US senators seek veto on IMF loans to eurozone countries

Stephen Foley
Wednesday 19 May 2010 00:00
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American politicians have fired a shot across the bows of the International Monetary Fund, warning it to tread carefully in offering bailout loans to eurozone members and other indebted countries.

An amendment passed unanimously in the US Senate inserts domestic politics – and American public disgust at taxpayer-funded bailouts – into tricky international negotiations aimed at solving sovereign debt crises.

If it is signed into law, the US representative to the IMF must certify that any bailout loans are likely to be repaid, and must report directly to Congress on the subject. The rule would apply every time the IMF is considering loans to a country whose government debt exceeds 100 per cent of its GDP, as is already the case for Greece and Italy.

The amendment was proposed by Texas Republican John Cornyn after the IMF signed up to lend €30bn (£26bn) to Greece and pledged up to €250bn for future eurozone bailouts

The US is the biggest single contributor to the IMF, and its representative controls 17 per cent of the vote on its lending activities.

Senator Cornyn predicted that Greece would default on its IMF loans. "American taxpayers have seen more bailouts than they can stomach, and the last thing they should have to worry about are their hard-earned tax dollars being used to rescue a foreign government," he said in the introduction of his amendment. "This will help prevent American taxpayer dollars from underwriting dysfunctional governments abroad."

If the US representative to the IMF determines that a loan will not be repaid, he or she must "use the voice and vote of the United States to vote in opposition to the proposed loan", the amendment says. It remains unclear whether the amendment will make it into law, and the White House had opposed the measure, saying it interfered with the President's jurisdiction over foreign policy. Additionally, IMF loans are structured so as to always be repaid; only Zimbabwe and Iraq have defaulted in recent years.

Reform of the IMF has risen up the international political agenda, with debate over whether emerging economic powers such as China should shoulder a higher share of the costs of the institution, in return for greater voting powers.

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