 Okay. We're going to get started. I'm Dan Rondi. I hold the Shrier Chair here at CSIF. We're talking about IMF quota reform and American leadership. We're doing so within the context of the vote that's coming up on the Ukraine Assistance Bill early next week. There have been a series of additional news items. Last night or this morning Senator Rubio announced that he doesn't have objections to the Senate bill, which includes IMF quota reform. So I think that I think is also something that'll come up in this conversation. But without further ado, I'm going to ask Congressman Bill Frenzel, who's the Co-Chairman of the Britain Woods Committee and a former Republican Congressman from Minnesota, to make some opening remarks. Congressman, please come on up. Thank you, Dan. Good morning, ladies and gentlemen. This is a wonderful event, IMF quota reform, an American leadership that is entitled. Dan lured me out of semi-retirement because he's a friend to make a few opening remarks. And I think he assumes that I can get things confused enough so that the panel will be able to straighten them out one by one and we'll all know what's right by the time we leave. I want to start simply by setting the stage. This is a very timely program. As most of you know, the Senate Foreign Relations Committee has passed the Ukraine Assistance Bill, including the IMF quota reform. And that bill will be up on the Senate floor for closure on Monday. It is expected to pass. On the other side, things are much more difficult. As you know, the House has had trouble with almost everything. It's at war and it is against everything. The default vote for every member is no. If you don't know or you don't have a horse in the race, vote no. So it's going to be exceedingly difficult in the House, particularly so because the speaker is not able to find a relationship between the Ukraine Assistance Bill and the quota reform bill, which I'd like to talk about a little bit later. The House has passed its Ukraine bill and it doesn't seem a bit interested in the quota reform. Congress is a tough place to operate. Normally, the difficult stuff starts in the House. However, with international matters, the Senate is usually a bit more reliable. And it seems to me that the Senate has to put a bill in the conference and stay with it before we can expect anything from the House. Republicans still are mad at the administration. They're mad at everybody, I think, over there. And they will be very, very careful before they cast their votes for it. But remember, the last three important votes to pass the House, which was the budget, the CR, and the debt limit, all were passed with about 40 Republican votes and about 180 Democrat votes. And if the bill comes out of conference in the Senate form, that's what's going to have to happen. Members of the House have people running against them in primaries from their own right. And it's pretty hard, as they used to say, you have to step off the world to get to the right of many of those members. But they seem to have people running from that position. And so they're very nervous. But there is, I think, a possibility. And if the House leadership understands the relationship between, quote, a reform and the Ukraine Assistance Bill, I think there is a chance. For those of us on the Bretton Woods Committee, we think the reforms are important and need to accompany the bill. Now, the reforms aren't enough. They're a very small beginning. Nevertheless, until we ratify them, we can't do any better than that. But what they do do is they're going to give the IMF the ability to lend more to the Ukraine when they are in the final Ukraine Assistance Package of many countries, which will be required to bring the Ukraine back, we hope. The President and Congress want to help the Ukes, the assistance bills that seem to have no trouble themselves. But we can't do it alone. And nor are a lot of our allies with us going to be able to help us to do it alone. Many of them are as broke as we are. We believe that only the IMF has the total resources, the ability to restore market confidence and the capacity to support the reforms in countries like the Ukraine. We see that we don't see any difficulty with the reforms, because we believe the United States retains its leadership role. It retains its veto on important matters with its 16.5% voting rights. And there are some that say, well, we're boosting Russia's importance in the IMF. Yes, we are. They go from 2.4% to 2.6%. God bless them. If that helps them a lot, I'll be very surprised. The IMF, we also believe, is essential for not only for security, but also for stability in the world. It's been a useful tool for our own economic security. You remember when the wall fell down, the IMF was an important factor in putting Eastern Europe back on a reasonable footing. You probably some of you remember the Asian contasion that the IMF helped straighten out in Asia. American administrations and American Congresses of both parties have relied and supported on the IMF since the Bretton Woods Conference just after World War II. It is the problem with it is that members of Congress don't understand it, don't really care much about it. There's no benefit to them for it. All they have is the knowledge that they've done the right thing for their country. We hope that that'll be enough for some of them. And so that's my take on the IMF and the quota reform and the Ukrainian Assistance Bill. And now you can hear the real stuff from our panel. Thanks very much, Congressman. Thank you for your public service and also thank you for your leadership of the Bretton Woods Committee. Thanks very much, Congressman. I'm going to ask my friend Clay Lowry. He used to be Assistant Secretary for International Affairs at the Treasury Department. He's now at the, and you have his biography in front of him, but as someone who really understands the Bretton Woods Institutions to give us a little bit of a, an IMF 101 at first, and then to talk a little bit about his perspective on the quota reform. Clay, the floor's yours. Thanks, Dan, and thanks for everybody for coming. I'm just going to take a couple minutes just to make sure, set a little bit of context, because I know there's sometimes confusion about the IMF. So what is the IMF? It comes out of after World War II. There's, you always hear about the Bretton Woods meetings. And three institutions were created. One was the IMF. One was the World Bank. And one was eventually what became the WTO. The World Bank and the IMF are the ones that sometimes get very confused. So the World Bank is there to help alleviate poverty. It works on developing countries, some in emerging markets, to provide long-term finance. That's basically what it does. It does a lot of technical assistance, a lot of work in many different areas. Obviously, today's not about the World Bank. The IMF, on the other hand, was created a lot because of the beggar thy neighbor policies that came out of the 1930s. Some say one of the factors that led towards World War II. And so the IMF, basically, the essential argument for the IMF over the last 60 or 70 years is to create a better international economic order. And the objectives of the IMF are to do three things. One, to help create macroeconomic stability. Two, to help create financial stability. And usually when you think about that, you think of what are called balance of payments issues. And three is to help catalyze the, and using those two things to help catalyze economic growth. They have a variety of different tools. The two most important ones are surveillance, which is basically just a fancy name for they do an evaluation and assessment of a country's economy, their banking system, and basically try to offer advice to the authorities. They do that from every country from the United States, to Ghana, to France, to Ukraine, to Russia. And then they do the thing that obviously gets the most attention, which is they lend money. And they provide financial support. They are, they usually do it for liquidity purposes and for what are, again, for balance of payments purposes. In order to do that, they have to be financed. The way that it's financed is through what is called quota. Now, quota is just a fancy name for having equity or capital in the IMF. And the equity for the United States, and for all the countries, is based largely, not totally, largely on the size of your economy in the world system. So the United States is obviously the biggest player. There's a little bit of adjustment that's made in order to make sure that some of the poorer countries that are very, very small economies have a little bit of voting share. They don't have much, but at least something that so that they are players at the IMF as well. Unlike the United Nations, it is not one country, one vote. It is how much equity do you have? So the United States has an equity, and the congressman referred to this, for Russia, but it's also for the United States is roughly about voting share of 16.7, 16.8%. I never can remember exactly what. And of that, there's a veto right at 15 percentage points over major, major decisions that are made at the IMF, not the day-to-day decisions or not the lending decisions, but kind of major structural decisions of which quota reform is one of them. So then that brings us to what is it that we are talking about today. So over the last, I would say, 10 years probably, there's been a major effort within the IMF to try to reform that system of quotas because it reflects really kind of the 1950s and 1960s economy, as opposed to the 2000, now 2010 economies. And so you've seen different voting shares change over the time through a series of reforms of which the biggest probably one is the 2010 reform. The 2010 reform was an agreement that was made to