Last updated: January 14, 2014 4:54 am

US Congress agrees $1tn spending deal

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The US Congress has agreed a broad spending deal for the first time since 2009, but it has left the International Monetary Fund in disarray by refusing to fund its latest capital increase.

The $1.012tn package lays out how the US will spend the budget agreed after tense negotiations in December. It means an update to US spending priorities after years of “continuing resolutions” that keep the government open but cannot reallocate funds.

A full appropriations bill marks another step in the return to regular budgeting in Washington and will prevent another government shutdown by funding the government until September.

But cuts to many spending programmes – and the refusal to ratify quota reform at the IMF – show how a tight budget will restrict President Barack Obama’s room to manoeuvre for the rest of his term.

“We are pleased to have come to a fair, bipartisan agreement on funding the government for 2014,” said the Democratic and Republican leaders of the House and Senate appropriations committees in a joint statement on Monday evening.

“Although our differences were many and our deadline short, we were able to a draft a solid piece of legislation that meets the guidelines of the Ryan-Murray deal, keeps the government open, and eliminates the uncertainty and economic instability of stopgap governing.”

The deal matches the spending levels agreed by Republican congressman Paul Ryan and Democratic senator Patty Murray last December but reverses a politically toxic cut to cost-of-living increases in the pensions of disabled military veterans.

But Republicans in the House refused Mr Obama’s pleas to pass the IMF’s 2010 quota reform. There is now no obvious way to do so until next year’s appropriations process and the reform cannot go into effect until the US ratifies it.

It leaves governance of the IMF in limbo with European countries still massively over-represented and no way to increase the voting power of developing countries. That threatens the IMF’s legitimacy and gives foreign countries a diplomatic stick with which to beat the US Treasury.

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IMF managing director Christine Lagarde expressed disappointment that the reform was not agreed.

“The world is evolving, and we are fully committed to helping our membership finalise what it agreed in 2010 is needed to ensure that the Fund keeps pace with global change and helps meet emerging challenges,” said Ms Lagarde. “We understand that the US administration will continue to work on securing the necessary legislative authorisation, and we are hopeful that this will happen”.

The 2010 reform would double the IMF’s quota – in effect its equity capital – to $720bn; shift six percentage points of total quota to developing countries; and move two of the 24 IMF directorships from European to developing countries. Existing loans to the IMF would become permanent capital so the US does not have to commit new money.

Another quota reform is supposed to be agreed this year but there is less chance of that when the last one has not been implemented.

Elsewhere, the spending bill shows the difficult choices caused by tight caps on spending. Military personnel get a 1 per cent pay increase but the defence R&D budget is cut by $6.9bn from 2013 to $63bn this year. There is a small absolute cut for physical sciences in the National Science Foundation but the National Institutes of Health won a $1bn increase to $29.9bn.

There is also an assortment of policy “riders”, including a prohibition on spending any money for a new US embassy in London, a continued ban on funding to move detainees from the camp at Guantánamo Bay to the US, and a pay freeze for the vice-president and senior political appointees.

However, it does not create new restrictions on regulation in areas such as climate change, or stop the implementation of Mr Obama’s healthcare reform.

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