March 16, 2014 5:10 pm

Crimea vote adds twist to US spat on IMF

A view of the US Capitol Building on April 6, 2011 in Washington, DC. The federal government is facing a potential shutdown on April 8 if members of Congress and the White House are not able to agree on a budget©Getty

The Crimean referendum will increase the urgency for the US Congress to approve America’s aid package for Ukraine, which is being held up by a political clash over quota reform at the International Monetary Fund.

A Senate bill to provide $1bn in loan guarantees to Ukraine was approved by the foreign relations committee last week but still needs to be voted on by the full upper chamber, before moving on to the House of Representatives.

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The bill includes a measure shifting $63bn towards fulfilling US obligations to the IMF under a new system that increases the body’s lending capacity and gives emerging markets a bigger say in its operations, agreed at a G20 summit in South Korea nearly four years ago.

In the years since the G20 deal, the Obama administration has failed to muster the political support it needs in Congress for the reform, including in the latest round of budget talks in January.

But the White House and congressional Democrats are ramping up the pressure on Republicans in connection with the Ukraine crisis. “The IMF reform, if you really want to help the Ukraine, is necessary,” Robert Menendez, the Democratic chairman of the Senate foreign relations committee, said on Fox News on Sunday. “You can either have a fig leaf or you can have something robust and meaningful.”

But many Republicans who are sceptical of international institutions and wary of the possibility federal funds could bail out foreign governments, do not seem inclined to get on board. They insist that the administration is deliberately holding up assistance to Ukraine by tying it artificially to the broader issue of IMF reform, which they see as unrelated.

“The administration is not being honest about what the IMF quota increase would actually mean for Ukraine, nor is it being transparent on the risks this new (IMF) investment will carry,” said John Campbell, a California Republican.

In response to such criticism, the Treasury department issued a lengthy rebuttal. “Immediate passage of IMF quota reform legislation will underscore the solidarity of international support for Ukraine and support the IMF’s capacity to lend additional resources to Ukraine, while preserving continued US leadership within this important institution,” wrote Natalie Wyeth Earnest, a senior US Treasury official, in a blog post.

Republicans have tied any support for IMF reform to a contentious domestic policy issue, the rollback of incoming rules tightening conditions for political organisations seeking tax-exempt status, which conservatives believe are mostly targeted against them. The White House refused such a deal earlier this year.

Continued Republican resistance could embarrass Mr Obama as he tries to rally global support for Ukraine and also diminish US credibility among countries whose role in the IMF was set to increase, like China.

Edwin Truman, of the Peterson Institute for International Economics in Washington, said Congress’s baulking “had done substantial actual damage to the US reputation around the world”.

But he also laid the blame on the White House, for delaying submitting legislation to Congress and failing to sell it on Capitol Hill and to the public.

Former government officials have thrown their weight behind reform, from Henry Kissinger to James Baker, Hank Paulson and Condoleezza Rice among Republicans, and Madeleine Albright, Tim Geithner, Lawrence Summers and Zbigniew Brzezinski among Democrats.

Last week, the group sent a letter to congressional leaders backing the White House position, calling the IMF a “principle tool for advancing US national interests”.

Even if an IMF rescue package for Ukraine could be secured with existing funds, they argued that in the long run Ukraine itself would be able to borrow 60 per cent more from the IMF under quota reform than it does now – from $1bn to $1.6bn.

“This enhances the geopolitical position of Ukraine’s government in the current crisis with Russia,” they said. The Business Roundtable, representing the chief executives of America’s largest companies, also weighed in to support the effort.

The IMF fight has caused defence hawks in the Republican party to turn against some within their own party. “You can call yourself Republicans. That’s fine, because that’s your voter registration. Don’t call yourself Reagan Republicans,” said John McCain, the Arizona senator, before heading on a trip to Ukraine last week.

“Ronald Reagan would never let this kind of aggression go unresponded to by the American people,” he added.

But Democrats are not unanimously happy with forcing the issue either. Nita Lowey, a senior House Democrat on funding for foreign affairs programmes, suggested it should be debated separately from the rest of the Ukraine package.

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