do basically three things, or do a few things, I don't want to say three, is one, is to change the voting structure even more so we know which countries have which votes. So countries that went up in voting share include Russia, as the congressman said, they go from less than 3 percentage points of voting share to less than 3 percentage points of voting share. China actually has a significant increase, not surprisingly given the size of the Chinese economy. There are a lot of economies that are considered that I think we would like to hear a lot more of a voice from in the world. Mexico goes up, Australia goes up, Korea goes up, Singapore goes up. Some countries that go down include many European countries. And then that gets you into a second issue, which is that's about voting shares, then you have a different issue, which is what are they called the chairs issue, what chairs are occupied by which votes. In the past, the United States occupies one chair, there's nobody else within that chair, it's just the United States. The Europeans occupy either eight or nine chairs depending on how you count it. And so, and obviously the Europeans can come together. And so sometimes that creates issues for the United States. We are very friendly with the Europeans, but we don't agree with everything. And sometimes that does create some issues. So the idea was to basically reduce the number of chairs that the Europeans would have from that eight or nine to basically six or seven. And the reason why I say six or seven is because there's rotations that go on. The third thing it did was to basically do a shift in resources. So the IMF again, finances itself through its quota resources. And that allows countries to borrow based on their size of quota. And in 2009, in the middle of the financial crisis, there was a significant increase in the IMF resources to help deal with the problems that were currently going on. Those resources went into a variety of different instruments. Some went into quota, some went into bilateral programs, some went into something called the new arrangements to borrow the NAB. That's how the United States did it. So the United States basically put in $110 billion. It had a budgetary score at the time of roughly $5 billion. The package that is before the the United States today was agreed upon in 2010. In order for the United States to pass it, it must get authority from Congress. And it must get appropriations. The appropriations part is going to be to take it to take $60 million of that $110 I told you about and move it from the NAB over to quota. So it's basically just a transfer within one bucket of the IMF to another bucket in the IMF. There's a cost to that largely because in 2009 it was done under an emergency appropriations. And in this case it would not be under an emergency appropriations. They have different rules within Congress. It costs money to do that. The money that it cost is rough, it's been estimated to be $315 million, I think I got that right. $315 million is the budgetary score. So for $315 million, the United States will move money from one pot to another. But by doing that, it's going to free up a lot more resources, as the congressman said. So countries like Ukraine can actually borrow more if they are into a balanced payments crisis. Okay, that's kind of where we are right now. Now let me give you my opinions. So why is it that we even care about the IMF or we're in the IMF? Usually if I was talking about this, I'd be talking about the economics and financial issues. I worked at the Treasury Department for 16 years, those are the types of things I usually worked on. Today I wanted to talk about something slightly different, which is we do this because it is in our national interest. And it's in our national interest for three reasons. One, foreign policy tool that we sometimes need. Two, the leadership of the United States. And three, leverage. Let me start with leverage. The United States puts a dollar into the IMF for every dollar that the United States puts in, $5 comes out. So that means that we are getting a fairly significant leverage effect by basically putting our money in there, which means that in the end, actually it costs us less to have money in the IMF than it would otherwise. Because I promise you, if Ukraine or other countries get run into financial difficulties, and the IMF doesn't exist, the country that will be bearing the burden for that most of the time will be the United States. And it will be a much heavier burden than a one to five ratio than is allowed by the IMF. So that's my first point. My second point is about a tool of foreign policy. The IMF is there to do economic and financial resources. It's staffed by a bunch of PhDs. They do honest, good work. They make mistakes, like everybody. It is an institution that is evolved. It will continue to evolve as my old boss, Hank Paulson, used to say, institutions that don't evolve die. And this one is continuing to evolve, which includes moving your voting share around. But it also actually acts as a tool sometimes when the United States has a foreign policy problem. So let's go back in time. In the 1980s, when Ronald Reagan was the president of the United States, they supported a quota increase. That's a fairly conservative Republican president. Part of that is because of the needs that the IMF was under at the time. And part of it was because of what happens in there was a crisis going on in the 80s. It was the Latin American crisis. It basically a bunch of countries that are on that are next to the United States were in deep trouble. They were not growing. And so what did the United States do? We came up with what was called the Baker plan, and then the Brady plan. And those are very complicated plans. But in the end, they were backed by financing from the IMF, as well as from conditionality by the IMF. Again, something that actually was helpful to the United States because we could not do it alone. In the 1990s, the country of Korea, a country in which we have over 30,000 troops in basically suffered a huge financial crisis in the 19 in 1997. It was the IMF that went in there. The IMF basically in three is probably persona non grata. But it was the IMF that put up the financial support at the time that allowed the Korean economy to survive that situation and to continue to thrive as it does today. And it is a country that is obviously a huge ally of the United States. After 9 11 in in the 2001 2002, the there was a number of problems going on that we were trying to address, as you can imagine, including the fact that some of the work that we were doing in Afghanistan to go after Osama bin Laden was creating huge problems in Pakistan, was creating deep deep financial problems. It was the IMF that stood up and basically went into Pakistan and created a balance of payment support package that actually helped them come through that time. That doesn't mean the Pakistanis did everything right with that. They certainly did not. But it was the IMF that actually created that issue. In 2008, the country of Georgia was invaded by Russia. In that during that time, I remember talking to the finance minister of country Georgia for probably about two hours. He was very scared of the banking system. We're going to lose total confidence in the bank system. We don't we won't have liquidity. He wanted to see whether or not the United States could be supportive and provide financing. I will tell you this happened almost exactly the same time that laymen brothers was collapsing and and by the way, lots of countries in Eastern Europe were collapsing as well. I actually talked to him about can you go to the IMF and get a package which they did. The IMF stood up, went into Georgia again, helped support the financial system in a very, very important foreign policy issue for us today. We obviously face another one and that's Ukraine. My third point is about leadership. So I am I'm associated with the Republican Party. The Republican Party's major criticism, I think, of President Obama has been about lack of leadership on on the foreign on foreign policy issues. Some people will disagree with that. Some people can agree with it, whatever you want. But leadership entail what is the definition of leadership? I don't actually have a great one, but I can tell you what it probably means is that you if you identify a problem that you need to figure out how to solve, you come up with a plan and a strategy and then you try to husband resources to try to go and lead towards solving that problem. One of the identified problems in Ukraine is basically that there is a big, big financial hole. One billion dollar guaranteed by the US government, which is a good, a good package, it will do nothing. It'll do nothing. It'll just be money down a rattle because the problem is is the whole is too big. And so that means you're gonna have to come up with an IMF package. You can have the Europeans, you can have the US, you're gonna have others, you're gonna have to need, you're gonna need the IMF. Could the IMF do that package if the quota reform bill is not passed? Yes, they can. But how, how difficult is it going to be for us, for us to basically work on getting the IMF to actually help lead the process of creating financial stability when the United States is the only country, major country in the world who has not supported a reform package that has been going on for almost four years? I would say that that is probably not the definition of leadership. I was glad what Dan said at the start about Marco Rubio. He's a senator I respect for the following reasons. He doesn't know who the heck I am. But I respect him because he's coming up with solutions. He identifies problems and comes up with solutions. He doesn't just provide rhetoric. He