The newly-approved U.S. budget bill did not include authorization for changes at the IMF in funding and quotas (see also here). Those measures require approval of 85% of the voting power of the IMF’s members, and since the U.S. controls 17.67%, the reforms cannot be enacted. This leaves the U.S and the Fund in difficult positions.
The IMF received loans from its members during the 2007-09, but has sought to convert these to increases in the quotas that provide the funding for the IMF’s lending programs. The IMF is not about to run out of money, but the opportunity to put its financing on a regular basis has been (at best) delayed. The IMF’s members also agreed to shift quota shares, which also determine voting powers, to the emerging market nations while reducing the European presence on its Executive Board. China has made clear that it wants a larger voting share, and the other middle-income countries have taken a similar position. The postponement in increasing their quotas allows their governments to adopt a position of high dudgeon when the IMF next advocates policy changes in their countries. The Europeans, on the other hand, must be delighted that the they are no longer on the spot for obstructing the realignment.
What important Constitutional principle was at stake in the refusal of Congress to approve the measures? According to the New York Times, it was a lack of willingness to support multilateral financial institutions. This ties in with popular opposition in the U.S. to foreign aid, always a perennial target of right-want opprobrium, and it bodes poorly for the future. If a significant segment of political opinion consistently opposes U.S. involvement in international ventures and forums, then the U.S. will pay a price in diminished global influence.
Is it too dramatic to compare this event with the failure of the U.S. Senate to approve the Treaty of Versailles? Probably, but the similarities are suggestive of what is driving the rejection. A significant part of the American electorate was tired then of foreign wars and wished to retreat from foreign obligations, just as many do today. Anything that seems to support the financial sector is also viewed with suspicion. Personal enmity between President Woodrow Wilson and Republican Senator Henry Cabot Lodge is echoed in the animosity between President Barak Obama and members of the Republican Congressional delegation. Lodge was concerned that the League would supersede the U.S. government’s ability to conduct foreign affairs, just as many contemporary conservatives are worried about the influence of the United Nations on domestic matters. Both Wilson and Obama have been accused of being unwilling (or unable) to persuade opponents of the need to approve the desired measures.
While the U.S. never joined the League of Nations, it is not about to leave the IMF. But the refusal to ratify the changes in the IMF’s governance will leave the U.S. vulnerable to the charge that it seeks to retain control of an organization that was established at the end of World War II long after its hegemonic position had ebbed. If this were the reason for these developments, it would at least be understandable from a realpolitik perspective. The truth may be more dispiriting: perhaps we do not understand what we have to lose.