Ukraine Aid Stalls As Congress Spars Over IMF Reform

03/25/2014 07:44 am ET | Updated Mar 25, 2014

WASHINGTON -- U.S. lawmakers agree on the need for swift response to Russia's annexation of Crimea, but their debate over reforms to the International Monetary Fund threatens to delay more than $1 billion in American aid to Ukraine.

Senate legislation that includes Ukraine aid and sanctions against Russia cleared a procedural vote Monday by a vote of 78-17. But the bill also would boost the U.S. contribution to the IMF. That provision faces stiff opposition from Republicans -- a factor that could derail the bill's chance of passing the House of Representatives and reaching President Barack Obama's desk.

The White House has argued that boosting the U.S. contribution to the IMF, called a quota, is critical to stabilizing Ukraine's economy. But House Speaker John Boehner (R-Ohio) told reporters recently that the IMF provision has "nothing to do with Ukraine." Boehner has called on the Senate to take up a House-passed bill that provides Ukraine with up to $1 billion in loan guarantees, but excludes the IMF reforms.

The Senate bill heeds the Obama administration's call to add roughly $63 billion to the U.S. quota at the IMF. The legislation achieves this by taking that amount from an IMF supplementary fund, thus leaving the U.S. financial commitment to the IMF unchanged.

The IMF, an organization of 188 countries that promotes economic cooperation, collects contributions from members and provides temporary loans to nations facing imbalances. The push for changes dates to 2010, when the G20 agreed to governance and lending reforms in the aftermath of the global financial crisis. Under that accord, each IMF member nation was to double its financial commitment, making the total IMF quota $720 billion. The reforms were designed to expand the institution's lending capabilities and give emerging markets more influence.

The Russian aggression lends a new urgency to the reforms, according to backers of the legislation. The U.S. is the biggest and most powerful member of the IMF -- and the only major IMF member that has not ratified the 2010 reforms. Because it holds the only controlling share of IMF votes, none of the reforms would be implemented without U.S. support.

Ukrainian leaders have called on the U.S. to ratify the reforms, which affect Ukraine by increasing its quota and borrowing capabilities. According to the Treasury Department, congressional approval of the reforms would allow the IMF to provide Ukraine with an additional $6 billion in assistance under standard loan practices.

New Ukrainian Prime Minister Arseniy Yatsenyuk urged President Barack Obama to usher the IMF reforms through Congress during a visit to Washington earlier this month. Yatsenyuk also discussed the quota reform with Treasury Secretary Jack Lew. The White House said Yatsenyuk and Lew "agreed that securing passage of IMF quota legislation is needed to maximize the international community’s support to Ukraine."

But GOP lawmakers in the House and Senate remain unconvinced. While a handful of Senate Republicans said they would support the Senate bill with its current IMF language, most want something in return: Namely, blocking a Treasury rule that would permit the Internal Revenue Service to curb political activities by tax-exempt nonprofit groups, known as 501(c)(4)s.

Senate Majority Leader Harry Reid (D-Nev.) said Monday that the GOP demand was "absurd" and contradicted Republicans' insistence that providing Ukraine with economic aid was of utmost importance. An administration official told The Huffington Post Republicans were essentially trying to protect free-flowing campaign contributions from special interest groups.

Even if the aid package clears the upper chamber, House GOP leaders have shown no indication they'd be willing to approve the Senate bill in its current form.

"The IMF changes the administration has long sought are completely unrelated to the ongoing situation in the Ukraine," Boehner spokesman Michael Steel told HuffPost in an email. "Frankly, the best course of action would be for the Senate to act as soon as possible on the House-passed bill."

Even some House Democrats agreed with their Republican colleagues on Monday that the White House was slowing aid to Ukraine by insisting on the IMF reform. But most Democrats favor the reform and would likely vote for the Senate bill if comes up for a vote in the House.

House Republicans mostly oppose the IMF overhaul, citing its potential to weaken U.S. influence in the institution. Others have taken issue with the Senate bill's use of military accounts to offset some of the cost of the IMF changes.

Rep. John Campbell (R-Calif.), chairman of the House Monetary Policy and Trade subcommittee, penned a March 14 blog post arguing that the administration's IMF request would only provide one month's worth of assistance to Ukraine and "does nothing to correct the serious structural challenges that will continue to face the Ukrainian economy."

The bill's authors, Sen. Bob Menendez (D-N.J.) and Sen. Bob Corker (R-Tenn.), refuted many of those claims, pointing out that the offsets draw funds from Defense Department accounts that were underperforming or no longer needed. Proponents of the legislation also noted that the U.S. continues to be the largest shareholder at the IMF and the only country with veto power over major decisions. That won't change with the 2010 reforms.

If anything threatens to reduce U.S. influence at the IMF, backers of the Senate bill said, it's stalling on a global commitment from 2010. Corker said the crisis in Ukraine represents "the poster child for why you want the IMF functioning fully and for us to be able to continue as the only country in the world that has the veto right."

Secretary of State John Kerry recently told a Senate panel that the delay has put U.S. leadership at the IMF in doubt. "We’re inadvertently hurting ourselves by sending a message that we’re not prepared to lead," Kerry said.

And while another chorus of Republicans argues that reforming the IMF would in some way help Russia, Vladimir Putin apparently feels otherwise. According to a Reuters report earlier this month, Russian officials have privately been pushing the IMF to move forward with reforms without the U.S., stripping the U.S. of its veto authority. Though unlikely, frustration over U.S. inaction is reportedly shared by several member countries.

IMF chief Christine Lagarde seemed troubled by the matter on Sunday, telling a group of students in Beijing that it was up to the U.S. to give a voice to other emerging markets within the institution. "This is not something I can do much about," she said.

Lagarde pressed the issue further in a Wall Street Journal op-ed Monday, noting that recent years had shown the "need an international 'first responder' backed by significant resources."

"But to meet tomorrow's challenges, the IMF needs to adapt," Lagarde wrote. "A large majority of the member countries have approved reforms to strengthen the resources and governance of the IMF. These reforms await approval by the U.S. Congress. The IMF's continued ability to fight economic and financial crises rests on its approval."