was worried clearly about the US role in the world. He gave a speech in the United Kingdom back in December and he said skepticism has come in the form, skepticism about the United States has come in the form of growing doubt about whether America can still be counted on to contribute to our mutual security and to uphold an international order that reflects our interests and ideals. I would argue that Marco Rubio is correct and the fact that we're not supporting the IMF contributes to that same problem that he is worried about. Thank you very much. I'm going to ask Scott Morris who used to be a deputy assistant secretary for development and debt issues. You're now at the Center for Global Development and you write very persuasively and cogently about the multilateral system of which the United States apart. Scott, the floor is yours. Thanks Dan. It's a pleasure to be here. I think I'll end up talking mostly about Ukraine. It's hard not to these days. But I do want to start with a broader point that's not actually captured in the Ukraine discussion. I think you'll hear a lot of the points that Clay has already made very well. But frankly, I've written my stuff down and I'm not going to abandon it at this point. So the broader point and this is not controversial. And even if you are my mother in central Pennsylvania, this doesn't come as news to you. Financial crises happen in the world. Very rarely they happen domestically here in the U.S. and mostly they happen in other countries. The U.S. is a large economy and an open economy. So in many ways it's uniquely vulnerable to the effects of crises, particularly when they happen in large economies in other countries. And that vulnerability, you can measure it in lost exports. The U.S. sees when one of its major trading partners faces a crisis of some sort. Lost exports means lost jobs. You see the impact on our equity market. So there are real negative effects. I think we can all agree by virtue of us participating openly in the global economy. So what do we do about that? This is not something, in a simplistic way, the U.S. cannot build fences around our borders to guard against these things. I was thinking about metaphors of the contagion of certain diseases and viruses. But frankly, we don't need a metaphor. We've seen this in spades in recent years in terms of the impact of financial crises. So what does the U.S. do? As I see it, there are three options if you are starting from scratch. One is that we can expect countries to handle their own problems on their own, that they will pursue strong, prudential regulatory regimes, that they will have strong reserves, and basically they can work things out for themselves. Well, we know that's not reality. We can bear a lot of the burden ourselves, recognizing that there are negative effects that rebound to us, and we have to do something about it. And in fact, we do a fair amount of that, obviously. We play a unique role in the global economy, and I think we bear some of that burden. But frankly, to literally do that on our own would be far too costly of a burden to bear. So that takes us to our third option is we need an international mechanism that through collective action and collective resources can provide to put it this way for the U.S. very cheap insurance against these problems in the global economy. And of course, that's exactly what we have with the IMF through demonstrated experience over many decades. But let me shift from that broader point to Ukraine because I think there's a lot that in my mind is really extraordinary, extraordinarily compelling about the Ukraine situation in identifying a particular role the IMF plays for the United States, and that is as a strategic partner. And I think it's worth focusing on this because it's not anything you're going to read about on the IMF's website, frankly, but it's it's very meaningful from a U.S. perspective. So if you look, I went back and looked on the website of the IMF, you will see on February 27, the statement from from the managing director in response to events in Ukraine and essentially signaling a commitment on the funds part to work with the interim government. That's the very day that the interim government took office. Did the IMF have to put that statement out on that day? No, I think they did it for a particular effect. And if you're the United States, that's a very helpful effect is that it's it's a particular important institution in the in the international community, moving very quickly to signal its support for an interim government that the United States very much wants to succeed. So the timeliness of that response really demonstrates the particular value of the fund as a strategic partner. As a strategic partner, they can do things on the financing front as clay described this mechanism that the U.S. cannot do on its own. So in our desire to help this fledgling interim government, what can we do to mobilize financing? So we have a billion dollar loan guarantee. You know, one of the benefits of the Senate already moving on a legislative package that includes both this loan guarantee and the IMF quota reform is that you can actually look at these numbers together and draw some conclusions and it's very striking. So in the budget scoring of this, again, as Clay described, the quota reform packages scored at $315 million. I think a lot of us would dispute the need for even that scoring. I think there's a longer history in which the view was that you really didn't have to appropriate any funds for IMF commitments. But that's essentially a settled issue and we have the score of $315 million. So let's accept that. The billion dollar loan guarantee that is a bilateral loan guarantee from the United States has scored at $350 million. So let's extrapolate. You know, the Ukraine government is asking for $15 billion at this point from the IMF. So suppose we don't have the fund playing that role and the U.S. is playing that role and extrapolate those scores from CBO. You're talking about a $5 billion budget appropriations hit to the U.S. if it wanted to extend $15 billion in loan guarantees to Ukraine. That's a tremendously expensive proposition and frankly it's meant to reflect the underlying risk of the U.S. on a bilateral basis extending this kind of assistance. And in contrast, how much that risk is diminished when we work through this multilateral mechanism to extend that scale of assistance. So to me that really is very striking. And then finally as a strategic partner in steering the policy dialogue with Ukraine and making sure that they are pursuing a reform agenda that strengthens the very principles and values that we hold in the U.S. and hold for other countries and frankly in contrast to other regional interests and certainly the role of Russia so that we can look to the fund as an effective partner in pursuing an economic reform agenda with this new government. A few words on the legislative process as it pertains to Ukraine and whether the quota reform package should be in a Ukraine bill or should not. So I worked as a committee staff on the Hill for 10 years and as a result I'm not going to pretend to be shocked on two fronts that I do hear shock and disappointment. One, the notion that the administration would seek to use a very necessary Ukraine bill in this fashion. How there they try to hold up what would otherwise be a bill that moves very quickly and we've lost a few weeks on this. Well, look, you know, this is a little bit of political theater. Of course, this is exactly what you do in trying to remove a priority issue. You look for legislative vehicles. This one has the virtue of actually making substantive sense. And I think, you know, we've already heard the argument so I think I would want to put that aside. On the other hand, I'm also not shocked that the Republicans would seek to do some horse trading around this issue. You know, this is what we do. It's part of the legislative process. You know, the challenge here, you know, I care a lot about the IMF quota package being approved. So I wish they wouldn't that they would simply move it on its merits. But I accept that they do want to engage in some negotiations. The challenge in this particular horse trading is it's not necessarily a horse for a horse or a horse for 10 horses. It's not even a horse for another mammal. I mean, it's, you know, we have very unrelated issues that seem to be in play. And frankly, there's a very practical challenge. And how do you, if you're on the administration side, how do you weigh the relative merits of very different things? And you have different constituencies and advocates within and without the administration on these issues. So that makes it a challenge. You know, I can only hope that and part of those of us who are outside advocates for the IMF package is that we we strengthen the hand in making the case for why quota reform is so compelling and so necessary, and then leave it for those who work on the other issues to figure out a path forward. Finally, I do want to say a word about the quota reform package itself. So getting beyond why the IMF matters and clay again laid this out in terms of what the details of the package is. But it is worth, because I certainly haven't heard it enough, noting what an extraordinary outcome the US got in this process. It speaks to the way the US can lead in the fund. This was very, this was a very strong bit of negotiating on the US part. So let's look at what they achieve. So they they help steer a path that met the overriding test within the fund of ensuring international legitimacy going forward. So you very much needed this realignment of voice and vote to reflect where economies are today. And the US helped meet that test for the fund. In doing so, the US protected its own standing in the