IMF Bailout Fatigue Among Republicans Delays Ukraine Aid

President Barack Obama’s plans to confront Russian aggression and aid Ukraine are complicated by a domestic roadblock: House Republicans wary of bailouts and suspicious of empowering the International Monetary Fund.

House Speaker John Boehner and other congressional Republicans say the increased IMF money isn’t necessary to help Ukraine. Instead, they say the White House is using the aid measure to persuade Congress to make changes to the IMF that have stalled since Republicans took the House majority in 2011.

“At a time of massive deficits, we have a problem with expenditure of these funds -- and increasing them,” Representative Patrick McHenry, a member of the Financial Services panel, said in an interview at the Capitol last week.

“It’s not a new issue for Republicans,” said McHenry of North Carolina. “On foreign aid and bailouts, conservative aversion is well known.”

IMF funding is delaying a U.S. aid package to Ukraine that, tied with sanctions on Russian companies, senior Russian and pro-Russia Ukrainian officials, was intended to act as a deterrent to Russian President Vladimir Putin.

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Since Congress started debating the aid plan, Russian troops have pressed into parts of Crimea, the region voted to secede from Ukraine, and Russia annexed it -- all steps U.S. leaders said are illegal or illegitimate.

Obama today said Congress should quickly pass legislation to aid Ukraine and that it should include IMF funding. “Do it right away,” Obama said to reporters at the White House.

$63 Billion

The U.S. contributed a $100 billion credit line in 2009 to an emergency pool of money intended to boost the IMF war chest during the global recession. The proposal would transfer about $63 billion from that pool into the fund’s permanent resources to boost the U.S. share at the fund, or quota, and implement a 2010 international agreement.

The Senate plans to hold a procedural vote on March 24 on Ukraine aid legislation, S. 2124, that includes the IMF funding. The bill also would authorize $1 billion in loan guarantees and sanctions against Ukrainians and Russians deemed responsible for corruption and violence.

The House passed its Ukraine aid plan on March 6 with $1 billion in loan guarantees to the fledgling Ukraine government. The measure, H.R 4152, didn’t include the IMF funding.

‘Strongly Oppose’

“I strongly oppose having that provision in there,” said Representative John Campbell, chairman of the House Financial Services subcommittee that oversees the IMF. “What the administration is saying about it is absolutely, patently false. This is the problem with this administration, they can’t be straight with you.”

The IMF, a multinational organization that lends money to shore up troubled governments, was negotiated under Democratic President Franklin Roosevelt, came into being under his successor, Harry Truman, and was revamped under Republican Richard Nixon in 1973.

Republican and Democratic administrations have seen opposition from the other party when trying to pass IMF measures, said Edwin Truman, an assistant Treasury secretary for international affairs in the Clinton administration.

“These are always hard swallows, they’re big numbers, it’s not easy for anybody to vote for,” he said. “Then you have layered on top of that the current poisonous atmosphere.”

Misunderstanding of what the IMF does, combined with recent bailouts to rich countries such as Greece or Ireland, have emboldened opponents. IMF supporters have left Congress, including former Democratic Representative Barney Frank and Republican Senator Richard Lugar, while Tea Party-backed Republicans are questioning foreign bailouts as U.S. debt rises.

‘Hardworking’ Taxpayers

“Undoubtedly, hardworking American taxpayers suffer from bailout fatigue” after taxpayer-backed funding for banks, automakers and mortgage lenders, House Financial Services Committee Chairman Jeb Hensarling said at a hearing in December.

“Many Americans question the wisdom of supporting the IMF and other multilateral financial institutions that take their hard-earned dollars and use them to bail out other countries,” the Texas Republican said.

Treasury Secretary Jacob J. Lew is scheduled to appear before Hensarling’s panel on March 26 to testify on the IMF funding.

Lew said last week before the Senate Budget Committee that it’s “imperative that we secure passage of IMF legislation now, so the IMF can provide the most effective assistance to Ukraine in this vulnerable moment.”

‘Ill-Advised’ Move

It was “ill-advised” for the Obama administration to push IMF language in the Ukraine bill, Senator Marco Rubio wrote in an editorial today in the Washington Post, though Russia’s “unrelenting aggression” demands that Congress approve the bill.

“Although I remain concerned by the proposed IMF reforms included in the legislation, the need to send a strong bipartisan message of solidarity to the people of Ukraine and a statement of resolve to Moscow far outweighs any misgivings I and others might have,” the Florida Republican wrote.

Quotas are the primary contribution of the fund’s 188 members to the IMF and are calculated to reflect their relative share in the global economy. They determine the amount of reserves a country must contribute to the IMF, how much money it can borrow and its voting power.

Boosts Resources

The quota increase, because it boosts the fund’s permanent resources and increases all members’ shares, would make Ukraine eligible for as much as $18.6 billion over three years without seeking exceptional access, compared with $12.6 billion currently. The government has said it’s seeking about $15 billion from the fund.

The last time the U.S. Congress passed an IMF quota funding increase was 2009, tacked on over Republican objections to a war-funding bill.

“Additional funding for the IMF should be judged on its own merits and in its own legislation,” Boehner, then the House minority leader, said in a statement pledging to oppose the 2009 bill if it was “loaded up with billions in spending” unrelated to the military.

Just five Republicans voted for the combined measure in 2009. Three of them remain in Congress -- Mark Kirk of Illinois was elected senator, with Peter King of New York and Candice Miller of Michigan remaining in the House.

“The IMF money has nothing to do with Ukraine,” Boehner said during a March 13 press conference. “I understand the administration wants the IMF money, but it has nothing at all to do with Ukraine.”

Rejected Funding

House Republicans rejected adding IMF funding to a January spending bill despite personal lobbying from Lew and Sylvia Mathews Burwell, director of the White House Office of Management and Budget.

Martin Edwards, an associate professor at Seton Hall University’s School of Diplomacy and International Relations in New Jersey, said that although tying the IMF quota to the Ukraine aid bill seemed like a good idea, “the House saw right through it and decoupled the bill.”

The Group of 20 finance ministers and central bankers last month urged the U.S. to pass the agreement, which also gives more say to emerging markets at the IMF, by April. The U.S., the largest IMF member, has veto power over major decisions.

“The other members of the IMF have little choice but to sit and wait for the United States,” Truman, now a senior fellow at the Peterson Institute for International Economics in Washington, wrote in a note last week. “IMF reform is on hold and the United States is losing status and influence because of its delay in acting.”

To contact the reporters on this story: Derek Wallbank in Washington at dwallbank@bloomberg.net; Sandrine Rastello in Washington at srastello@bloomberg.net

To contact the editors responsible for this story: Jodi Schneider at jschneider50@bloomberg.net Mark McQuillan

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