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Hidden Problem for 150?: IMF Budget Scoring May 15, 2009

Posted by dglaudemans in Analysis.
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Note: Joe Whitehill contributed to this post.

The Senate Appropriations Committee’ markup of the FY 2009 supplemental funding bill provides an increase in the IMF Quota and the New Arrangements to Borrow (NAB). This item was squeezed in after the original supplemental was sent to Congress The President asked for changes to the level of borrowing authority for the International Monetary Fund (IMF).  These changes would enable the IMF to respond to grave threats to the stability of the international monetary system, particularly in developing countries severely impacted by the financial crisis.

The Senate bill would provide an increase in the U.S. quota in the IMF, as requested, of approximately 5 billion in Special Drawing Rights (SDRs) (valued at about $8 billion), in order to maintain the U.S. current voting share and veto power within the organization.

The bill also provides for additional US loans to the IMF, as requested, up to 75 billion SDRs (which is about $113 b. in US dollars).  This increase would enable the U.S. to increase its share of the New Arrangements to Borrow, (a set of credit lines extended to the IMF) from approximately $10 billion (6.6 billion in SDRs) to up to $123 billion.

In the past, US transfers to the IMF were treated as something that had no impact of the budget or on spending, as they were treated as a funding transfer.  We loaned the funds to the IMF, but we could always call on IMF funds to the same degree, making it, basically, a wash, in budgetary terms.  This time, as Congress and the White House grappled with the IMF budget issue, they decided to agree that the costs of these new requests would be estimated according to the Federal Credit Reform Act of 1990.  Doing this meant that there would be real budget impact – the authority and the outlays would have to be the cost of the lending, or, in technical terms, the estimated present value of all future cash flows out of and into the Treasury, which would lead to some estimated loss of funds.

The Congressional Budget Office has estimated that the expansion of the quota and the new lending will cost of $5 billion over the next four years. While considerably less than the $108 billion in the administration’s proposal, it means for the first time in the 65 year history of U.S. participation in the IMF, the Congress will have to include actual spending, some $5 billion, as well.  CBO thinks this spending will be $1 billion in 2009, $2 billion in 2010, and $1 billion in each of years 2011 and 2012.

The problem with this agreement on IMF scoring is that the Foreign Operations appropriations subcommittee may now have to find room for an unexpected $2 billion in outlays in 2010.  This could create real complications for the rest of the Obama administration’s international affairs budget request, as the new costs may have to be squeezed into a budget ceiling already filled up by the international affairs budget request the administration sent up in February (with details that went to Congress last week).  Unless there is some relief, this could mean pressure on the President’s other priorities, which will already be squeezed by the Budget Resolution agreement that Congress will provide $2.5 billion less than the President asked for.

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