fund. There's no ambiguity with passage of quota reform that the US hand is as strong as it's ever been. And in a measured way, in a way you can measure, you can see it in protection of the US veto. And they did so by committing no new US money, so the transfer of resources from the NAB to quotas. That's an extraordinarily good outcome for the US. So it's all the more frustrating that having led in that process and achieve that outcome, it is now stalled by the US. I will, will hope that at the end of this process, I think parties on the Hill will see it for the slam dunk that it really has been. And, you know, we can a year from now get over the fact that it's going to take three and a half, four years to get it done and be satisfied with the ultimate outcome. Thanks. I ask Desmond Lachman, who's a resident fellow at AEI, he had a past life as a managing director and chief emerging market economist strategist at Salmons with Varani from 1906 to 2003. He was also at the IMF for a period of time. I'm going to ask him to present his perspective on, on this conversation. Desmond. Thank you very much for inviting me. And perhaps at the outset, I'll say that while I am a US citizen right now, I wasn't brought up in the US culture. So I'm not totally familiar with base basketball, but I don't think that this is a total slam dunk. And that is really where I'm going to be taking my, my comments. What I want to do is basically make three points. The first is that Ukraine, this whole deal of providing Ukraine with aid has got very little to do with IMF reform. You know, this is purely a political move, which I think is of a cynical nature. The second point I want to make is that it's far from clear that the IMF needs the amount of resources that this proposal would make on a permanent basis to the IMF. And the third point I want to make is that an oversized IMF is not necessarily in the system's interest. So let me start with the first point on Ukraine and reform. What we talk about in Ukraine is Ukraine possibly might be needing from the IMF something like 15, 20 billion dollars. You know, you could perhaps a little bit more, a little bit less, but there's no question that the IMF has got more than enough money to make that loan. Now, the notion that the IMF, that the United States is holding up this reform, the IMF has been holding up this reform for the last three and a half years, but that didn't stop the IMF from making massive loans to Greece, to Portugal, to Ireland, to Cyprus, et cetera. So I don't see why it's very different in the Ukraine case. The IMF reform, what would do is it would increase the quotas of countries like China, Russia, Brazil, India. But if we look down the list, what it would also do is it would reduce the relative size of a country like Ukraine. You know, Ukraine goes from something like 0.63 percent to something like 0.48 percent. So it doesn't increase the amount of money that the IMF can lend to Ukraine. Now, one of the observations that a casual observer of the IMF would notice over the last 10, 15 years is that the amount of money that the IMF lends to a country has got absolutely nothing to do with the size of that country's quota, that what you do is you determine the amount of money that the IMF needs to lend to the country and then you just figure out what the country's quota is and then come up with the number as to what percentage of the quota you're going to lend to the country. So originally, in the 1970s, 1980s, the IMF had a strict limit. You could only lend a country something like 300 percent of quota. Then they talked about exceptional access. And then suddenly in the case of Mexico in the 1994 crisis it went up and then in the 1998 crisis we were at 1,000 percent and it came along Greece, we lend 2,000 percent to Greece. So what I'm saying is quota reform. Firstly, the quota of the relative size of the quota of Ukraine goes down, but it makes no difference because if you wanted to lend $15 billion, what it would amount to is only something like 800 percent of Ukraine's quota. If you could lend 2,000 percent of Greece's quota, I'm not sure why you can't lend 800 percent of quota, it's a situation where to me it doesn't look like their rules. Having grown up in South Africa, we used to have a statement about Britannia. We used to say that Britannia didn't rule the waves, but rather what Britannia did was wave the rules and that is what the IMF seems to do on a regular basis. So let me come to the, in short, I would just say that this is rather a cynical move by the administration to link this IMF reform to aid to Ukraine and I find it particularly disconcerting about the state of United States politics when it was only a month or two ago that the President was railing against how outrageous it was that the Republicans were wanting to link increasing the size of debt ceiling to public spending. I think that the two issues are analogous that they've got nothing to do with one another, but you're using this as a lever. A more important point is about the size of the resources. While I certainly support the idea that the Brazilians and the Russians and the Indians, the fast growing parts of the global economy that have increased the size, should have greater relative representation at the board that we totally need governance reform, I would distinguish that from, do we really need a large IMF? So if I could just go through a little bit of history. In 2008, around about 2008, policymakers were seriously talking about what is the relevance of the IMF, shouldn't the IMF be downsized? They were reducing the staff of the IMF for after all. The IMF's way in which it handled the Asian crisis, the Asian countries swore that they would never put themselves in a position that they would have to go and be supplicants to the IMF. Same true of Latin American countries, Argentina, Brazil, these countries foreswore that they would never want to borrow from the IMF. They introduced reforms, built up reserves, moved to flexible currencies, same story with Russia. So the IMF didn't exactly have many clients. What put the IMF back into business was the European crisis and the reason that this whole G20 decision to increase the size of the IMF by the amount that they did was to deal with the countries in the European periphery, the Greece's islands, Portugal's potentially Spain's and Italy's, and they did it because the Europeans were not in a position to do it themselves. That was then, that was in 2010. Keynes famously said to somebody, he said, when the facts change, I change my mind. What do you do, sir? Evidently, the US administration doesn't change its mind when the facts change. So some of the facts that have changed are that the European stability mechanism has now been created. It's a permanent mechanism that the Europeans have set up with an amount of no less than Euro 500 billion. This is, we're talking about real money that they've now got to deal with the problems in Europe. And more importantly is the ECB in September, the European Central Bank in September 2012 set up something called the OMT, the outright monetary transaction program, which basically meant that the European Central Bank would do whatever it took to make sure that there wasn't a problem in a member country, provided the member country played by the rules, meaning that the ECB could use its printing press to buy all of the bonds of Italy and Spain that were needed. So in short, what has occurred is the very justification for enlarging the size of the IMF has now disappeared. So what I'm at a loss is what does the IMF need $400, $500 billion in lending capability to whom exactly is it going to lend? It can do many, many Ukraine's of that size. So I think that the notion of just going along with a very enlarged IMF, I think that one should really throw that into question. The final point I want to make is that too big an IMF is not without its consequences. My view of the world is that if you have the IMF departing from its original objective of being a catalytic lender, providing a macro framework, figuring out how to do it, but instead throwing huge amounts of money at each occasion, allowing that money to be used to bail out the bondholders so that guys who made the bad investments get made whole effectively, that's pretty what we're just seeing has occurred in a place like Greece right now to a large extent. That just encourages moral hazards. So for instance, like in the Ukraine case right now, it's of concern to me that a fund, it's well known in the markets, Frankl Templeton, that these guys have loaded up on Ukraine bonds much the way in which they did because they were high yielding. To have them bailed out without their making some kind of contribution just seems to make nonsense of the scheme. So I'm not in favor of having a very large IMF that's got a huge amount of resources that can use, they'll just fall into the temptation that they've done in the past, that they've done in the case of Greece, Ireland and Portugal. And I just mentioned in closing that it is of note that the IMF itself is recognizing that the massive lending program that they did to Greece was a huge mistake, that it should have first been preceded by debt restructuring. You wouldn't have needed quite the amount of money that the IMF threw at Greece. Greece would have had a very better chance of getting out there. So in short, I don't think that this is a total slam dunk that we should be just going along with a really very large IMF where the United States loses a certain amount of control because the point that this is only going to cost $365 million in appropriation is only part of the story. What is, I think, the bigger part of the story is that when the money sits as it does right now in the new arrangement to borrow, the