Financial Cooperation’s Benefit Benediction

Global trade associations and think tanks, wary of Trump Administration “America First” stances leaving currency and trade policies in limbo at its inaugural G-20 meeting, have prepared position papers outlining the merits of regulatory and crisis cooperation through international financial bodies the past decade. The Institute for International Finance released an update on Basel III banking and broader Financial Stability Board capital and liquidity standard harmonization praising the exercise even as it criticized delays and overreach. Risk weighting formulas for the biggest worldwide institutions are in a final phase and may shun internal calculations allowed under previous regimes. The Peterson Institute for International Economics in a separate document warned that President’s executive order rolling back the Dodd-Frank law would undercut the common norm drive since 2008, at the same time that his budget would slash development bank funding. Treasury Secretary Mnuchin had an initial cordial conversation with IMF Managing Director Lagarde, and the analysis notes that previous Republican President Bush bashed the organization before embracing it on Turkey and other rescues, but the current team may maintain distance and insist on historic revamp. The FSB’s work plan is unfinished and the US will soon name a new representative. Pending legislation in Congress would bar Federal Reserve participation in such rule setters as February’s executive decree orders a review of commitments to the Basel Core Principles which could relax current and future regulation. It seeks a “level playing field,” but foreign counterparts including the UK and European central banks fear it could unravel agreements to date and trigger a prudential “race to the bottom.” As to the global financial safety net bilateral and regional swap lines cannot approach the IMF’s $1 trillion in available resources, topped up with American support also for quota and governance reform agreed in 2009 but only completed in 2015. The US 16.5 percent voting share still offers a veto but near-term refusal to contribute or membership withdrawal could jeopardize 30 percent of permanent firepower and accelerate big developing country moves toward alternative structures. Under the 2015 bill authorizing voting changes the Congress already required closing of the exceptional access window for outsize bailouts such as in Greece, which was judged to affect Eurozone health more generally.

The World Bank’s IDA facility was replenished in 2016 with a $4 billion US pledge over the next three years, in addition to $1.5 billion in other unfulfilled development bank obligations. President Kim recently traveled to Africa and previewed $60 billion in medium-term conflict state assistance focused on refugee and fragile populations. Treasury appropriations were reduced several hundred million dollars and the State Department and AID economic accounts were slated for 30 percent adjustments, despite a letter from hundreds of former high-ranking officials emphasizing aid and diplomacy’s importance. Republicans in Congress who opposed the previous administration’s governance and funding decisions have insisted that approaches are long overdue for overhaul and have weighed in on Greece’s 7-year emergency program by discouraging more IMF outlays. European parliamentarians have also turned on their negotiators as another big repayment comes due in June, with Athens balking at further austerity as critics decry its enduring exceptional claims.