- By Jamila TrindleJamila Trindle is a senior reporter who covers finance, economics and business where they intersect with national security and foreign policy. Her beat spans everything from the economic underpinnings of conflict to sanctions, corruption and terror finance. Before coming to Foreign Policy magazine, Jamila reported for the Wall Street Journal’s Washington bureau, covering financial regulation and economics. She has also worked as a foreign correspondent in China, Indonesia and Turkey as a freelancer for NPR, Marketplace, The Guardian and others. She moved back to the U.S. to cover the post-crisis economy for PBS in 2009.
Congress should pass a package of reforms and funding increases for the International Monetary Fund that have been languishing for four years, IMF Chief Christine Lagarde said Wednesday as she warned that a continued impasse threatens her organization’s ability to be the world’s first responder in economic crises.
"I would like to add my voice to that of virtually the entire world and certainly the entire IMF membership in calling upon the U.S. Congress to approve the 2010 quota and governance," Lagarde said Wednesday at an event hosted by Foreign Policy magazine, which honored her as its 2014 Diplomat of the Year. The event also featured remarks by Commerce Secretary Penny Pritzker and Fred Hochberg, the president of the Export-Import Bank, whose future is also threatened by Congressional inaction.
Since taking charge of the IMF in July 2011, Lagarde, a former French lawyer and finance minister, has focused on steering the fund through the tumultuous years after the financial crisis. In 2010, the IMF approved a set of reforms that would shift some of the control of the fund’s board away from developed countries and give galloping new economies like China more say in the management of the institution. The package of changes would also double the fund’s reserves to $755 billion for helping national economies that are on the ropes.
"By design, we are expected to go into the most difficult situation; we are expected to be the first responders," Lagarde said.
The Obama administration pushed for those changes in 2010, but legislation to ratify those changes has been stuck in Congress ever since. The IMF needs the U.S. to pass the legislation to move forward with the reforms, but Republicans worry that the changes would reduce Washington’s influence over the IMF while handing more power to China and other powers.
An effort to tie the legislation to an emergency rescue package for Ukraine last spring was jettisoned in the face of strong Republican opposition. House Speaker John Boehner said the IMF didn’t need more money to bailout Ukraine’s sinking economy, while Texas Republican Senator Ted Cruz said at the time that the reforms "would decrease America’s influence at the IMF and perversely would increase Russia’s influence in the IMF."
The U.S. is by far the largest stakeholder in the fund, providing nearly 18 percent of the funding and 17 percent of the votes needed to approve the reform.
But Lagarde and other advocates of a strong IMF are worried that the fund – and Western economies that have struggled since the 2008 financial crisis — will lose its ability to be the first line of defense when countries are headed for economic crisis.
"The failure of the U.S. to stand up and abide by its obligations puts the institution at risk of challenge from other countries," said Douglas Rediker, a former IMF board member and a fellow at the Peterson Institute for International Economics.
Take China. While Congress has sat on IMF reform, Beijing has spearheaded an expansion of multilateral banks controlled by emerging market countries, including a promise of $50 billion for a new Asia Infrastructure Investment Bank. The so-called BRICS bank, officially the New Development Bank, is intended to be a counterpoint to the Western-led IMF and World Bank started by the five large emerging market economies, Brazil, Russia, India, China and South Africa. The BRICS bank will like start by ignoring the environmental strictures that the World Bank usually puts on its development projects.
"We’re in a very weak place in terms of the projection of U.S. influence around the rest of the world…and I think that’s true in the economic sphere as well," said Robert Kahn, a senior fellow for international economics at the Council on Foreign Relations. "It’s hard for us to show leadership if we don’t deliver on our side of the bargain."
For Lagarde the stakes are very high. And a new set of faces after the midterm election could give her a whole new group of lawmakers to try to convince, even if it doesn’t give her any better odds of success.
In a recent interview with the Financial Times she made clear she’s willing to do whatever it takes to persuade Congress to finally pass the reform package.
"I spent a lot of time with members of Congress last year trying to show them how ridiculous it is to stand in the way of change. I will keep pushing and pushing on this – I will belly-dance if I have to, to get there."