United States has an effect of veto over that money. Once that money goes into the general bin of money in the quotas, the IMF loses that veto and it means that the United States doesn't have quite the same say as it does before in determining the size of a bailout package, how that would be structured, and I think that that can cost the U.S. taxpayer money, which I would be concerned about. Thank you, Desmond. I'm going to ask Joe Marie Grace-Braver to be our last commentator, and then I'll have a couple questions. She's the Executive Director for New Rules for Global Finance. Joe Marie, of course, yours. Thank you so much, Dan. It's my privilege to hold up the left end of the spectrum here, and for many of my friends and myself as well, I'm a little bit surprised to be speaking both in support of the IMF at CSIS. So this is, you will see what a good Jesuit education can do for you when I, when you hear me speak. I can spin an argument anyway, but seriously, I am extremely committed to the reform proposals and the reason being, I mean, their rationales, their explanations that have been presented already, that it's a leadership tool for the United States. It's how can we play an active role leading in the current IMF if we sit back on the reforms that the United States actually was very active in pushing for and working with the emerging market economies? My goal is what we can do after these reforms are over, but that's, you don't have to worry about what I'm going to do later, okay? This is, we're on the focus is on the present. And I do want to say that this whole reform initiative was really grew out of the G20 that George Bush, again, I am complimenting George W. Bush. So you put that in your record book. I am very pleased and proud of what he managed to do to pull the G20 together in the fall of 2008. And out of that grew the increased size of the IMF immediately, which was passed in the Congress in 2009. And if anyone here is upset about how the administration passed that package, I lead that pack of people in the opposition. So you are not alone in that, but we are in rail politic. This is how American politics gets done. It's not an aesthetic process to be watched close at hand, right? Sausage making, right? So what I do want to say is I think three questions have been addressed. One is why do we approve the IMF reform in itself? I want to focus on one of the reforms that have been mentioned. Why support Ukraine? You all know why. That's a no-brainer in the American context, so I'm not even going to refer to that because there are so many reasons to support Ukraine in and of itself, but why link the two in addition to the marriage of convenience? There are, in terms of IMF reforms. There are a couple of things that I think Clay did a brilliant summary of the content of that package. It's pretty complicated, and you can get lost. But one of the things is that it requires the Europeans to give up two chairs. This was a bloody fight, and they did agree to it reluctantly and over an extended period of time. And why does that matter in this context? I have heard concerns raised about the package provided by the IMF to the Europeans and concerns that there may be default on that debt, and it could harm the ranking, if you will, of IMF loans. Part of the reason why it was so easy for the IMF to lend to Europe was this overrepresentation of Europe. Eight to 10 out of 24 seats are permanently controlled by the Europeans. The advanced Europeans are required by this to give up two chairs, and if the U.S. continues on its 2010 trajectory, it would be reduced two more. That means within the IMF, the politics within the IMF, yes, the U.S. has a veto, yes, we have a loud voice, but we have one chair, one executive director at the table, there are eight, even 10 when the European Commission sits there. So the leadership, the leading of the IMF, is much more the Europeans, and some of my best friends are Europeans. It's not that I dislike Europeans, but the weight of the Europeans is overextended. It's overstated. The U.S. will retain its veto. There will be some reduction in the representation of the Europeans, and the miracle of this reform cluster was that the emerging market economies all gained, and they gained appropriately, and in human history it is rare for emergent countries to be welcomed to the leadership table, and there's no war to keep them out, and there's no war to get in. So this was the genius of the G20 and President Bush. So hats off to him and to those who worked with him. This is, and for this reason, we do want to support these reforms. Again, to have the United States pushing so hard, and then not able to back up what it says. This has echoes across all of U.S. foreign policy in every forum, not just in the IMF. So the other element of the, a few other points that I wanted to raise relate to what Desmond just said, and much of what he said I agree with completely, but on the veto over the NAB, for example, every country that contributes to the new arrangement to borrow has veto over the use of their funds. Now they operate by a consensus within the new arrangement to borrow, but so far no country has vetoed, and every country has agreed to go along. And the ones who put in who led in the contributions to the new arrangement to borrow and in the subsequent contributions to the IMF were exactly China, Russia, Brazil. These were the leading contributors. So they do want, finally, to get the quota share that they were promised four years ago, and it can't happen without the quota reform, I mean with this whole package of reforms. Another element that is in the quota package is the doubling of quotas. And that, in that sense, yes, Ukraine goes down slightly in the percentage, but it doubles in the amount it can get immediately. It goes from about half a billion to a billion immediately. So in addition to the immediate loan guarantee from the United States, and somebody has to provide the original loan, and we just provide the guarantee. And the Financial Times isn't sure about who is going to come up with that initial loan, but they get immediate, they have the option of an immediate billion dollars from the IMF. And that is true. It is not going to make a whole lot of difference, one billion, two billion when you are talking 15. Now, the other thing about the money for Ukraine is that when the money goes, Ukraine under the discipline of the IMF will be required to deal with its debts. And yes, some of those debts do belong to Russia. Oops, I almost said Soviet Union. Maybe greater Russia. Anyway, yes, there will be a repayment of some debts to Russia. But what it does is it really is the price of bringing Ukraine back into the West. If Ukraine is entirely dependent on Russia for its oil, for its financing, they have to pay political attention to Russia. That is where their meal ticket is. If the lending is provided by a consensus of global governments, including Russia, which has this tiny percentage, then Ukraine is freer to follow its own political destiny, which as we see seems to be with the West. It seems to be with the West. So the IMF does provide discipline. Many of my colleagues on the left say it is conditionality and it is horrible. Well, yes, it is hard to tighten your belt. It is very hard. But IMF provides the discipline that goes along with the money and to set the house in order, including the reduction of subsidies on petroleum products, which is the price of petroleum is, I believe, 80 percent subsidized by the government of Ukraine. That is unsustainable. And with the IMF, that can be brought down to a more realistic level. Now, there are things that we can go round and round about different interpretations of reality, I think, and perceptions are very important. Let me just say that on the overall size of the IMF, it is well below the proportion of trade that it was in the 1940s. It was something like 5% to 7% and it is well below that now. So in terms of the size of the IMF, but that is not the agenda for today. I do want to thank you for being here, for being patient listeners, and now is your chance to talk. Thanks, Joe Marie. Let me just summarize a couple things I have heard and I want to put a couple questions to the panel, and then I am going to open it up for Q&A for this group. I think I have heard a couple things. One is that there is a consensus that the makeup of the shares or the controlling shares of the IMF should more appropriately reflect the size of economies. I think I heard a consensus across these panelists to say that the general principle of reflecting an economy that economies that were a snapshot from the 1950s isn't appropriate for a set of governance days. So things like having 10 shares for the Europeans, I think most people, at least on this side of the Atlantic and many parts of the rest of the world would say that is a little bit of an antiquated notion. Having sizes and quotas reflecting the size of economies would be appropriate such as China. So in essence, this shift in shares in a simple way is to take some shareholdings from Europe and a teeny amount from the United States and to distribute it among some of the emerging economies. So the United States, I think it is actually 17.7 percent to 17.4 percent, something like that. Right. Okay. Thank you. So I think this is highly complex, highly and there is a whole industry of folks that live off of this stuff. But I think the reason it has gotten into the broader bloodstream is because it is up for a vote around the conversation around Ukraine because it is so highly esoteric and because it is something most people do not understand what the heck the IMF does. And so I think understanding that there is a, the additional thing I want to just clarify is if I understand it correctly and