell, the Republican chairman of the House Financial Services Subcommittee on Monetary Policy and Trade, said the transfer from the credit line was not neutral.

The administration is seeking to boost the U.S.’s share, or quota, at the Washington-based IMF by shifting about $63 billion from an existing credit line.

‘Firmly Disagree’

“I firmly disagree with the administration that this is simply a bookkeeping entry,” Campbell, a lawmaker from California, said in a statement. “Taxpayers would be taking on additional risk with the funds in quota” instead of in a crisis credit line, he said.

The panel will review the administration’s request “in the context of a fiscal consolidation to which you, I, and many other policy makers agreed,” Campbell said. “We would each be derelict in our duty to the taxpaying public to make one-off appropriations of large sums of money without being transparent in our budget priorities.”

IMF Managing Director Christine Lagarde last week said Obama’s move to include the request in his 2014 budget gave her confidence the U.S. would “join the club of the many, many member states that have ratified the reform.”

The agreement can’t take effect without approval by the U.S., the fund’s largest shareholder. While the permanent funds are raised, the plan in turn decreases a pool of supplementary resources that is used only during crises and needs to be activated every six months.

U.S. Delayed

“The U.S. may soon find itself in an embarrassing situation of being the only” country among Group of 20 peers not to have passed the measure, Brazil’s Finance Minister Guido Mantega told IMF member nations last week in Washington.

While the administration says the transfer will have no impact on the budget, it will be up to Congress to decide whether to appropriate a share of the total as loan-loss reserves.

“These actions are necessary to maintain strong U.S. leadership and influence in the IMF, and to restore the IMF’s core capital structure,” Lew said. “Our investment is safe and smart, and it is secured by the IMF’s rock solid balance sheet in which total assets exceed total credit outstanding.”

Four years ago, the Congressional Budget Office determined an appropriation of about $5 billion was necessary to cover the new commitments under the temporary line of credit of about $100 billion.

In his prepared remarks, Lew said American national- security interests were at stake in the governance and funding changes at the Washington-based fund.

“The IMF is now working to help bring about economic stability in the Middle East -- in Egypt, Jordan, Morocco, Tunisia, and Yemen -- by providing critical policy advice and financial support to help secure the political gains of the Arab Spring,” he said. “Avoiding a financial crisis during this delicate period of political transition will help these countries avoid more destabilizing political upheavals.”

To contact the reporters on this story: Kasia Klimasinska in Washington at kklimasinska@bloomberg.net; Sandrine Rastello in Washington at srastello@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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