Hill moves to limit U.S. sign-off on IMF cash

WASHINGTON — The International Monetary Fund shouldn’t give 189 countries access to hundreds of billions of dollars worth of additional hard currency with minimal strings attached, U.S. Rep. French Hill, R-Ark., said last week.

The former Little Rock banker introduced legislation that would limit the ability of President Joe Biden’s administration to sign off on new allocations of IMF “special drawing rights” without congressional consent.

Currently, allocations of special drawing rights — also known as SDRs — can occur when there is a “long-term global need” and they are allocated by a quota system. Essentially, countries with larger economies get most of the benefit.

“In the name of the pandemic, the Biden administration is skirting congressional oversight and sending access to hard currency to countries that don’t need the assistance, wealthy countries, and sending assistance to some of the worst actors on the planet: Venezuela, Iran, Syria, Russia, China,” Hill said.

“There’s a much better way to help poor countries cope with the macroeconomic effects of the pandemic. This is not it,” he said.

Hill has expressed his concerns in op-eds in The Wall Street Journal and The Hill.

Under existing law, the secretary of the treasury could sign off on allocations that would provide $41.7 billion in “unconditional liquidity” to China, $17.6 billion to Russia and $4.9 billion to Iran, according to the congressman.

No congressional approval would be required for the special drawing rights, whose value is based on a basket of five currencies, including the U.S. dollar.

Many IMF members are pushing for large amounts of economic assistance, citing difficulties arising from the covid-19 health and financial crisis.

But the proposal, which faced opposition from former President Donald Trump’s administration, won’t have enough votes to pass unless the United States backs the measure.

The U.S. controls roughly 16.5% of the IMF voting power. It takes an 85% vote to approve new allocations, a figure that effectively gives Washington veto power.

Last month, U.S. Treasury Secretary Janet Yellen signaled the Biden administration could back a new allocation of special drawing rights.

In a letter to her Group of 20 colleagues [officials from 18 major countries and the European Union], Yellen said the move “could enhance liquidity for low-income countries to facilitate their much-needed health and economic recovery efforts.”

“To make this tool effective, the G20 must work with a broad coalition of countries on a set of shared parameters for greater transparency and accountability in how SDRs are exchanged and used,” Yellen wrote.

Tuesday, U.S. Rep. Scott Perry, R-Pa., filed legislation requiring congressional approval for any future special drawing rights.

Hill on Wednesday filed legislation of his own. It would limit unilateral allocations to once every decade. It would require congressional consultation at least 180 days prior to the U.S. giving its consent.

State sponsors of terrorism and those guilty of genocide would be prohibited from receiving the allocations, absent congressional approval. Maximum allocations also would be sharply cut, according to a summary of Hill’s legislation.

Last year, some of Hill’s Democratic colleagues pushed for special drawing rights worth nearly $3 trillion, arguing it would help poor nations hit especially hard by the coronavirus pandemic.

Such a move would have required congressional approval; it enjoyed little support in the then-Republican-controlled Senate.

An allocation of special drawing rights worth roughly $650 billion can currently be done without legislative authorization, Hill said.

“If $3 trillion was essential to help poor countries, why are they suddenly willing to do $500 [billion]-$650 billion? There’s only one answer and that’s because they’re skirting on Congress’ oversight,” Hill said.

Bad actors will be among the beneficiaries if there’s an additional allocation of special drawing rights, he said.

“This money can be used by countries that are trying to do the our country harm,” he said. “Issuing SDRs — hard currency access to rogue nations — goes against our own international foreign policy both bilaterally and multilaterally.”

Ted Truman, an assistant treasury secretary for international affairs during President Bill Clinton’s administration, said new allocations of special drawing rights are an effective tool to help alleviate the economic suffering unleashed by the pandemic.

“Some are more deserving than others. Some are positively undeserving,” said Truman, a senior fellow of the Mossavar-Rahmani Center for Business and Government at Harvard’s Kennedy School.

Countries “don’t have to spend them. But if there’s a need to spend them, they can be spent,” he said.

Roughly two-fifths of the special drawing rights would go to emerging markets and developing countries, he said.

“They are now able to access credit, more credit than they could have, normally,” he said.

The interest rates are low, he added.

Ultimately, the program will be good for America and the planet, he suggested.

“A healthier world economy is a healthier U.S. economy,” he said.

In her letter to her colleagues, Yellen said the U.S. would “also strongly encourage G20 members to channel excess SDRs in support of recovery efforts in low-income countries, alongside continued bilateral financing,” adding, “We look forward to discussing potential modalities for deploying SDRs.”

The One Campaign, which seeks to end global poverty, welcomed Yellen’s comments on special drawing rights.

Tom Hart, the campaign’s North America executive director, said the equivalent of $500 billion to $650 billion could accomplish a great deal.

“That is roughly the amount we think would be appropriate,” he said.

The hope is that wealthier countries would be willing to use the special drawing rights they receive to help less fortunate places, he said.

“We do have strong indications from the major governments that they would reallocate in order to provide … access to more liquidity to the countries that really need it,” Hart said.

Hill says there are other avenues for helping poor nations. The IMF has other programs that target the neediest countries, including the Poverty Reduction and Growth Trust, which provides zero interest loans.

The new special drawing rights allocations would provide assistance where it isn’t needed while also helping to prop up dangerous regimes, Hill said.

Rather than using a “clumsy, untargeted [and], in my view, inappropriate” approach, assistance should be routed to the countries that actually need it, he said.

“There’s a much better way to help poor countries cope with the macroeconomic effects of the pandemic. This is not it.”

— U.S. Rep. French Hill, R-Ark.