I want the panelists to correct me if I am wrong, my understanding is that 15 percent of the shares have some form of veto over decisions of various kinds. When the smoke clears on this reform, the United States either in terms of its shares or in terms of its quota or however you want to measure it is still going to have enough to have outright veto on all of the, on a sort of big decisions of the IMF. So I think this is important that when some concerns have been raised about that the United States will somehow lose control of the IMF. My belief is that if you are at, either depending on whether we are talking about shares or quota, if it is north of 15 percent, you still got a veto. And so I think that is the basic gist of the point you need to, my view is what you need to understand in terms of that the U.S. will still have overall control of this. So that is one point I want to get across to this group. I think the other thing that hasn't come up in this conversation is in the last 10 to 15 years there has been a series of let's call them alternatives to the IMF that the United States is not a shareholder in or does not have some form of leadership in or frankly control over. And let me just give you a couple examples. So there was the Cyprus banking crisis a couple years ago. Well, the Cypriots went to Russia first and said, hey, can we get a bailout of a banking system? And we might also consider throwing in a naval base in the Mediterranean. And if I think that for this audience I think that should get people's attention. So that actually did come up. It didn't actually happen, but it was discussed in the case of Egypt. Egypt's the new authoritarian government, the Al-Sisi government, has instead of going to the World Bank, the IMF has gone to Saudi Arabia and to some Gulf States and has gotten something between 10 or $15 billion. There have been a series of Asian countries that have been trying to work out bilateral agreements with China in terms of so these are sort of all let's call these alternatives to the IMF. They don't have the surveillance mechanism. They don't have sort of all the smart PhD guys that fly in or gals that fly in and provide expertise or are laying on of hands and saying their books are okay. So in some ways these are opt-outs of the international system. And some of them I don't think are in the American age. If they had cut a deal, Cyprus had cut a deal and set up a naval base for the Russians. I'm not sure that this audience here would think that's a good outcome. I certainly don't think that's a good outcome. So I just want to, so I want the panelists to comment on this issue of shares and control. And I'd like each of you to just comment briefly on let's call these opt-outs of the current IMF system if I can put it that way. But I'm going to start first with Scott and we're just going to go down this way. So I'm going to start with you, Scott, first. Okay. Yeah. No, I think you've characterized the issue of, it's the issue of supermajorities. What decisions in the fund require an 85 percent majority and which don't and the U.S. alone on those 85 percent decisions have the ability, has the ability to block. I think it's important to emphasize on the NAV versus quota that the decision-making is actually very comparable. You have supermajority requirements on activation of the NAV and any changes in quota. But at the executive board level on decisions about distribution of NAV or quota-related operations, it's a simple majority and that doesn't change. So again, I just be clear. The NAV is like an emergency fund that was set up to deal with crises as opposed to sort of the normal operations of the IMF, right? Yeah. But to emphasize, the U.S. is not, by transferring the funds over, is not ceding any degree of control over those funds. In terms of the opt-outs, yeah, I think you're raising a legitimate question here. And there are also questions about what are the economic costs globally to countries choosing to self-insure versus using more of an insurance kind of mechanism like the fund. But certainly from the U.S. perspective, just the very simple lack of transparency around these kinds of relationships makes it very hard to form judgments about what's going on, whether economically or geostrategically. So, Scott, we're not going to lose control of the IMF with this quota reform. That's what I'm getting at. Yeah, no. Look, I think, again, the U.S. got a very good deal under quota reform and by that very measure not ceding any real authority. Let me, before I ask Joe Merida to answer this, let me just push him one other thing because I think this is actually something that's quite timely. It's possible that this is going to get passed in the Senate next week because I think Senator Rubio has come forward and said the situation Ukraine is so important that we need to show a united front in the U.S. Senate about how serious what's happened in Ukraine and that he is dropping his objection to IMF quota reform. This is in the last 12 hours in the Washington Post. In the House, there are some additional objections from the ones you've heard and some of them I think are reflected in Desmond's comments, which are this is $300 million, some of which is going to come out of the Armed Services Committee. Buck McKeehan, who is the chairman of the Armed Services Committee, said hey, why is this coming out of our boys in uniform for some of this esoteric finance stuff from the IMF? Why the heck are we doing that and why is some of this coming out of the 150 account? So what's your answer to legitimate, perhaps, concerns either out of the 150 account, which is the foreign aid or the foreign operations account, as well as from the 50 account, which is the military, the hard side of the kinetic side, if you will, of our international relations. How do you answer those concerns for House members? Why should they be willing to take a hit and how would you answer Congressman McKeehan? Well, there had to be a pay for. Given that it was scored as it was at $315 million, I think there was a clear view both on the Hill and in the administration that they had to find a way to pay for it. I think what they did is a pretty responsible exercise of figuring out where their resource is available. I say that as someone who spent my time in the Treasury Department worrying about the very programs that may be paying for the fund commitment, but I think the administration did what it could, working with counterparts on the Hill to find areas where that cost could be borne without real damage or pain. So $300 million out of, say, $30 billion for the 150 account and out of whatever it is, $800 billion for the 50. These are small dollars. I mean, in one sense, no dollar is small. It's always hard in an environment of tight budgets as we are in now, but on the other hand, as you say, in the larger scheme of things, it's not that hard to make this. Okay. So eat your vegetables. In other words, okay. So either talk about this veto issue, alternate forms, talk about also, if you would, or any of those, as well as the issue of, okay, we're going to encounter a lot of resistance on the House side, especially from folks like on the Armed Services Committee or even folks who, you know, this is going to be taken out of the Foreign Assistance, Brett, 1.150 account as well. How do you answer that question? Well, as George Bush, I hate broccoli. It is a tough sell. I would do, in my mind, as a pseudo-academic, I would take the long view and say, let's look at how OMB scores and let's get it back. But it is 315 million, spread over many billions, and it can be a day's accounting error in some institutions. So I am not going to sweat that amount of money in the U.S. budget, frankly. Maybe I'm wrong, but it seems relatively small, given the size of the military, the 50 plus the 150 accounts. It is something also where, if it does look like a hard vote because of the amount of money, then the IMF has a role in global financial stability and promoting growth. They're doing some very recent and excellent research on promoting growth, which not all of you may agree with here, but on redistribution, growth, and equality. And they're looking for creative ways to support growth. They're also doing research with the OECD and the G20 on tax policies to promote better tax collection within developing countries. So they are genuinely constructive. So they fit within the 150 account and they will reduce some of the instability that can lead to military crises. Also by making China and hopefully Russia a little bit feel more comfortable working through the IMF then on their own, that too is a global security issue that benefits from this money. On your opt-outs, I would just say that it's very curious that the Chiang Mai Initiative, which is an East Asia, Southeast Asian agreement to support each other in financial crises and not have to go to the IMF, the first thing they do is have to get an assessment and the IMF has to agree to their reform policy. So even this most sophisticated of the regional opt-outs depends on the IMF. So it's that the bilaterals, yes, they're secret and you want, you'd worry in a different, on a different level, but the sophisticated Chiang Mai Initiative is wedded to the IMF. So are we going to lose our veto? Absolutely not. Play. The chairs and chairs issue you covered basically correctly. So I'm not going to talk much about that. I wanted to actually just address a couple. First of all, I actually agree with a lot of what Desmond's analysis is. I come to a different conclusion obviously, but I agree with a lot of his analysis. One factual clarification is the 2009 agreement, which basically boosted the resources of the IMF, was not because of the Western European crisis. It was actually a lot because