The International Monetary Fund has a “Plan B” for proceeding with reforms giving greater powers to developing countries even though the U.S. has not approved them, but it is not ready to take that route yet, IMF Managing Director Christine Lagarde said Thursday.
Ms. Lagarde said the international agency’s “Plan A” is still in effect, which means she will continue waiting for Washington to approve the reforms giving a greater share of voting power at the IMF to Russia, China and other big emerging countries, even though Republicans in Congress have repeatedly rejected them.
“I don’t think that our institution should move to Plan B until we have full certainty and massive disappointment that Plan A is definitely dead. I’m not prepared to declare that at this point,” she said at a press briefing, noting that the Obama administration has pledged to keep trying to get the reforms through Congress. The reforms, which are also meant to increase the IMF’s lending capacity, were negotiated among the IMF’s 188 member-nations in 2010, and most other countries have already ratified them.
“I very strongly hope that the resolve of the institution, the pressure brought to bear by the members of this institution on all those who have not yet ratified, will deliver fruit in the not too distant future,” she said.
While Ms. Lagarde said she will continue to defer to Congress for now, her statement at the beginning of the IMF annual meeting in Washington Thursday was her first public acknowledgment that the Bretton Woods institution is considering going ahead with the reforms without the U.S., feeling pressure from Russia, China and other emerging countries who stand to benefit.
Ms. Lagarde did not explain what “Plan B” might involve, but IMF officials say it would be difficult and complicated for the institution to circumvent the effective veto power that the U.S. has over major IMF decisions and activities. The U.S. has the largest voting share on the IMF board, with a 17 percent voting share that makes its approval indispensable most of the time.
Still, the IMF is under the gun to consider going ahead with the reform package a result of a pledge secured by Russia, China and other emerging countries to do so at this week’s meetings. The pledge was secured at a meeting of the Group of 20 major economic powers in Australia earlier this year.
The emerging countries may press for faster action on the reforms than Ms. Lagarde is offering. In a sign that they already are the topic of backroom discussions, U.S. Treasury Secretary Jacob Lew met behind closed doors Thursday with his Russian counterpart, Russian Finance Minister Anton Siluanov.
Mr. Siluanov is credited with winning the G-20 pledge to move ahead with the reforms without the U.S. Treasury officials did not say whether the IMF reforms were discussed, but they said Mr. Lew used the meeting with Mr. Siluanov to warn that the U.S. will impose even tougher sanctions on Russia if it escalates the situation in Ukraine.
Mr. Lew informed Mr. Siluanov that the U.S. views Russia’s annexation of Crimea as “illegal and illegitimate” and that further actions against Ukraine will trigger “significant” further penalties.
On the IMF reforms, the Treasury secretary has asked for more time to get the legislation through Congress, where leading Republicans like Sen. John McCain of Arizona and Sen. Bob Corker of Tennessee have voiced support and were prepared to vote for including them in a Ukraine aid package last month.
But House Republicans, raising various objections, blocked the bid to include to IMF reforms with the Ukraine bill. Among other concerns, they say by doubling the IMF’s permanent lending authority the reforms would expose the U.S. to a greater risk of default on IMF loans. There is no history of a nation defaulting on IMF loans, however.
With Republicans sharply divided over the IMF legislation, GOP leaders have been seeking a major concession from the White House in exchange for their approval. They want the White House to direct the Internal Revenue Service to back off of new rules restricting political activities by tax-exempt conservative groups, a demand that the White House rejects.
So far, there has been no sign that either side is ready to budge.