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The IMF’s Foregone America First Feud

2017 December 18 by

A year into the Trump administration IMF watchers, as in a recent paper by the Canada-based Center for International Governance Innovation, remark on the lack of “vitriol” toward it as compared with free trade pacts like the TPP and the other Bretton Woods arms, the development banks which originally faced proposed 20 percent budget cuts. The “America first” focus on bilateral commercial deficits and alleged currency manipulation are issues at the center of Fund advice and monitoring, but its technical and understated political nature have not attracted the same multilateral invective as the UN and WTO. The Treasury Department appointees directly responsible are not yet in place and White House relationships outside are thin, although top officials at both places reportedly have cordial relations with Managing Director Lagarde. In April China was not named a currency violator, despite repeated campaign promises, following a Fund assessment that the renimbi was fairly valued. The retreat may have been reinforced by the urgency of getting Chinese help for North Korea anti-nuclear measures, as Treasury Secretary Mnuchin urged stronger exchange rate surveillance. On country bailouts which aid private creditors, senior line appointees Malpass and Lerrick have expressed skepticism in past writings awaiting a new test case. On Greece conservative Republicans introduced legislation in Congress to oppose further assistance and another quota increase until all debts were repaid, but the administration did not support the move or rise objections as a fourth loan arrangement the past decade was finalized over the summer. Secretary Mnuchin also praised current programs in Egypt and Ukraine and technical assistance on money laundering and terror financing. The Article IV report on the US in turn approved “broad objectives” such as tax reform, infrastructure spending, financial regulation and NAFTA overhaul. However its GDP growth estimates were lower than in the submitted budget and it called for open markets alongside better structural policies on education and training as the income inequality recipe rather than blaming trade partners. The fresh team may confront its first large rescue quandary in Venezuela, where it has imposed bilateral sanctions including on future debt exchange and purchase while the sovereign seeks restructuring with reserve exhaustion. The latest quota reform round, after the prolonged delay while President Obama was in office with Republican opposition, may not be concluded until 2019. Early betting is that additional incremental realignment of voting shares toward big emerging economies may be smooth but that more appropriations will be difficult, in view of critics’ push to tap global capital markets instead.

Africa has been an active recent Fund rescue region and assistance was a main topic at a forum between Secretary of State Tillerson and dozens of foreign ministers. Ghana extended its accord until the first quarter of 2019 with $350 million remaining to disburse, under a fiscal deficit goal of 5 percent of GDP next year to be covered by another $1 billion in Eurobonds. Zambia remains in negotiations as copper prices rebounded on Chinese demand and drought ended. Inflation is on track for the medium-term 6-8 percent target range, likely to enable central bank easing and Treasury bill yield decline as off-index investors creep in to shine returns.

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