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How to win the new debate about the IMF

Dr. Martin S. Edwards ( School of Diplomacy and International Relations, Seton Hall University)  

The White House recently announced that it was attaching legislation on IMF quota reform to a bill to provide emergency bilateral assistance to Ukraine. The White House is effectively climbing back into the boxing ring with Congress on IMF reform – as the previous attempt to get IMF reform approved was a casualty of the January budget talks. The case for IMF reform is substantial and has been made in great detail elsewhere. As before, the White House faces considerable resistance in the House. To win the debate on IMF reform this time, the White House needs to do three things:

Keep the debate focused on leadership. The debate in the House was sidetracked over a procedural matter regarding moving the US account from an ad-hoc account to a permanent one. As a result, the IMF reform package looked less like needed reforms to update a vital international organization and more like thoughtless pork barrel spending. The US was roundly criticized at the recent G20 Finance Ministers meeting for not doing enough to conclude reforms that it lobbied other countries to adopt. The White House needs to make clear that the issue is not procedural matters over the US contribution, but rather about sustaining US leadership of the global economy. It’s not clear what the House wants here, and negation cannot be the foundation of foreign policy.

Remind Congress how the crisis underscores the value of the IMF. That the White House is linking IMF reform to support for emergency foreign aid is not surprising. The Republicans tried to do the exact same thing to wring further concessions out of the White House last month. The Fund operates as a global ‘fire department’ helping out countries in economic crisis. In this case, the Fund’s involvement is a clear force multiplier for US interests. Helping Ukraine is an easy rebuke to Putin’s adventurism, and stabilizing the economy and supporting a fragile government can help make a political settlement possible.

The critics of this proposal need to answer a simple question: if the Fund did not exist, what would happen? The answer is simple: more bilateral foreign aid. The IMF exists to help cost-share among major powers, and if it did not exist, the US would be left to pay the check alone.

Remind Congress that the IMF is a good insurance policy. The Fund dispatched a mission to Kiev knowing two things: that the country’s political situation is fluid, and that it’s past history with Ukraine has not been positive. The new Yatsenyuk government has said all of the right things to signal a commitment to economic reform, but promises do not always lead to successful implementation. The two prior IMF loans to Ukraine broke down prior to their intended completion date as the governments did not keep their pledges to implement austerity measures.

In this light, having the Fund take the lead is a commitment device to secure policy reform. The IMF has a measure of independence from other great powers, and this means that it can more credibly threaten to suspend foreign aid than the US government might. In six months’ time, if the Yatsenyuk government backs off its pledges, and the approach of elections in the Fall suggests this might well be the case, the Fund will be more likely to suspend a loan than the US government would.

In sum, linking the IMF reforms to the Ukraine foreign aid legislation may well be a political masterstroke for the White House. Congress is not going to pass this blindly, but managing the message differently may well permit the Obama administration to turn defeat into victory.

 

This piece was originally posted on the Center for UN and Global Governance Studies website at this link

   

The IMF and Reversing the Trend of Rising Inequality

by Nathan Coplin

Inequality is at its highest point in history – where just 85 individuals have as much wealth as half of the global population. The severity of inequality is even drawing the attention of the IMF, where Managing Director Christine Lagarde is acknowledging this growing problem and its consequences. Lagarde recently admitted that inequality “leads to an economy of exclusion and a wasteland of discarded potential.” Just a few months ago, the IMF also published research which found that two policies – capital account liberalization and fiscal consolidation – lead to greater levels of inequality. However, these two policies have often been tenants of IMF policy conditions and advice. While the IMF has a new "institutional view" on capital account liberalization, it has continued to recommend austerity measures.

Read more »

   

Comments on Governance and Impact Report - Paul Blustein

by Paul Blustein, Center for International Governance Innovation (CIGI)
November 7, 2013

Congratulations to New Rules for Global Finance for its "Global Financial Governance and Impact Report 2013," which shines a critical spotlight on the way the major institutions that govern the global economy are run and what they have done in recent years. Having taken a few shots at these institutions myself over the years, I applaud the report's objectives and overall thrust; and since New Rules asked readers for feedback, I will offer my two cents.

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Insight to CSO Views on Fiscal Transparency

Still Room for the IMF to Further Improve Its Fiscal Transparency Code

This week at the World Bank’s annual fall meeting, I was part of a panel discussion on the IMF’s newly revised Fiscal Transparency Code. First, kudos to the IMF for publishing the consultative draft of the revised Code. The revised draft provides practical recommendations on how governments can improve fiscal transparency in a phased manner and in a way that takes into account different starting points in current fiscal transparency practices.

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The Wall Street Alchemist - How does financial innovation impact the real economy?

