When people fret that the US is becoming a reluctant superpower, they do not normally think of the International Monetary Fund. Yet there are few better examples of America absent-mindedly undercutting itself than Capitol Hill’s refusal to wave through its new IMF quota.
The case for passing a bill that would embed IMF governance reforms initiated by successive US administrations – Republican and Democratic – is open and shut. Failure to do so before next month’s annual IMF and World Bank spring meetings would almost certainly delay any prospect of it happening until 2015. That would further erode US leadership among its G20 partners. The window is very narrow. Republicans need to step off their isolationist hobby horse. And President Barack Obama’s administration must find a way of convincing them to do so.
The case is overwhelming. Negotiated in 2008 by the Bush administration and updated in 2010 by Mr Obama, the reforms modernise the IMF to take account of rapid changes in the global economy. The rich club of developed economies, principally in Europe, will have their equity and voting shares diluted from about 60 per cent to 57 per cent, while the shares of the large emerging markets, notably China, India and Indonesia, will rise commensurately. It is an essential first step to maintain the IMF’s legitimacy – and firepower – in a volatile world. None of this will happen until the US has approved its new quota, which comes to about $63bn on paper but would amount to only $315m in practice since it would count against former loans. The US will retain its veto and see its quota shares drop marginally from 17.7 per cent to 17.4 per cent. In other words, it will cost the US next to nothing in either money or control.