Shadow Government

Four Thoughts on the U.S.-IMF Standoff

Last weekend top economic officials from around the world gathered in Washington for the IMF-World Bank Spring Meetings. High atop the list of IMF concerns was the U.S. failure to back a painstakingly-negotiated reform to the way the Fund operates. The new approach, which would offer greater voting weight to emerging countries in the developing world, is the subject of a standoff between the U.S. Congress and the White House. The Obama administration attempted to package IMF reform along with aid to Ukraine, but Congress stripped it out late last month.

Ted Truman, of the Peterson Institute, argues that the impasse has done substantial damage to the global reputation of the United States and imperils the future of the IMF. Brazilian Finance Minister Guido Mantega, expressed his frustration, arguing that, "The IMF cannot remain paralyzed and postpone its commitments to reform ... Alternatives to move forward with the reforms must be found whilst the major shareholder does not solve its political problems."

So what should be made of all this?

1) It is not crazy to question the efficacy of the IMF.

Some Republican opponents of the package disapprove of the IMF's characteristic eagerness to rush in with bailout money. The IMF counters that its money comes in the form of loans, is only disbursed after promises of reform, and only when backed by analyses showing that the money can be repaid.

The critics have a point. In the heat of the Euro crisis, the IMF formed part of the "troika" that lent money to Greece. The loan was supported, at the time, by analyses that showed Greek debt would not exceed sustainable levels. Later, the IMF acknowledged flaws in its analysis; it now appears unlikely that Greece will be able to repay its debts.

In the context of Ukraine, the IMF lent money in 2008 and 2010. In each case, per IMF custom, these were part of an agreement in which Ukraine committed to undertake reforms. Those reforms were supposed to restore viability to the Ukrainian economy. The approach did not work. The current crisis was prompted by a flailing Ukrainian economy that led the Yanukovych government to choose between succor from Europe or from Russia.

2) Congress should pass the IMF reform package.

The IMF, while fallible, is an exceedingly useful institution. Congressional critics of the IMF reform package were not generally opposed to assisting Ukraine (at least, if they were, not very loudly). In the midst of Cold War-like tensions, the IMF can play a critical role. It allows an overburdened Ukraine government to deal with a single major donor, rather than a hodgepodge. It brings political neutrality to discussions that the United States could not, were the U.S. to act on its own. And the IMF brings valuable experience and analytical expertise.

True, the Fund has had its share of failures, but the business of sorting out the politics and economics of submerging countries is a fundamentally difficult one. There is room for argument about whether the IMF takes the right stance in any given instance, but that is separate from arguing whether the institution is valuable. The IMF does what its board members command. The United States currently has a major say in IMF policies and would retain that under the reform proposal. Republicans who wish to see the IMF run differently should win elections and gain a say.

3) The standoff reflects the miserable state of relations between Congress and the White House.

Republicans have won elections. They control the House of Representatives. If Washington were functioning well, this would give Republicans some of what they want, while Democrats (controlling the White House and the Senate) would get much of what they want. Yet we have seen very little of this cooperation.

Last October, at perhaps the nadir of relations along Pennsylvania Avenue, there was a government shutdown when Republicans tried to attack the Patient Protection and Affordable Care Act (PPACA, but also known as "Obamacare") through the budget process. The White House responded that this was non-negotiable -- one could not attach such riders to a time-sensitive piece of legislation and hold the process hostage (recall, though, that the PPACA was originally passed as a budget measure, through the reconciliation process in 2010). The White House demanded -- and ultimately got -- a clean bill.

Cut to March. The administration was eager to pass overdue IMF reform and attached it as a rider to a time-sensitive measure to aid Ukraine. Is it any wonder that Republican critics of the measure held out for a clean bill? The White House disdained Republican offers to trade IMF reform for IRS reform. They professed to be shocked that anyone should propose a tradeoff between two such distinct issues. Ultimately, House Republicans got a clean bill and the reform went unpassed.

4) The IMF reform episode foreshadows broader foreign policy problems when the White House cannot win legislative support.

On the IMF reform issue, administration officials could and should have worked the issue long since (the reform plans were first broached in 2010, when Democrats controlled both houses of Congress). They did not. Over the years, the administration assured international partners that this was a matter of domestic politics and they had it all under control. Again, they did not.

