The U.S. House and Senate passed the $105.9 billion war supplemental last week, which includes $5 billion to secure $108 billion in additional lending by the International Monetary Fund (IMF). Congress’s approval for increased IMF lending supports President Obama’s G20 commitments and paves the way to unlock the $1 trillion (mostly contributions from other high-income countries) for emerging and developing countries coping with the economic crisis. CGD president Nancy Birdsall recommended such a move first in mid-February (prior to the G20 summit) and more recently in testimony before two congressional committees.
Those who follow our work will recall Birdsall’s testimony before worried members of the House Foreign Affairs Subcommittee on Terrorism, Nonproliferation and Trade. The subcommittee’s concerns were shared by many in the House of Representatives and the IMF funding was a major sticking point, particularly among Republicans, only five of whom voted to support the bill that was ultimately approved in a close 226-202 vote. Support for the bill came from members of the House Financial Services Subcommittee on International Monetary Policy and Trade who heard from Birdsall and others on the proposed legislation at the end of May. The legislation had an easier time in the Senate, passing 91-5. The war supplemental, including the IMF provisions, is now set to be signed by President Obama.
To recap, the IMF portion of the legislation includes $5 billion to secure an additional $108 billion in new lending resources, primarily in the form of a line of credit to the IMF. This includes $100 billion in lending for the IMF’s New Arrangements to Borrow (NAB) emergency financing mechanism, which in turn, leverages a total of $500 billion in additional lending resources through similar contributions by other countries. The legislation also authorizes U.S. representatives to the IMF to agree to sell 12.9 million ounces of IMF gold reserves (one-eighth of its total gold reserves) to finance an endowment at the fund and give financial assistance to low-income nations. (For more on the details of these mechanisms, see my blog and Birdsall’s testimonies here and here.
Because the U.S. has de facto veto power at the IMF and is still the biggest house in the global village, approval from the U.S. Congress was critical to unlocking $1 trillion in crisis lending to developing countries that Birdsall called for in a February CGD Note. Last week’s vote marks an important and necessary step towards that goal.