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The Obama administration faces a test in Congress this week over its pledge to help other countries hit by the economic crisis. One provision in a military spending bill would boost the U.S. contribution to the International Monetary Fund, and that's coming up for a vote. The administration wants to commit up to $108 billion.
But with bailout fatigue on Capitol Hill, this vote could be close. IMF supporters say the institution is key to bringing the global economy back to health. NPR's Tom Gjelten has more.
TOM GJELTEN: The $100 billion commitment from the United States - along with commitments from Japan, Europe and other countries - would mean the IMF could triple the amount of money it could loan to needy countries. The fund is ready to move beyond its traditional role of bailing out governments that have spent themselves into a hole. Randall Henning of American University and the Peterson Institute for International Economics says the financial crisis has given the fund a new opportunity for global leadership.
Professor RANDALL HENNING (American University, Peterson Institute for International Economics): The IMF looked as if it was losing relevance a couple of years ago, when very few countries were coming to it for balance of payments financing. But now, the IMF is very much in demand. And if it responds well, its position will be kind of greatly strengthened.
GJELTEN: Part of the IMF's new role is to encourage governments to do stimulus spending to promote economic recovery. But it can also help prevent another global financial crisis in the future.
The current problems came about in part because too many governments, especially the emerging economies, were earning so much money from exports that they didn't know what to do with it. So they loaned it out, especially to the United States, where it got put into shaky investments. The key to avoiding a repeat of the crisis is to convince those emerging-market countries that everyone would be better off if they spent their export earnings at home.
But some of these countries don't dare spend their money. Eswar Prasad, a former IMF economist now at the Brookings Institution, says many emerging-market countries want to hold their export earnings in reserve for use in case another economic emergency comes along. He says countries like Brazil and South Korea know the IMF does not have enough money to help them during a true financial crisis.
Professor ESWAR PRASAD (Former IMF Economist, Brookings Institution): This forces the large emerging-market economies to think about self insuring - that is, building up large stocks of their own foreign exchange reserves.
GJELTEN: If those countries come out of this recession and once again build up their own savings, we could be set up for another crisis. The IMF could bring about a more balanced global economy by getting those countries to spend their export earnings at home. But to do that, Prasad says, the fund needs a much bigger lending capability than it now has.
Prof. PRASAD: Having a very large pool of resources allows these large emerging-market economies to have some additional confidence that the IMF will be able to help them, even if the crisis that comes up next should be a worldwide crisis that hits all the economies hard.
GJELTEN: If the IMF is to convince governments to change their economic policies, it'll also need more political clout. Some of the new economies don't take the fund all that seriously because they see it as dominated by the United States and other Western nations.
The Obama administration therefore has two goals: to get the IMF more money and also to support reforms that would give the emerging economies more voting rights within the fund. But it needs Congress to go along, and there is significant opposition on Capitol Hill to any increase in U.S. support for the IMF. Jim DeMint is a Republican senator from South Carolina.
Senator JIM DEMINT (Republican, South Carolina): I just think under this environment - the down economy, the suffering that's going on in our own country - for us to just quickly approve another $100 billion for international bailouts makes no sense.
GJELTEN: On the other hand, Randall Henning of the Peterson Institute says the United States owes it to the world to beef up the IMF right now, given that the global economic crisis was brought about in part by U.S. overspending.
Mr. HENNING: So, having contributed to the crisis in this way, if the U.S. doesn't support the IMF's attempts to deal with the collateral damage, the United States loses credibility and international standing greatly.
One factor working in favor of the IMF commitment is that it is embedded in a bill to fund the Iraq and Afghanistan wars. Administration officials are cautiously optimistic that the IMF money will get Congressional approval.
Tom Gjelten, NPR News, Washington.
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