Tuesday, December 9, 2014

Developing Story: Congress asked to link IMF Reforms to Ukraine Aid

This story just popped up. I don't know where this may lead but I will go ahead and run this post covering the situation and we will try to see how it turns out. It appears that the Obama Administration is trying to convince Congress to go along with the IMF reforms during this lame duck session by linking passage of the reforms to aid for the Ukraine. This story ran in Newsmax. Newsmax is not a source that I am as familiar with, but the story appears to be accurate. 

At the same time we have the Financial Times with a headline out saying "IMF Warning that Ukraine Bailout at Risk of Collapse". The FT requires registration to read their article but you can see the first part of it here in the Kyiv Post. Some quotes from the Newsmax story and then a comment. Please read the entire Newsmax article for context.

"The White House’s efforts to break the opposition of House Republicans to controversial funding reforms of the International Monetary Fund took a fresh twist Friday as Press Secretary Josh Earnest linked support of IMF reforms to a cause dear to many conservative GOP lawmakers: support for Ukraine."

"At the regular briefing for reporters at the White House, Newsmax noted recent urgings from the president and IMF Managing Director Christine Lagarde for Congress to enact the reforms Obama agreed to four years ago and how the attitude of Republican House Members is not only in opposition but hostile to the Fund itself."

"Well, the White House and the president and the administration and the president have all been very clear about how important these IMF reforms are," Earnest told us, referring to changes in IMF voting that Lagarde, Obama and other world leaders agreed to that would double the Fund’s capital equity market and shift 6 percentage points of the total to emerging markets."

"Earnest’s salvo to Republican House Members who are hostile to the IMF came a day after the House passed Rep. Adam Kinzinger’s (R.-Illinois) resolution calling on all U.S. partners in Europe to suspend any cooperation with Russia, and for Russia to reverse its annexation of Crimea from Ukraine and pull back its military forces and equipment from Ukraine, Georgia and Moldova. The vote on the measure (House Resolution 758) was 411-to-10."
. . . . . . .

"Among supporters of Kinzinger’s resolution was Duncan, who told Newsmax in May, "I’m against the IMF reforms because I don’t believe in world government."

"In hinting he might re-introduce the legislation to rescind $100 billion from the IMF, Duncan also said that Lagarde’s "main concern was her organization, and the package of reforms would give too much power to international bureaucrats. It was a mistake for the president to promise that the U.S. would go along with those reforms and it would be a further mistake for Congress to go along with him."

"Another backer of the Ukraine resolution was Rep. Bill Posey (R.-Florida), a member of the House Banking and Financial Services Committee starting on his fourth House term, who told Newsmax in May that "[m]y first duty and responsibility is the constituents I have been elected to represent; the U.S. taxpayers."


Now here is the lead paragraph of the FT story as shown in the Kyiv Post:

"The International Monetary Fund has identified a $15 billion shortfall in its bailout for war-torn Ukraine and warned western governments the gap will need to be filled within weeks to avoid financial collapse. The IMF's calculations lay bare the perilous state of Ukraine's economy and hint at the financial burden of propping up Kyiv as it battles Russian-backed separatist rebels in its eastern regions."
My added comments:

There is quite a bit to absorb in this developing story. It seems like the White House may be wanting to try and get Congress to pass the IMF reforms right now in the lame duck session. When you combine the White House statement that passing the reforms would allow the IMF more leeway to support the Ukraine with the just breaking story in the FT that the IMF Bailout is in danger of collapse without another quick $15 Billion, it makes you wonder if these two stories are tied together. 

Perhaps an attempt to pressure Congress to act quickly to save the Ukraine? Clearly, with the results of the November elections the US House is going to be more like the Congressman quoted above who said "I'm against the IMF reforms because I don't believe in World Government". He goes on to say he may even introduce a bill to revoke the $100 Billion the Congress approved to go to the IMF a few years ago (which has not yet been paid). 

It may be that the IMF and the Obama Adminstration are making one last push to try and get the reforms passed knowing that the new Congress is very unlikely to pass them. We will follow this to see how it turns out. There is very little mainstream media coverage of this so it may be hard to find out what happens very soon.

Update 12-10-14: Business Insider runs this story on the Ukraine debt problems. It says the original IMF forecast for what the Ukraine would need was "wildly optimistic" and the Ukraine could go bankrupt in a few weeks.

Also, Jim Rickards posted the tweet just below on his twitter page, but I have not seen this yet in any news articles on the spending bill about to be passed in Congress:

Jim Rickards@JamesGRickards · 11 hours ago
BREAKING: The bailout not included in omnibus spending bill just announced. We'll see if carries through on her threats at US.

Further Update 12-10-14:

A thank you to Jim Rickards for sending me a link to this Wall Street Journal summary of the spending bill which notes that the IMF funding is not included in the spending bill under consideration in Congress right now.

"–The measure would make a $345.6 million cut to the Internal Revenue Service budget and provided no funding for the International Monetary Fund"

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