The International Monetary Fund (IMF) is expecting the U.S. to reconsider its decision not to allocate the budget for IMF’s plans to reform the world’s financial markets. IMF’s Managing Director Christine Lagarde said she still hopes U.S. Congress can still approve the transfer of funds to the international organization so that IMF can help emerging markets especially China, Brazil and India.
According to Lagarde speaking before the National Press Club in Washington, “IMF’s main mission is to help ensure financial stability in the world, which benefits all world economies, the U.S. being the largest and first among them.” And she finds the U.S. withdrawal for support “extraordinary and disconcerting.” Lagarde added.
In the U.S. Senate as pushed by the Obama Administration, a funding bill includes support for the IMF but on Tuesday a bill approved by the House Appropriations Committee rejected the Senate proposal. In the $1.1 trillion U.S. budget proposal, it did not include a $63 billion shift in funding for the IMF.
This request for funding for the IMF was met by skepticism by some Republicans who view this as like approving fresh funding in a relatively tight budget circumstances the country is in right now. According to Republican Hal Rogers, House Appropriation Committee chairman, “[We must] ensure the responsible use of taxpayers dollars.”
However, Holly Shulman a U.S. Treasury Department spokeswoman said on Monday, “We are disappointed that Congress failed to include the 2010 quota and governance reforms in the current legislation.” For several months already, the U.S Treasury has maintained the safe use of the funds for the IMF and that it actually helps the many varied business interests of the U.S. aim for a level playing field abroad. Shulman also mentioned that this could weaken U.S. influence in the IMF as well as a world economic power. She added, “The IMF is critically important to U.S. economic and national security interests.”
Lagarde said the transfer of money to an IMF program will allow the organization to respond to economic crisis abroad. Although, the 2014 global economic situation is seen to be improving, the world economies are performing below their potentials. Global growth is still too fragile and too low, added Lagarde.
A 2010 IMF agreement and approved by its member countries committed to double the organization’s lending capacity to $730 billion. Included in this 2010 quota and governance reform agreement is to make China the third largest member of the organization and allow Brazil and India a greater influence in the body because of their increasing economic size.
Lagarde also mentioned about the risk of deflation if global economic growth stays below the optimal level. An inflation rate below two percent can have an impact on the economy deflating demand and wages .When people wait for the prices of goods and services to fall further, this could also reduce personal consumption and may even discourage investment because of the increased cost of borrowings.
The IMF through Lagarde hopes the U.S. can reconsider in approving her organization’s funding request. This is necessary to keep the momentum of growth the world economy is currently experiencing. Although, in terms of global economic stability and sustainability is concerned much work needs to be done and the U.S. support is critical, added Lagarde.
By Roberto I. Belda