The IMF Should Move Ahead without the United States

Letter to the Editor in the Financial Times

April 9, 2014

Sir, the International Monetary Fund (IMF), which has its annual spring meetings in Washington this week, is confronting a potentially existential crisis: withdrawal by the United States from active participation in, and leadership of, the world's most important economic institution.

The crisis results from the most recent Congressional failure to enact legislation to implement changes in the Fund's financial and governance structure—reforms that President Barack Obama and the G-20 leaders supported in 2010. Even more important, US recalcitrance raises doubts about US long-term support for the institution.

The time has come to think the unthinkable: The Fund should move ahead without the United States. If the United States does not want to participate in reforming the IMF, it should get out of the way.

Having spent decades of our respective careers championing the IMF and the US leadership role in it, we do not take this position lightly. But such a move should shake Washington out of its indifference and enable the Fund to carry out its responsibilities.

The Obama administration shares some blame for the Congressional rebuff because of its delays in submitting the reforms. Ideally, Congress could still approve the reforms, which would add modestly to the Fund's resources and, more important, shift voting power away from Europe and toward the dynamic emerging market economies while holding US voting power unchanged.

But if Congress persists in its refusal, we propose two ways for the Fund to move ahead by raising funds from others while depriving the United States of some or all of its longstanding power to block major Fund actions.

One way would be to make permanent the 2012 initiative by IMF managing director Christine Lagarde to arrange temporary bilateral credit lines of nearly $500 billion from 38 countries, augmenting the Fund's capability to finance its lending. The United States opposed that proposal, but the IMF and other countries could convert it into a permanent arrangement, placing decision making in the hands of the funding countries, not the United States.

A more radical approach would be to increase total country quota subscriptions in a manner that would also not allow the United States on its own to stop the Fund from reforming its governance.

The United States deserves to lose influence if it continues to fail to lead. Washington obviously should not withdraw from the IMF. But its historic leadership role deserves to decline unless the Congress reverses itself. It should let the rest of the world pick up the reins and move ahead if they are prepared to do so.