the global system was in trouble. And if you actually go and look at 2008, you will see in the month of November of 2008, which is right in the middle of the U.S. financial crisis, that there were lending programs that the IMF was doing to Georgia, Latvia, Ukraine, Iceland, Romania, Hungary, and maybe Bulgaria, though I can't remember all Bulgaria. I believe actually there was more money put out during the month of that, either that October or November than was done in the Asian financial crisis, and no one actually remembers that. And that was because there was a global financial crisis. It was hitting lots of different countries. We obviously were very focused on the United States for very obvious reasons, which means that having something like the IMF actually was very helpful with a lot of those countries. Did those programs work in every case? No. Ukraine is a very good example of where it did not. Latvia, by the way, is a case where it did. The issue you raised, Dan, about are there legitimate concerns about the IMF? Absolutely. And some of them, my former boss, John Taylor, raised in an op-ed recently saying, one, that he was not in favor of this quote increase at this point in time because of one of the points that Desmond raised, which is about the Exceptional Access Program seems to be ignored, which basically means that you can get any amount of money you want. And secondly, because he was concerned that the IMF was resurrecting the sovereign debt restructuring mechanism, which is kind of a very fancy way of saying a global bankruptcy procedure. My view on that is that's where Congress should be working with the administration. And they should be putting conditions down. And they should say the United States should basically be working with the IMF on using its voice and vote to prevent any type of recreation of the SDRM, if that's something that Congress and the administration believe is the right thing to do. They should basically say, let's have a report every year, plus try to put more teeth into the Exceptional Access type of program. By the way, we may be providing Exceptional Access to Ukraine. Is that the type of exception we want? Maybe it is. But then let's report on it. Let's be very transparent about how we're doing it. Because I agree, like the problem of doing Exceptional Access programs all the time is, one, obviously it makes a joke of the word exceptional, and two, it does potentially lead towards a moral hazard problem. Desmond raised a very good point about private sector involvement. How do you do that? It's going to be difficult because you're always trying to struggle with the idea of how do you catalyze more private investment to come in while at the same time whacking that same private investment. So that is something that has to be addressed, and I think the IMF will have to address that when they start working with the Ukrainians, which they're obviously already doing, as Scott mentioned, on day one of the interim government. In terms of cutting a deal, that's what Washington is about. Cut a deal. I mean, I don't know what the damn deal is. I know that there's a bunch of House Republicans who want something done on 501c4, which is an IRS issue. They actually seem like they have a point to me. Cut a deal on that. If it is something on a Keystone pipeline, cut a darn deal on that. Basically, should we be exporting natural gas and actually having a real approach that is comprehensive towards Ukraine? That is, there's sanctions involved. There's a $1 billion guarantee. There's IMF reform, which I agree with Desmond. It is not necessary for Ukraine, though I do believe that it isn't necessary for the United States not to look like we're leaderless on these issues. And maybe there should be export, there should be a relaxment of exports of energy. I don't know. It is a town. I was thinking, bring back robust missile defense in Eastern Europe might be a good trade, too. Maybe it is. I don't know. It is a town where deals are made all the time. And the administration, was it somewhat cynical to put IMF reform on to this bill? Maybe. But then again, they tried to put it on to the omnibus bill. They tried to put it on as a separate bill. You find vehicles. That's what you do. I promise you, if Russia had never invaded Ukraine, the administration would have used whatever the next bill was that was going through Congress, probably the Dockfix bill, talk about no relationship, to do something on IMF reform, because they think it's an important thing. I happen to agree with the administration on that issue. And I actually think that there are a variety of Republicans who agree. I just saw a letter that came out from the Bretton Woods Committee. That letter did not, it had a bunch of secretaries of Treasury, Republicans and Democrats, a bunch of U.S. trade representatives, Republicans and Democrats. Okay, there are a bunch of economic weenies. What do they care about them? It also had, by the way, some of the people that were in charge of the Defense Department under Ronald Reagan in terms of rollback of the Soviet Union. They had people who were in charge of basically invading Iraq and in Afghanistan after 911. These are national security hawks, as well as, by the way, people from the Democratic Party that are very important people on military and diplomacy. So I just think that there's, you know, there's a lot of people who support the IMF because they seen it in government that it is an important tool for the United States of America. Kate Desmond. Yeah, just let me take up two of the points. You know, the first one on what is the United States giving up by going into the steel. I think that they would be giving up a lot, as it's already been stated, that the United States does not have a veto over the lending decisions of the IMF out of the general resources. So to be transferring money out of the NAB to a permanent general resource fund of the IMF, the United States potentially loses a veto power over how some of the money could be distributed. The second point is countries looking for alternatives. I don't think that if you get IMF reform through, if you give all of these countries however much representation they have on the board, that is going to stop countries from wanting to look for alternate sources of funds. The real problem with IMF lending is the conditionality that is imposed and the results that one gets. So it's no accident that in the 1998 Asian crisis with those countries experiencing severe hardship with the IMF, intruding into all highly charged political issues that the IMF is extremely unpopular there. The same thing is going on in Europe right now. You can be sure that once Greece is out of its difficulties as one day it eventually will, there'll be no way politically that the Greeks can come back and seek the IMF in much the same way as the Argentines can't do it. So I don't think that it's the fact that the IMF isn't reformed and it isn't representative. The issue is the IMF imposes harsh conditionality. There might be good reasons for the IMF to do it. You don't want to just throw money down a rat hole, but so long as they're softer sources of funds people will go and seek those. Stan Fischer I think who used to be deputy manager director of the IMF put it rather well when he was at the IMF. He said countries come to the IMF with the same enthusiasm as patients go and see their oncologist. You know and I think that that is the sad truth. Okay I've got time for a couple questions. My friend Aaron here and then let's see I want to be diverse in terms of geographically in the audience here and so this gentleman in the last row. So Aaron and this gentleman here. Aaron here's a microphone. Thank you Dan. There was some talk about just to introduce yourself. Aaron ranked with a house financial services committee. There was some talk about the cost being about 300 million dollars but the CBO's score for the Senate bill showed that the rescission would be about 1.2 billion dollars. Can you talk about the difference there? My understanding is that in 2009 the CBO recommended it be scored on fair market value principles adjusting for market risk that both Democratic chairs of the House and Senate budget committees agreed with that the ranking members the Republican ranking members agreed and that OMB signed off as well. So why why is the administration now trying to change that and do it under president value scoring which yields a much lower score. Okay and we'll get this gentleman over here. Ian Talley Wall Street Journal. Firstly do you think that there are 40 votes that can join the 180 Democrats in the House. Secondly is a diversity of options always a good thing especially in the global financial architecture and so having the Chiang Mai initiative having the the ESM and there's a Latin America there's a CRA that the the BRICs are trying to put together and finally is it not possible to since there's a consensus on reforming or giving emerging markets larger shares is there not the potential to change the reform the quotas but not double them. Okay reform the quotas but not double them. I'm gonna call in my friend Bill Frenzel for a minute and just put it you may want to just think about this for a minute about this issue but the 40 votes I'll ask you to think about that and we'll come back to you but I want to put you just flag that for you. I want to I think this question that Aaron puts about the budget issue actually is very very important there's there's been some accounting issues there've been some accounting issues having to do with whether it was a supplemental or whether it's under a normal budget situation and then how those costs have been distributed I think actually I think are one of the critical points of actually getting this done. So can I