Though many legislators may not realize it, Congress failed to include in the massive spending deal approved last week funds to implement reforms sought for years by both Democratic and Republican presidents that would give China, India, Brazil and other large emerging nations a greater say in activities of the International Monetary Fund.
Most of the IMF’s 187 other members have agreed to the reforms since 2010 under strong lobbying from the Obama administration. The reforms were slated to be included in the $1.1 trillion spending bill given final approval Thursday by the Senate.
Most Democratic and Republican leaders on Capitol Hill last year signed off on putting the landmark reforms in the continuing resolution, which typically was so massive that most legislators had not read it nor were fully aware of all that was or was not included.
But at the last minute in drafting the bill, House Republican negotiators withheld their support for the IMF reforms in a standoff with the White House over budget provisions apparently unrelated to the IMF. Analysts said that effectively killed the best chance of getting the legislation through Congress anytime soon.
The setback for the Obama administration is likely to have ugly repercussions for the United States, international analysts said. Much of the rest of the world has been waiting for three years for Washington to put the reforms into motion.
“This is a major blow to U.S. credibility around the world, with ominous consequences” for U.S. efforts to lead the world on economic and financial matters, said Edwin M. Truman, an analyst at the Peterson Institute for International Economics. He called Congress‘ failure to act a “self-inflicted wound” that will hinder the ability of the U.S. to lead at the IMF and other global forums.
“The United States will be less trusted to implement international agreements in this and other areas. Moreover, the IMF is weakened” in a way that will make it harder for the U.S. and other Western nations to influence China and other emerging nations on market-oriented policies.
Treasury Secretary Jack Lew, who made the IMF package a top priority, was met with skepticism last month when he appealed for the reforms at a House Financial Services Committee hearing.
“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,” committee Chairman Jeb Hensarling, Texas Republican, told the Treasury secretary.
Mr. Hensarling said he had doubts about the U.S. ability to carry out the reforms because of President Obama’s diminished clout abroad.
“An important question is whether the administration’s credibility has been compromised and has compromised our ability to reform multilateral financial institutions,” Mr. Hensarling said.
Mr. Lew, addressing the Council on Foreign Relations late last week, said the White House “made a full-court press to get it done and got close, but didn’t get it done this past week. We are continuing to stand by our commitment, and we will get it done.”
Mr. Truman blamed the failure to act on Congress and the administration, saying neither has given enough priority to updating the World War II-era financial institutions that have helped maintain global financial stability for decades, most recently by helping to quell the monumental debt crisis in Europe.
“The failure of the Obama administration and U.S. Congress to exercise leadership on this issue was likely driven by a lethal combination of antipathy, apathy or ignorance,” he said. “But it means that other countries may now start turning further away” from the U.S. on vital economic and financial matters.