John Kehoe February 10, 2014
Treasurer Joe Hockey in his Parliament House office. Photo: Andrew Meares
The Obama administration supports Treasurer Joe Hockey's call for the United States to hand over power to emerging economies at the International Monetary Fund, but some Republicans are digging in over blocking reforms of the fund.
Foreign policy experts are warning the US's failure to follow through on the IMF reforms is damaging its reputation and angering China, India, Brazil and other emerging economies.
In an agenda-setting speech last week before hosting G20 finance ministers and central bank governors later this month, Mr Hockey made the strongest public comments yet by an Australian politician urging its US ally to ratify reforming the IMF. "To secure global economic stability into the future, the United States must support IMF reform now," Mr Hockey said.
"Failure to reform means that we risk a shift away from the IMF and the multilateral system towards bilateral or regional approaches and an international financial architecture that's fragmented and misaligned."
Under a proposed change agreed to by the G20 in 2010 to enhance the resilience of the global financial system, the IMF's permanent resources would be doubled to $US733 billion ($818 billion). The board's voting shares would be reallocated towards emerging economies such as China and away from Europe to reflect the changing weights of countries in the global economy.
The Obama administration supports the changes, which would require the US to commit an additional $US314 million and shift $US63 billion in existing loans to permanent capital.
However, Republicans suspicious of multilateral institutions such as the IMF and United Nations claim the extra taxpayer funds could be blown on bailing out bankrupt European economies.
"Many Americans question the wisdom of supporting the IMF and other multilateral financial institutions that take their hard-earned dollars and use them to bail out other countries," Texas Republican and House Financial Services Committee chairman Jeb Hensarling said.
US Treasury Secretary Jack Lew, who is due to attend the G20 in Sydney on February 22 to 23, said last month the government had made a "full-court press to get it done". A US Treasury spokeswoman said on Friday the administration was disappointed that Congress had failed to pass the 2010 quota and governance reforms.
"The United States remains committed to implementing the 2010 quota and governance reforms, and we are examining options to do so as soon as possible," she said.
Republicans are trying to extract concessions unrelated to the IMF from President Barack Obama in return for supporting reform of the fund.
Ted Truman, senior fellow at the Peterson Institute for International Economics and assistant secretary of the US Treasury in the Clinton administration, said the US resistance was "bad for the United States and bad for the global financial system". It reduced the US's ability to take leadership in international economic issues, he said.
"Mr Hockey is quite right to be upset and disappointed, because Australia has a leadership position on this and it's central to the G20 exercise," Mr Truman said.
The IMF requires an 85 per cent majority to approve the reforms and the US has a 17 per cent voting stake, enabling it to veto the reform.
Even under the changes that would shift power to emerging markets, the US would retain its veto power.
US business groups including the Chamber of Commerce, Financial Services Roundtable and Business Roundtable have all written to Congress imploring it to support the changes.
Tim Adams, a former US Treasury Under Secretary in the George W Bush administration and now president of the Institute of International Finance, said reforming the IMF was an important part of strengthening the global financial institutional framework.
"So I'd like to see a good strong commitment to the fund at the G20 in Sydney," Mr Adams said.
As part of the 2010 G20 deal, a subsequent review of IMF quotas and resources was supposed to be finished by January 2014, but this has not occurred because of the US refusal to ratify.
Currently the fund relies on borrowed resources from its 188 members.