Russia, China and other major developing countries — angry about the stalemate on Capitol Hill that has blocked approval of a reform plan that would give them a bigger voting share at the International Monetary Fund — are pushing to go ahead with the reforms without waiting for the United States.
U.S. and IMF officials insist that the reforms — including changes in voting shares designed to reflect shifts in the global economy and a doubling of the IMF’s lending authority — cannot go into effect without approval by Congress, as the U.S. continues to wield veto power over major decisions and activities of the IMF under current voting formulas.
Russia reportedly is leading efforts by the emerging nations to steer around the U.S. In February, Moscow secured a pledge from the Group of 20 major industrialized nations to move ahead if the legislation doesn’t pass before the annual meeting of the IMF, which starts in Washington this week.
“It is obvious that the quota of emerging-market economies and developing countries should be increased as their influence on the global economy has increased,” said Russian Finance Minister Anton Siluanov, who is leading the effort to set the deadline, according to the Reuters news service.
Most of the IMF’s 188 member nations have approved the reforms, which originally were negotiated in 2010, and have waited patiently for Washington to act before proceeding with talks on a second round of voting changes to further increase the power of rapidly developing countries.
But opposition from House and Senate Republicans have blocked efforts by the White House and Senate Democrats this year to attach the IMF reform package to other legislation, trying the patience of major developing nations such as China, which for years has been contributing funds to the IMF beyond what is formally required in hopes of gaining greater influence on its decisions.
“The rest of the world was remarkably tolerant of U.S. political processes” until it became clear last month that Republicans would continue to block the legislation, said Edwin M. Truman, senior fellow at the Peterson Institute for International Economics. “The rest of the world’s toleration has worn out.”
Mr. Truman blames the Obama administration for not pushing for the IMF reforms hard enough, as well as the “acid political climate” in Washington that has made Republicans reluctant to give Mr. Obama any victory.
Although some conservative lawmakers have raised objections, including concerns about U.S. exposure to IMF loan defaults and worries about the loss of influence at the Bretton Woods institution, Republican leaders behind the scenes have said they are willing to accept the reforms if the administration drops a proposed Internal Revenue Service rule curbing political activity by tax-exempt conservative groups.
But the failure of the two sides to reach a deal is now tarnishing the U.S. reputation at the IMF. The fight is even more puzzling given that the drive to reform the IMF started during the George W. Bush administration and is backed by many luminaries from the Bush and Reagan administrations, Mr. Truman said. Moreover, support for the IMF in the past has been overwhelmingly bipartisan in Congress. Leading Senate Republicans, including John McCain of Arizona and Bob Corker of Tennessee, were prepared to vote for the IMF reforms as part of the Ukraine aid package.
The White House has rejected the Republican demands, and congressional Democrats are vowing to keep pushing the IMF bill.
“It’s simply irresponsible that the Republican leadership insisted on holding IMF reforms hostage in an effort to protect their special interest campaign contributors’ ability to pour money into the system unchecked,” White House senior adviser Dan Pfeiffer said after the reforms were stripped out of the Ukraine aid legislation.
Meanwhile, the international lending agency is under the gun to begin exploring what one IMF official speaking on background said were various “bad options” of moving ahead without the U.S., to avoid further upsetting China and other major emerging countries. Whether the IMF will break ground may depend on how hard Russia, China and the bloc of emerging countries press their demands.
Russia challenged U.S. power at the IMF well before Moscow’s annexation of Crimea last month, a move that raised diplomatic tensions and prompted the leading Western powers to impose economic sanctions on Russia.
China has used more cautious diplomacy, even as it explores alternative financial aid mechanisms that eventually could make the IMF obsolete. China’s extensive loans and assistance to other developing countries already dwarf the aid provided by the World Bank and the IMF.
Even nations with historically friendly ties to the U.S. are losing patience. India’s finance minister recently noted that the congressional impasse reflects badly not only on Washington but also on the whole economic order set up by the U.S. and its Western allies after World War II.
“This is perhaps the first visible failure of the G-20. This has reduced the credibility of the G-20,” India’s economic affairs secretary, Arvind Mayaram, told reporters at the G-20 meeting in Sydney. Implementation of the 2010 reforms is “vital for the credibility, legitimacy and effectiveness of the IMF,” he said.
IMF Managing Director Christine Lagarde continues to insist that there is little she can do without U.S. approval. Analysts point out that European countries, which continue to dominate the IMF’s board of directors and stand to lose the most clout under the reforms, have been happy to let the U.S. block the legislation even while publicly deploring the congressional delays. While American voting power would be mostly undiluted under the reforms, the greater power given to emerging countries would come largely at the expense of smaller European countries that would lose voting shares.