Several months ago in Congressional testimony, in a Wall Street Journal article, in meetings with public officials, and in a post on Economics One, I suggested the idea that “There is room for a deal” on an important IMF reform that had been internationally pending for years, explaining that: “Treasury wants Congress to raise the U.S. contribution to the IMF, but Congress is reluctant to do so with no framework limiting IMF lending. If Treasury agreed to restore the framework, then Congress could provide the support. This deal would be a first step in putting America in the lead again on international monetary reform.”
I am pleased to say that such a deal has been struck: The Treasury and the Administration agreed to remove their objection to restoring the IMF’s framework for limiting large lending, and Congress included support for the reform in the budget bill, which will likely become law in the next few days. Rob Kahn and Ted Truman explain the details.
The IMF’s exceptional access framework limiting loans was a set of rules first put into place in 2002 and 2003, and was followed by a halt to financial crises emanating from emerging market countries which had been raging before then. Unfortunately these rules were broken in 2010 when the IMF made a large loan to Greece which eventually led to a bailout of many private creditors. Until this week, the U.S. Treasury had objected to restoring the rules arguing the case that discretion was needed rather than rules. With the IMF management, staff and other countries in favor of restoration, the shift in the U.S position is all that is needed to usher in the needed changes.
The move back toward rules-based policy and the overall reform at the IMF call for celebration, especially when coupled with the first move toward normalization at the Fed yesterday. Of course there is a long way to go—especially in establishing long-term commitment—but first steps are essential.