What's the appropriate role of the International Monetary Fund? It's a question that goes all the way back to the Bretton Woods conference of 1944, during which the IMF was created.
The liberal/progressive view from Europe, pushed by John Maynard Keynes and others, envisioned the IMF as a sort of global Treasury Department/Federal Reserve Bank. IMF member countries could pursue expansionary tax-and-spend social welfare programs, and the IMF would be there with endless (and morally hazardous) bailouts when those policies failed to produce the hoped-for results. A New Deal for the world, indeed.
Fortunately for the later prosperity of the world, the more conservative approach of the U.S. delegation prevailed. The IMF was confined to a more limited role as a kind of mega-private-sector bank to spur economic development. It would insist that loans to member governments be repaid, and that those loans come with conditions. Governments would have to adopt fiscally conservative and sustainable economic policies before they could borrow any new funds.
Yet the fight between Keynesians and fiscal conservatives was never truly settled. In fact, it's still going on.
In 2010, President Obama supported a set of changes in the way the IMF operates. Although it contains some useful adjustments to voting rights so that IMF governance matches 21st century realities, the "reform package" -- which requires congressional approval -- would reduce U.S. control over tens of billions of U.S. taxpayer dollars that, in the current system, have been reserved for IMF lending only in emergencies.
If Congress approves the reforms, the funds will be available via the regular IMF lending procedures, and U.S. presidents will not be able to stop morally hazardous bailout loans to countries (e.g., Greece) whose governments have spent too much.
Last year, the Obama administration made several 11th-hour attempts to pressure Congress into accepting the package by attaching it to must-pass legislation (e.g., on the debt ceiling last winter, on emergency aid to Ukraine last spring, and most recently on appropriations in December). Fortunately, congressional conservatives stood their ground, and those attempts failed.
Now proponents of the package are getting downright cranky. In January, former Clinton administration Treasury official Ted Truman, now at the Petersen Institute for International Economics, penned a scathing indictment of anyone who would dare to second-guess the wisdom of Washington's mandarin class in their desire to steer more funding to the IMF.
Although adjustments to voting shares could be done apart from the changes conservatives object to, Truman is unwilling even to entertain the idea that his side might compromise. For him, it's all or nothing. And for the first time since debate over the reform package began, Truman reports -- approvingly -- that discussions are underway at the IMF to move forward without the United States. The upshot: Washington could lose its veto power at the global lender.
Truman intends his shocking report to be the wake-up call that coerces Congress into approving the reforms. But what Truman is really revealing is the contempt -- for Congress, for the Constitution, and for the American people -- that IMF-reform advocates have for their opponents.
Just as courageous American conservatives demanded in 1944, the heirs of their philosophical tradition in Congress today should tell the IMF to go back to the drawing board before giving their assent. They should insist that the IMF revise its reform package, be content with the ample lending resources it already has, and focus on giving better policy advice to get its member countries back on the path to greater economic freedom.
- James M. Roberts is a research fellow for economic freedom and growth in the Center for Trade and Economics at the Heritage Foundation.
Originally appeared in Real Clear Policy