The Wall Street Alchemist
How does financial innovation impact the real economy?

by Nathan Coplin

Alchemists were known for their efforts to transmutate common metals into more valuable ones like gold. Alchemy is uncommon today, but the practice of transforming the “bad” to “good” continues, especially in the financial industry through financial innovation. It is widely accepted that innovation, in general, improves productivity and stimulates economic growth. However, it is less clear how financial innovation impacts the real economy. 

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World Economic Forum Meetings Key Points and Briefings

Cheat Sheet for the 2013 World Economic Forum (WEF):

Key points and briefings of the WEF meetings relevant

to global finance and New Rules mission


Opening Address
A New Global Economy for a New Generation, Davos, Switzerland (summary)

In her address to the World Economic Forum, International Monetary Fund’s Managing Director, Christine Lagarde believes the biggest test for 2013, will be maintaining a strong drive for reform. Lagarde points out that 2013 will be a make-or-break year for the global economy.

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Overexposed and Under-reported: Bank Disclosure of Risk

 

by Nathan Coplin

Nearly five years after the financial crisis, trust and confidence in financial institutions are weaker than ever – according to a recent study “What’s Inside America’s Banks” by Frank Partnoy and Jesse Eisinger published in the January issue of the Atlantic. This should not be a surprise, as the activities and disclosures (e.g., annual reports or financial statements) of large financial institutions are increasingly opaque and esoteric.  The study finds that the complex financial statements and disclosures woven together by finance lawyers and accountants have created a curtain too thick to unravel – even for sophisticated investors. Partnoy and Eisinger report that “disclosure obfuscates more than it informs.” The authors arrive at this position by closely examining the disclosures – which are supposed to serve to inform investors – of one particular bank: Wells Fargo.

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Sovereign Debt: Solving Insolvencies

Need for Sovereign Debt Restructuring Mechanism becoming more apparent

Since Argentina defaulted on its debt in 2001, most of its creditors have agreed to some restructuring. However, a few have not. And according a court ruling last November, that is the problem. The New York court ruled that Argentinamust repay in full the bondholders which have not agreed to restructuring (New York hedge funds Elliot Associates and Aurelius Capital). In addition, the court ruled that if Argentina does not repay them, then it would be illegal for Argentinato fulfill its commitments to creditors that did restructure. If the original bond agreements would have included collective action clauses (CACs), the majority of bondholders could have required the "holdouts" (e.g., Elliot Associates and Aurelius Capital) to accept a restructured agreement. Without CACs, one bondholder can block any agreement to restructure a country's debt obligations.

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Why is a Human Rights Approach Needed in Financial Regulation?

Protests are rippling from Wall Street to all parts of the globe, and the ongoing effects of the financial and economic crisis have brought home to people worldwide the intrinsic connection between financial regulation policies and the social contract in any given society.

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IMF's Re-engagement with Egypt: A New Economic Plan

August 22, 2012

Since the overthrow of autocratic leader Hosni Mubarak, investor confidence and economic growth in Egypt has been stymied. To relieve downward pressure on its currecny and cover government expenditures, Egypt has been borrowing from the local market at expensive rates. The country has also depleted its foreign reserves to the point that it can only afford about three months of imports. As a result, Eygpt has seen its bond yields increase to unsustainable levels - around 16 percent. These conditions have led many to assert that an injection of foreign funds is necessary to stabilize Egypt's economy. 

Read more »

   

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Blog

  • How to win the new debate about the IMF
    March 07, 2014 
  • The IMF and Reversing the Trend of Rising Inequality
    February 06, 2014 
  • Comments on Governance and Impact Report - Paul Blustein
    November 07, 2013 
  • Insight to CSO Views on Fiscal Transparency
    October 16, 2013 
  • The Wall Street Alchemist - How does financial innovation impact the real economy?
    April 23, 2013 
  • World Economic Forum Meetings Key Points and Briefings
    February 01, 2013 
  • Overexposed and Under-reported: Bank Disclosure of Risk
    January 18, 2013 
  • Sovereign Debt: Solving Insolvencies
    January 09, 2013 
  • Why is a Human Rights Approach Needed in Financial Regulation?
    December 11, 2012 
  • IMF's Re-engagement with Egypt: A New Economic Plan
    August 22, 2012 
  • Note on Quota Formula Review: Initial Considerations
    May 03, 2012 
  • Contenders for the World Bank Presidency
    March 29, 2012 
  • Thoughts on the Greek Crisis
    February 14, 2012 
  • Thinking the Eurozone Unthinkable
    February 07, 2012 
  • Under the Microscope: Some Findings from the 2011 Triennial Surveillance Review
    December 01, 2011 
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