IMF - PhillyBlog

eldondre · #1 (**permalink**) 11-18-2003, 12:57 PM

Quote:

It's Your Money

You might think that the very first thing the American taxpayer has the right to expect from a financial institution dedicated to maintaining monetary cooperation and the international balance of payments would be some honest bookkeeping. Especially when Uncle Sam is its largest contributor.

Think again.

Forget about looking for the answer in the U.S. budget. America's contribution to the International Monetary Fund is an off-budget item. And Congress has long preferred to pretend that the billions of dollars in loans that the U.S. makes to the Fund cost the U.S. taxpayer, as Treasury Secretary Robert Rubin put it in 1998, "not one dime." Naturally, this line of thinking is just fine with the IMF, which is happy to avoid the closer scrutiny that would be sure to follow if Congress ever admitted that its U.S. funding is not cost-free.

Though such logic (not to mention such arithmetic) was always suspect, a new study shows just how flawed it really is. The U.S. contribution to the IMF, says Adam Lerrick of the Gailliot Center at Carnegie Mellon University, has cost the U.S. an average of $1.5 billion a year since 1991. This year those costs will reach $1.9 billion. It sure would be nice if Congress noticed.

Mr. Lerrick reaches his conclusions using a set of facts that are difficult to argue with. Start with the fact the Fund makes large loans at low interest rates to such risky economies as Argentina or Indonesia or Russia -- countries that aren't like to repay soon (if ever).

The IMF loans are in effect long-term loans. Yet because of an accounting system dating back to the time when IMF loans really were short-term, the Fund pays the U.S. a short-term rate of interest. The difference between interest rates paid on long-term and short-term loans amounts to about three percentage points -- a differential that is in effect a U.S. gift to the IMF. This year Mr. Lerrick calculates that the U.S. interest-rate subsidy will weigh in at $810 million.

The second factor is country risk. Here Mr. Lerrick finds even greater American largesse. His study shows that there is a differential of about 7.8 percentage points between the interest rate the U.S. receives from the IMF and the interest rate a developing country would otherwise pay in the marketplace to borrow funds. This year the U.S. credit-risk subsidy amounts to $1.04 billion.

Since 1991 the U.S. interest-rate subsidy has averaged $520 million a year while the credit-risk subsidy is $970 million. That all adds up to a total of about $1.5 billion a year in hidden subsidies. Put another way, if the U.S. had simply loaned these funds directly in the marketplace instead of funneling them through the IMF, it would have earned $1.5 billion more a year in interest.

Whatever one thinks of the merits of subsidizing the IMF to the tune of $1.5 billion a year, at the very least Congress ought to debate it. Which is why Representative James Saxton, vice chairman of the Joint Economic Committee, intends to introduce legislation this week requiring that these hidden subsidies be placed on-budget and appropriated -- or not -- by Congress.

"The subsidies provided to the IMF should be included in the budget to improve transparency and accountability in the use of U.S. taxpayer money," Mr. Saxton says. Annual Congressional appropriations "would also facilitate oversight and reform of the IMF."

Even $1.5 billion a year is real money. Requiring Congress to account for it directly in the bottom line of every year's budget would help U.S. taxpayers reach a better understanding of the real costs of the IMF. If that led the IMF to reform, so much the better.

Updated November 18, 2003

zogby blob · #2 (**permalink**) 11-18-2003, 01:06 PM

Subsidies suck! The IMF sucks, but not in the way the communist protesters think. There solutions are worse than the problem. It needs fixing, but not in the way they want. We need to withdraw from all international organizations formed before the end of the cold war and reevaluate where we need to be, who our allies are and how best to accomplish our goals for the world.