Lagarde gently lectures the United States

Lagarde gently lectures the United States

In a speech today in Washington, IMF managing director Christine Lagarde made the case that the United States should commit new resources to the Fund–and approve commitments already made. She argued that the Fund’s global firewall needs improvement, and that the current calm in the Euro crisis is the time to do it:

The recovery is still very fragile. The financial system in Europe is still under heavy strain. Debt is still too high, public and private. Stubbornly high unemployment is straining the seams of society. Rising oil prices have the potential to do a lot of damage.

What is crucial at this point is that policymakers use the breathing space to finish the job, and not lapse into complacency or insularity.

Lagarde insisted that any new U.S. resources for the Fund will be returned with interest: 

[T]he IMF is a good investment for all our members, including the United States. Your money is not drawn upon until needed. Your money earns interest. Your money is used prudently—our programs always carry rigorous conditions to ensure their effectiveness.

No member country has ever lost money by contributing to IMF resources—and I assure you that will not change on my watch.

One last point: as the tectonic plates shift in the global economy—with dynamic emerging markets like Brazil, Russia, India, and China assuming an ever-greater role—these changes are also being reflected at the IMF. Our members have approved reforms to increase the quota share of these countries. Now countries must implement these reforms, and we are urging all to make progress by the time of our Annual Meetings later this year.

Even with these reforms, the United States will retain its leadership role as our largest shareholder.

The managing director also pointed out that, in historical terms, the IMF’s resources are relatively low:

[T]he time has come to increase our firepower. The ratio of Fund quotas to world GDP is significantly lower today than in the past. Sixty years ago, it was as much as 3-4 times higher. We’ve a lot of ground to make up.

To my mind, this is part of the the case that the Obama administration should have been making to Congress and the public for months. It has mostly chosen not to, deeming the political waters too hostile.