Top U.S. Officials Urge Congress to Boost IMF Funds
The government’s top economic policymakers urged Congress on Friday to increase the U.S. contribution to the International Monetary Fund, warning that failing to do so might jeopardize the bailout of Asian economies and ultimately hurt the United States as well.
Testifying before the House Banking Committee, Federal Reserve Board Chairman Alan Greenspan and Treasury Secretary Robert E. Rubin said the 181-country IMF is playing a key role in the Asian rescue effort, and they disputed charges by critics that it is exacerbating the problems there.
Greenspan warned that despite recent rescue efforts, Asian financial markets continue to reflect “exceptionally high levels of uncertainty, bordering on panic.” He said reforms cannot take hold until there is a “simmering down” in stock and currency markets.
Their testimony came in an opening day of hearings by the banking panel in which members displayed an array of views on the IMF funding legislation, from strong endorsement of the organization’s overall policies to criticism that it is bailing out private banks.
The Clinton administration contends that the $18 billion it is seeking to help boost the IMF’s general lending pool is needed to reassure international financial markets that authorities will have enough resources on hand if the situation in Asia worsens.
The United States agreed, along with other IMF member nations, at a meeting in Hong Kong in September to boost the organization’s coffers by $88 billion, or 45%, in the face of the fast-breaking Asian crisis. The last time its resources were increased was in 1992.
Although enlarging the U.S. contribution requires approval by Congress, it does not actually involve government spending. The increase is provided in the form of a line of credit to the IMF, which in turn pays the United States interest on whatever it borrows.
It seems unlikely that the IMF will use up all its lending resources in the immediate future, Rubin said, but there is a possibility the situation in Asia could unexpectedly worsen. If that happens, he said, additional funds would be needed quickly.
The administration faces an uphill battle in winning congressional authorization for the proposal. Although similar legislation historically has been approved routinely, resentment over foreign aid and globalization has turned many lawmakers against it.
Friday’s hearings confirmed that the measure is being opposed by a coalition of conservatives, who object to the IMF on ideological grounds, and liberals, who believe the IMF should require borrowing countries to adhere to Western labor and human rights standards.
Rep. Barney Frank (D-Mass.), one of those pressing the IMF to insist that borrowing countries improve their labor and human rights policies, said he favors bolstering the IMF but would not hesitate to oppose the bill if his concerns were not addressed.
At the same time, the session revealed strong support for the legislation from a broad middle ground of senior lawmakers on the panel, including the Banking Committee’s chairman, Rep. James A. Leach (R-Iowa), and its ranking majority member, Rep. John J. LaFalce (D-N.Y.).
Leach has introduced legislation designed to provide political cover for some of the measure’s opponents by authorizing a larger U.S. contribution to the IMF but requiring the administration to press harder on the issues about which opponents are concerned.
The panel is expected to vote on the measure sometime in early February, in time to push it to the House floor for action late in the month or early in March. There has been no indication yet when the Senate might take up the proposal.
Much of Friday’s hearing was devoted to having Rubin and Greenspan provide answers that lawmakers might be able to use to explain a “yes” vote on the IMF bill to their constituents.
Defense Secretary William S. Cohen also appeared, to underscore the importance of several of the hard-hit Asian nations to U.S. national security interests. South Korea, for example, is host to about 37,000 American troops.
Besides addressing the issue of how much the bill might cost, Rubin and Greenspan disputed allegations that the IMF was merely “bailing out” commercial banks and that its prescriptions for fiscal “austerity” too often exacerbated a country’s economic problems.
“Many argue that the current crisis should be allowed to run its course without support from the International Monetary Fund or the bilateral financial backing of other nations,” Greenspan said.
But he argued that while such critics “may be correct,” there is “a small . . . probability” that the Asian turmoil could have unexpectedly adverse effects on Japan, Latin America and central Europe that “could have repercussions” in the United States.
“While the probability of such an outcome may be small,” he said, “its consequences, in my judgment, should not be left solely to chance.” He pointed out that global financial markets often continue sliding even after a problem has been resolved.
Greenspan said U.S. investors have already lost about $30 billion since the Asian crisis erupted last summer, while worldwide losses in stock values alone have exceeded $700 billion. There also have been sharp declines in real estate, bond prices and currency values.
In his testimony, Greenspan gave no indication of how he expected policymakers to help stem the slide in some Asian financial markets, beyond merely continuing to follow IMF prescriptions for strengthening individual countries’ banking and financial systems.
“The stability of those banking systems is crucial if confidence--[which] has been so thoroughly undercut in this most debilitating crisis--is to be restored,” he told the banking panel.
At the same time, the Fed chairman endorsed plans by Rubin and other finance ministers to develop new ways to deal with the impact of financial markets in the new, more global economy. The ministers are to meet this spring to air their new ideas.
The $18 billion the administration is seeking covers two separate items: a $14.5-billion increase in the IMF’s general lending resources and $3.5 billion as the United States’ share in establishing an emergency rescue fund designed partly for the Asian crisis.