Don’t Abdicate America’s Leadership Role at the IMF

The International Monetary Fund may be one of the United States’ greatest post-war success stories, but as the world’s finance ministers, central bankers and investors arrive in Washington this week for the IMF Spring Meetings, an otherwise generally optimistic global economic picture is tempered not simply by heightened geopolitical risk and uncertainty, but also great concern about whether the new U.S. administration will continue to support the IMF.

Just this past weekend, U.S. Commerce Secretary Wilbur Ross characterized as “rubbish” IMF Managing Director Christine Lagarde’s warnings — alongside those of the World Bank and Organization for Economic Co-operation and Development (OECD) — that while prospects for global economic recovery had brightened, a “sword of protectionism” and political uncertainty posed downside risks. Even before last year’s U.S. election, the IMF had warned of the economic consequences of rising populist anti-trade sentiment around the world. Were Lagarde to have ignored current trade and political uncertainties it could have undermined the IMF’s integrity.

While there has been no official contemplation of reducing U.S. support for the IMF, President Donald Trump’s “skinny budget” proposed sharp reductions in support for United Nations and affiliated agencies, the World Bank, and other multilateral development banks (MDBs). Adding to the unease, the president’s nominees for the two top international positions at the Treasury Department have both expressed skepticism for support of the IMF in the past.

More worrying still was the recent rejection by Treasury Secretary Steven Mnuchin of the phrase “rules based” in the G-20 finance communique last month. While the excising of a sentence eschewing protectionism got more headlines, the unwillingness of the United States to explicitly support the “rules based” system — of which Washington was the architect and anchor for the past 70-plus years — adds to overall fears.

The global economic and trading order was effectively designed to be rules based specifically to advance a U.S. vision of open markets, representative liberal democracy, and rule of law. Washington benefited from the structural architecture of the system, which provided enormous strategic and economic benefits to Americans; the gains far outweighed losses in any individual trade dispute or macroeconomic stability assessment.

The words “global governance” may be taboo in the Trump administration, but the U.S.- crafted system allows decisions at the IMF to be taken such that member countries feel that they have a voice, even as most decisions are taken by consensus. The United States, of course, maintains an outright veto over major decisions. Washington cannot dictate outcomes, but its sway generally insures that American interests are strongly taken into account and that it remains the indispensable nation.

The Trump administration would be foolish to walk away from America’s leadership role at the IMF, which remains one of the great success stories of post-war governance and multilateral cooperation; all while largely advancing U.S. strategic and economic national interests.

As the world’s largest and most financially interconnected economy, the United States benefited from the IMF’s prevention or mitigation of multiple global crises that could have caused significant economic damage. It played a central role in managing the transition of communist bloc countries to market economies following the fall of the Soviet Union. It plays a central role in combatting terrorist financing and money laundering. And the IMF has provided support for governments in the Middle East/North Africa and countries on frontline of the war on terror, including through current programs or arrangements with Egypt, Iraq, Morocco, Jordan, Tunisia, Kenya, as well as other key strategic hot spots, including Ukraine and Pakistan.

Perhaps most resonant for this particular president, the IMF distributes the burden of fighting crises and stabilizing economies across the fund’s 189 members, rather than concentrating it on the shoulders of the United States. For every dollar Washington invests in the IMF, it effectively leverages about four dollars from other countries.

Should Trump actually walk back U.S. leadership at the IMF, other international financial institutions, and MDBs, China has made it known that it is ready and willing to assume the mantle of leadership. Under the presidency of Xi Jinping, China has evolved from a self-described “adolescent” on the world stage to an increasingly confident leader, especially on issues of international economic policy cooperation. At both last November’s APEC meeting and in Davos, Xi began to publicly express China’s willingness to play the stabilizing anchor role on the multilateral stage.

Even before the election of Donald Trump, as the Obama administration stepped away from providing ancillary funding for the IMF during the latter stages of the global recession and euro crisis, Beijing was already stepping up to provide emergency funding to the IMF. In spite of its questionable adherence to the basics of open markets, free trade, and transparency, China has increasingly embraced the global system and is loath to see it collapse.

During his campaign, Trump persuaded voters that he would look after “America First.” With the world’s economic policy elite converging on Washington this week, it would be hard to find an institution that plays a greater role in supporting the economic and strategic interests of the United States than does the IMF. It may be too much to ask that the nervousness from protectionism and political uncertainty are put to rest this week. But when the IMFC, the IMF’s policymaking body, meets on Saturday, it would be in the United States’ and the world’s interests if Secretary Mnuchin were to deliver a strong and clear statement of support for the IMF from its biggest beneficiary.

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