Tuesday, May 19, 2015

Bloomberg: White House seeks to Preserve US Veto Power at the IMF

Bloomberg provides us an update on one of they key stories we follow here that can impact monetary system change. The article notes that the Obama Administration delivered the message at the recent IMF spring meetings that the US would not go along with a so called "Plan B" that would put the US veto at the IMF in jeopardy. Below some quotes from the Bloomberg article and then some added comments.

"The Obama administration signaled it won’t jeopardize the U.S. power to veto IMF decisions to achieve its goal of giving China and other emerging markets more clout at the lender, according to people familiar with the matter.

That message was delivered at the International Monetary Fund’s spring meetings in Washington last month, the people said, where officials discussed how to overcome congressional opposition to a 2010 plan to overhaul the lender’s voting structure.
A solution backed by Brazil would have enabled an end-run around Congress -- while potentially sacrificing the veto the U.S. has held since World War II. With that option off the table, the people said, IMF member nations are considering a watered-down proposal that risks alienating China and India, which are already challenging the postwar economic order by setting up their own lending and development institutions.
“I’m not at all surprised the United States has rejected anything that puts the U.S. veto at risk,” said Edwin Truman, a former assistant U.S. Treasury secretary for international affairs. Yet on the new alternate plan, “You can imagine some countries saying, ‘Why are we doing this at all?’”
The Obama administration’s priority remains securing congressional support for the 2010 plan, Whitney Smith, a spokeswoman for the Treasury Department, which oversees U.S. engagement with the IMF, said in an e-mailed statement."

. . . . 

"The option backed by Brazil and other countries would have pushed through the changes without requiring Congress to ratify them. The catch was that the U.S. veto over major IMF decisions may have been at risk if Congress failed to react by approving the 2010 plan, because America’s voting share would potentially fall below the 15 percent threshold needed to maintain the power."

. . . . 

"The fund is now considering a capital increase of just 10 percent, said the people familiar with the matter, who asked not to be identified because the discussions are confidential. Most of the boost would go to emerging nations that are underrepresented based on the size of their economies.
The solution is unlikely to satisfy some emerging economies because the capital increase is too small, said Truman, now a senior fellow at the Peterson Institute for International Economics in Washington."
. . . .
"Treasury Secretary Jacob J. Lew has said the changes are crucial to maintaining the fund’s ability to lend to countries in crisis. Republicans say they would give too much influence to countries that don’t share U.S. interests, with some in the party questioning the need for international bailouts."
My added comments:

This article has quite a bit of new information on this story we continue to follow. Here is a summary list of key points in this article:

- the IMF reforms are still very much stalled and less likely to be approved in their original format than ever. This just illustrates that the IMF does always get what it wants even when a large majority of its members want something done.

- the White House is not willing to give up the US veto power at the IMF and so the so called Plan B we have heard about now for quite some time looks dead in the water. Jim Rickards said in his speech in Dallas that the White House was slow playing this issue to get more concessions from China. This tends to support his comment on that. The White House will get serious about pushing this in the US Congress once China makes the concessions they want.

- The new "Plan B" is so weak that IMF expert Edwin Truman says it is doubtful China and India would go along with it. Jim Rickards has told me by email that he views Edwin Truman as the leading IMF expert on this issue so his comments in this article are meaningful.

It is pretty clear that it will be later this year before we see how all this plays out. If China makes the concessions the White House is looking for, we can expect to see a strong push in Congress to pass the reforms and to allow the Yuan to enter the SDR currency basket this year (effective at the start of next year). If China decides not to go along, then we may actually see China move more towards using the new AIIB and BRICS bank to move forward. By the end of this year we should have a much better idea what China will do. 

No comments:

Post a Comment