Huh? Stalled IMF Package Would Help Ukraine More Than Ukraine Legislation Will Help Ukraine

March 18, 2014

Update (March 25): US Senate Democrats have dropped demands for the IMF reforms to be included in Ukraine aid legislation.

Here’s a fact about the IMF reform package, agreed in 2010 in a negotiation led by the United States and since approved by 158 countries, but (embarrassingly and cavalierly) stalled in the US Congress: It would increase Ukraine’s access to IMF resources to deal with its financial troubles by more than twice the special $1 billion of loan guarantees for Ukraine that the Obama Administration has proposed to the Congress — and potentially almost six times as much — at virtually no cost to US taxpayers. 

For more on how international financial institutions can help Ukraine, see Scott Morris' blog, Carrots for Ukraine, Sticks for Russia: What the International Financial Institutions Can Do in Response to Crimea.

Huh? For the US to guarantee $1 billion in loans to Ukraine could cost between zero (if Ukraine repays all the loans to all its creditors) and $1 billion (if the US ends up on the hook because Ukraine pays none of its creditors).  To take into account the default risk the proposed legislation is “scored” at $350 million, and so requires an appropriation of $350 million.

How does that compare to the potential support for Ukraine in the IMF reform package that is stalled in the Congress? Ted Truman explains in this excellent review (see p.4). Here’s the short version. Because the stalled reform package would double IMF core resources, Ukraine's own “quota” would increase from $2.1 to $3.1 billion ( its quota share declines slightly as some emerging market economies’ shares increase slightly).  That would make Ukraine potentially eligible to borrow $6.2 billion rather than $4.2 billion (a country can borrow 200 percent of its quota in any one year) and as much as $18.6 billion over three years (600 percent of its quota).

The Congressional Budget Office also scores the IMF legislation — at $315 million (in fact it involves approving the transfer of previously appropriated funds from one IMF account to another). That’s a small price to pay to unlock more than $18 billion just for Ukraine, and unlike the $350 million in the special legislation, it won’t ever actually have to be paid. Ted explains why the scoring of the IMF quota increase is silly from an accounting and risk point of view—see p. 5.)  

The White House hopes the IMF package of reform and new resources for Ukraine and for other future risks to global financial stability can ride the much more expensive but politically compelling coattails of the Ukraine legislation. I hope that turns out to be right. Or just maybe Congress will wake up to the fact that blocking the IMF reform package is a very expensive way to play politics.  


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