let me ask could I ask Scott and Clay to take that one so Scott why don't you start first then I'll have Scott go second. Look I here's here's my answer on scoring questions I look I think you can go down a rabbit hole on these issues to me it's important to recognize underlined principles and as I said at the outset I actually dispute where the record stands on on existing scoring I actually think the precedent was politically imposed I don't think it was driven by technocrats in the earlier decision but the the underlying principle that is worth remembering is that you know the US financing relationship with the fund is in exchange of assets there's been nothing historically to demonstrate an underlying risk in that relationship and it's a political outcome that we we have to cough up three hundred and fifteen million and then find pay for us but I think that is a settled issue and that's you know that's that's my judgment on it. Okay Clay on that question on what the cost of this is. Yeah so look first of all it's a little difficult to figure out exactly what the CBO has done because they haven't really been very transparent about a lot of the numbers which I don't know if that's a good or bad thing I don't know a lot about CBO's practices I will say this. I've heard some things where they call folks from the outside so how much you think it costs. It's a very difficult calculation to make so I have a lot of and I have a lot of respect for the CBO I think what you've seen is if you look at every single quota increase in the past the scoring was zero if you look at the one in twenty two thousand nine it was five billion dollars and I think what they've done here is they've tried to figure out I mean if you asked the Treasury Department they would not agree to three hundred and fifteen million dollars they would say zero if you asked OMB I think they would come up with some tiny little number like ten million dollars or something like that and then it could be all the way up to one point two billion if you have some sort of a market risk type of calculation but it's very difficult to figure out how do you have market risk because the IMF has always been considered including in some legal precedents a preferred credit work. I actually think the three hundred and fifteen million dollars I have zero idea if that's correct I think what you have is that the CBO came up with a score it is obviously a part of that scoring is going to be lowered in some respect because really what you're doing is transferring it from one pot of money to another pot of money which is maybe slightly more risky pot so I could see basically scoring that and I could see that obviously there's there's scores based on one was an emergency funding appropriation and one is not but in the end the CBO I mean I get the feeling the CBO basically said this is what we got and so you know look we deal with the CBO sometimes Republicans hate what the CBO does some as Democrats hate what the CBO does but right now this appears to be the scoring that we have. Desmond if you want to comment on that I wanted you and Jimory to talk about this issue of diversity of alternates to the IMF and this issue of can you this this third up to the question from the gentleman from the Wall Street Journal about can you change around this this issue of quotas and votes I was hoping you were going to comment on those but if you want to comment briefly on this issue of the cost that's fine but I was hoping both of you would take those two questions yes sir if you would sir just the first point I wanted to make you know just in terms of potential cost to the United States taxpayer is the US Treasury runs the argument the whole time that relax there's no way that the taxpayer is going to be on the hook because the IMF has got preferred status the IMF has never lost money before I would say that that is really not that relevant to what is going on now because the IMF has never loaned on the scale to an individual country that it has before so if you look for instance at the amount of money that the IMF has loaned to Greece you're talking about the IMF having exposure of something like 30 percent of Greece's annual tax revenues so to think that the IMF might not lose money on that deal I think one's really got to be optimistic so what I'm saying is that the past president you know which makes you feel very comfortable the IMF's never going to lose money goes out of the window when the IMF is just lending as much money as it feels it needs to at that time and creates ready great exposure just on the question of diversity you know clearly that is important you know in the European context it wasn't clear you know and at the IMF board there's a lot of concern you know many people from the emerging markets are referring to the international monetary fund now as the European monetary fund you know because all that the IMF does is loan to European countries it's not clear you know what is the interest of the international community in supporting Europe to the extent that it did that this should have been done by the Europeans the putting in place of the European stability mechanism is actually I would say that is an appropriate step that the Europeans should be doing more of the heavy lifting for Europe than expecting the United States or the rest of the world you know when we run into problems in Texas or in California you know we don't go and ask the European Central Bank to be lending us money to bail them out just the last point I think that that really goes to the heart of what I was trying to say is that while one really does want to have reform of the the IMF board the governance the whole voting structure give more representation to the countries that have got power conceptually you can do it in two ways you know once you can increase the quotas give more to the ones who are underrepresented and less or alternatively you can reduce the size and you know have the ones that are overrepresented be the ones that really reduce the quotas but presumably politically once advanced so far in the stage that the two are very closely linked and if you did go the way that you should go you know begin from start let's ask yourself with everything that's gone into in Europe do we really need the IMF of the size you know because now they've got the wherewithal to take care of any of their problems why do you need the international fund to do it and I would say that the case for the international monetary fund is rather weak considering how they've messed up in the European crisis they didn't see the crisis coming they misdiagnosed the crisis you know by their own admission Europe is in any country where the IMF has been involved is in a state of total collapse that they haven't seen since the 1930s you know I don't think that that is a ringing endorsement you know for having a lot more money to throw around at these countries hey Joe Marie I'm gonna for the panel I'm gonna give you the last word and I'm gonna give 30 seconds to Congressman Frenzel to comment on this issue are we gonna get 40 votes in the House on the Republican side so Joe Marie thank you again and it's amazing how much I think like Desmond again coming to somewhat different conclusions on the on the diversity of alternate sources of funding I think that's just human nature you always go to the person who will give you the fewest conditions and if that works out great I think issues of secrecy are a problem both domestically in the the borrowing countries I think can be a serious problem in that way and how do you hold a single donor accountable if they impose unreasonable conditions or want a military base or some other condition that is totally unacceptable I think that's probably the reality we live with right now especially when there are several countries that have very large surpluses especially China Germany has a large surplus as does Japan but they don't seem to be doing the international outreach as much in terms of disaggregating the reform package I think it's all but impossible that you've had legislative bodies around the world already take action on it the United States 19 of the G20s have approved this this arrangement exactly and the United States led the combined package and now for us to say wait, wait, wait, wait we have to take it apart it's just politically not feasible in regard to the conditions that go with IMF funding that has been my theme song for a generation I started on this when I was pregnant with my 24 year old so I know about that and I agree with Desmond very much that the fact what I have been told is that if you have more assets you don't have to be as strict in the conditions hasn't been tested to my knowledge but that's why I fight for increased assets for the IMF to make them less severe in their conditions also there is some learning going on at the IMF they have been just focused on country by country macroeconomic policies they're starting to look at spillovers so with that I will stop and be polite okay congressman Frenzel last word here's a microphone for you right thank you question about getting votes and not getting 40 republican votes in the house on the three key votes that I mentioned before the 40 roughly republicans were always headed by the speaker the majority leader and sort of their inside pals and what you might call the governance caucus of the house republicans there's of course the tea party caucus at one end and the governance caucus at the other end there's enough votes in that caucus to provide with the democrats a majority but until speaker Boehner and his principal assistants are convinced that there is a link between IMF a quota reform and the assistance bill I think it will be very difficult thank you all and please join me in thanking the panel