The Senate voted Thursday to increase American investment in the International Monetary Fund by $8 billion and extend an additional $100 billion line of credit.
Thirty senators joined together from the right and the left to oppose the measure, but it moved forward with 64 votes in favor.
The line of credit is to be used by the IMF in emergency situations. The funding is part of a war supplemental spending bill and is aimed at stabilizing foreign economies. Eastern Europe has been particularly hard hit by the crisis, sparking fears that its collapse could bring down the European and global economy. Eastern European nations had denominated mortgages in foreign currency. When those currencies fluctuated, it led to a wave of default and bank failure.
But the IMF isn't the institution to fix it, said Bernie Sanders, an independent from Vermont opposing the measure from the left. "I think anyone who studies the history of the IMF, as I have studied, feels this is not a successful organization," said Sanders. "The United States must play an aggressive and active role in foreign policy and in giving support to the poorest people of the world. I believe that very strongly."
But, said Sanders, the IMF often works against the interests of the poor. "What they have done in many instances is gone to the poorest countries and said despite your poverty, you're going to have to cut back on health care, cut back on education, you're going to have to cut back on food before we give you a loan. Kind of like blackmail: you do what I want you to do, you get the money," Sanders told the Huffington Post
From the right come fears that the IMF could eventually be in position to create a global currency to compete against the dollar. But the more immediate concern came down to spending.
"I think we and many, many Americans are concerned of how much we're spending, how much we're borrowing," said Sen. Jim DeMint (R-S.C.), "and what that might mean in the not to distant future as it relates to inflation and interest rates an higher taxes. And I'm hearing very much back home enough is enough."
DeMint argued that if the money is to be spent, it should be spent in the United States. Kerry countered that South Carolina, for instance, was suffering because its exports were down 23 percent. Its exports were down because the global economy was suffering, he said.
Kerry told the Huffington Post after the vote that opposition was coming from a variety of directions. "You've got some ideological opposition, you've got some people who don't like the IMF, some people who disagrees with the way it deals" with developing nations, he said.
But in the end, he thought the plan would be profitable for the U.S. "I think we're gong to make money. I think it'll wind up like every other IMF deal. And besides, the IMF has huge gold reserves. It's backed up. We'll be fine."
Progressive Democrats in the House reacted quickly. Rep. Maxine Waters (D-Calif.), an IMF critic, launched an effort to make sure the IMF doesn't use the funds to force developing nations to slash their budgets, which could cause the global economy to continue to contract.
"In conference, we urge inclusion of language to ensure that the funds allocated by Congress for global stimulus are used for stimulatory, and not contractionary, purposes," reads a letter she sent to colleagues in the House.
The full letter and language:
Dear Chairman Obey and Chairwoman Lowey:
We are writing to express our concern that the Senate has attached an inadequate International Monetary Fund (IMF) package to the FY 2009 supplemental appropriations bill, which is intended to proceed to conference this week.
We recognize the importance of a swift, internationally coordinated response to the
global financial crisis to ensure that developing countries have the resources they need to cope with the crisis. However, Senate action to provide the IMF with $100 billion in funding and new authorities, including IMF gold sales, as requested by the Obama Administration, has precluded the possibility of House legislation on the IMF package.
In conference, we urge you to ensure that the IMF is not given a "blank check." Specifically, the augmentation of IMF resources and prerogatives should be conditioned on a strong commitment by U.S. leadership to ensure that the institution becomes more transparent and accountable to all member countries, including the poorest.
We urge inclusion in the bill of provisions related to all of the following four concerns:
•Use the Stimulus Money for Stimulus, not Contraction. While the IMF pronounces its commitment to flexible policy approaches for countries in recession or depression, its track record since the onset of the economic crisis in September 2008 demonstrates routine imposition of contractionary monetary and fiscal policies which are exacerbating recessions in recipient countries. In conference, we urge inclusion of language to ensure that the funds allocated by Congress for global stimulus are used for stimulatory, and not contractionary, purposes. Suggested language is attached.
•Resources for Low-Income Countries. Low-income countries are suffering disproportionately as a result of a global financial crisis, which was not of their making. In conference, we urge inclusion of language requiring the U.S. Executive Director to the IMF to ensure that some of the revenue from the planned gold sales and/or other sources of income will be used to provide at least $5 billion in non-debt-creating assistance to the world's poorest countries - either via debt relief or grants.
•Democratic Process. Currently, the IMF negotiates and obtains approval for loans from the executive branch of recipient countries, leaving little opportunity for democratic debate in recipient countries over the content and terms of IMF loans. In conference, we urge inclusion of bill language requiring the U.S. Executive Director to the IMF to ensure parliamentary approval of all IMF loans. This would help to ensure greater democratic participation and transparency, as well as a safeguard against corruption.
•Transparency. Some of the IMF's most important documents are considered classified, strictly confidential, or secret. Among the secret documents are: 1) "side letters" containing policy conditions that the IMF requires a recipient government to implement as a condition of loan disbursements; and 2) transcripts of meetings of the Board of Executive Directors. Draft IMF documents are not disclosed prior to approval by the Board of Executive Directors which precludes input from country constituencies. In conference, we urge inclusion of language to ensure greater transparency and public availability of documents within a reasonable time period. Suggested language is attached.
In this time of global economic crisis, it is critical to ensure a robust and effective global response. But it is also critical for Congress to ensure that the resources and authorities that are provided to the IMF to respond to the crisis are used in an effective manner that is consistent with congressional intent.
Sincerely,
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Proposed Legislative Language on IMF Policies
IMF Policy Approach to Countries in Economic Recession/Depression:
The Secretary of the Treasury shall instruct the United States Executive Director at the International Monetary Fund to oppose and vote against any loan, project, agreement, memorandum, instrument, plan, or other program of the International Monetary Fund that
(1) does not exempt increased government spending on health care,
education or social safety nets from national budget caps or restraints, hiring or wage bill ceilings, or other limits sought by any international financial institution;
(2) does not authorize countries to spend all foreign assistance in the year it is received, for the purpose for which it was designated;
(3) in case of a country experiencing an economic downturn, does not maintain prior levels of spending on health care, education or social safety nets;
(4) in case of a country experiencing an economic downturn, includes contractionary conditions, including direct or indirect interest rate increases or other monetary tightening, or government spending cuts or other contractionary fiscal policy, unless the IMF can show quantitatively that such adjustments must begin immediately in order to avoid a more severe adjustment in the future, and cannot be postponed or implemented more gradually.
Transparency:
The Secretary of Treasury shall instruct the U.S. Executive Director to the IMF to use the U.S. voice, vote and influence to ensure the following: The minutes and transcripts of the IMF Board of Executive Directors shall be publicly disclosed within six weeks of their issuance. Where applicable, draft documents shall be translated into the relevant language and disclosed prior to Board review to facilitate input from country constituencies. All documents of the Board of Executive Directors shall be disclosed after a period of two years. The criteria for classifying documents as "strictly confidential" and "secret" should be reviewed and made public. The IMF should cease the practice of issuing "side letters" that, in secret, stipulate policy conditions upon which its transactions are conditioned. The institution shall facilitate internet access to all public documentation in the primary language spoken in the country concerned.