This is strikingly reminiscent of the current situation on trade. Senate Republicans offered Trade Promotion Authority (TPA) in the fall of 2011. They were told the time was not right. The Obama administration has proceeded to negotiate its major trade agreements -- the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership -- while assuring partners that TPA is just a matter of domestic politics and the administration has it all under control. Meanwhile, the President's request for TPA has been opposed by Senate Majority Leader Reid (D-Nev.) and House Minority Leader Pelosi (D-Calif.).

Wielding foreign policy tools can be difficult enough when the president has full authority over their use (as with some forms of sanctions, or the positioning of military forces). But an important array of foreign policy tools (allocation of resources, IMF reform, trade policy, declaration of war) require congressional consent. The unfortunate standoff over the IMF is indicative of a further weakening of U.S. foreign policy that stems from this administration's failure to establish a viable working relationship with Congress.


Shadow Government

Obama Correct -- and Canny -- to Refuse a Visa to Iranian Envoy

In refusing to grant a visa to Iran's ambassador-designate to the United Nations, Hamid Aboutalebi, President Barack Obama risks complicating his still-delicate diplomatic dialogue with the Iranian regime. He may also raise the ire of other states, including allies, who worry that the incident will be precedent-setting and restrict their own freedom to send their chosen representatives to New York. Nevertheless, Obama's decision was not only correct, it may make his Iran strategy more effective.

First, about the risks: Tehran's objections are a bit rich. They claim that the Obama administration's hesitancy to grant the visa is a violation of American diplomatic obligations. Yet Aboutalebi has admitted to participating -- even if as a bit player -- in one of the most serious violations of diplomatic privileges and protections in recent memory. Even if he has since reformed, he nevertheless represents a government which not only has refused to disavow the hostage-taking, but continues to glorify it. For the same reason, Aboutalebi's case should be seen as unique, rather than precedent-setting.

These hazards aside, the administration's refusal to grant the visa may well pay tactical dividends. One of the major drawbacks of Obama's approach to Iran is that he has raised suspicions among allies that he is willing to overlook troubling behavior by Tehran on other fronts in his eagerness to clinch a nuclear agreement. Refusing Aboutalebi a visa should at least partly allay these concerns, as it demonstrates that the Obama administration is unwilling to overlook Iranian misbehavior simply to avoid ruffling feathers in Tehran, or to subordinate every other concern to the nuclear talks.

In addition, the Aboutalebi episode has provided a much-needed opportunity for the Obama administration to demonstrate unity of purpose with Congress. The heated debate over legislation threatening sanctions on Iran contingent on the failure of nuclear talks suggested to Tehran that it could sow division and chaos in Washington by threatening to scuttle the negotiations. It also obscured the fact that Congress and the White House share the same objective -- preventing Iran from acquiring nuclear weapons while avoiding a military conflict -- and the same strategy -- diplomacy buttressed by pressure and military threats -- even if they differ widely on the details.

This incident is also, in effect, an opportunity to call Tehran's bluff. Iran's supposed willingness to walk away from the talks -- or at least to threaten to do so -- has lent it a psychological advantage. Even as senior Iranian officials have maintained their anti-American vitriol and worked hard to chip away at sanctions outside of the negotiations, U.S. and European officials have adopted a deliberately cautious approach. However, while there is no reason to give gratuitous offense, neither is there any advantage in telegraphing one's extreme reluctance to walk away or to take actions, even justified, which might threaten the talks. 

There is a chance that refusing to grant Aboutalebi a visa will disrupt the nuclear negotiations. If Iran is willing to end the talks over an unrelated disagreement, however, it raises the question of whether it would ultimately honor any agreement produced by the talks, leaving in place deep disputes over Iran's regional activities and support for terrorism. 

There is also a chance that the episode will be used against Iranian President Hassan Rouhani by the country's hardliners. But Rouhani nominated Aboutalebi; it is possible that he did so to demonstrate that he has neither embraced nor been embraced by the West. If however he did so without anticipating resistance or fallout, it brings into question his ability to manage his own domestic politics, in which P5+1 negotiators have put much faith -- to be durable a nuclear agreement must be accepted not just by one Iranian faction, but by the Supreme Leader and future governments.

Many longtime observers of U.S.-Iran relations fear that the Aboutalebi episode will prove to be yet another example of a potential diplomatic opening derailed by an unrelated dispute. But any difficult negotiation must overcome such obstacles. Furthermore, the idea behind the P5+1 negotiations is to produce a narrow agreement addressing only the nuclear issue. Even if such an agreement can be reached, it must hold up amid continuing tensions between Iran and the United States and our allies over myriad other issues. If the talks cannot survive this incident, then this narrow approach to the negotiations must be reexamined.