June 15, 2009
U.S. Treasury Responds to CEPR's Cost Estimate for IMF Funding; CEPR Responds
For Immediate Release: June 15, 2009
Contact: Dan Beeton, 202-239-1460
Washington, D.C.- According to the Office of the Majority Leader in the House of Representatives, on Thursday the U.S. Treasury Department, which seeks to persuade the U.S. Congress to approve a $108 billion line of credit for the International Monetary Fund (IMF), released talking points on the subject entitled "Talking Points on IMF Funding Request." (PDF)
Treasury's second talking point had the following under "Myth":
"Taxpayers, of course, will have to pay interest on the borrowed funds made available to the IMF. And while proponents of the funding contend that we will also receive interest returns from the IMF, we must analyze whether the interest will exceed the finance charges on the money the U.S. has borrowed. According to a report from the Center for Economic and Policy research the U.S. will likely borrow at a higher interest rate than IMF would pay the American taxpayer in return, resulting in a net cost to taxpayers."
Followed by this "Fact":
"The interest earned and the change in value of the assets we receive when the United States makes IMF contributions has historically exceeded the cost of borrowing the money. During the period FY2000 - FY2008, the cumulative net interest income effect (of US participation in the General and Special Drawing Rights (SDR) Departments) and change in the value of our assets was $2.79 billion."
This is very misleading. Treasury does not tell us why the U.S. assets increased in value, but it is because the dollar declined in value against other currencies during this period. When the dollar falls against the IMF's currency (the Special Drawing Rights or SDR's), the value of US assets at the fund increases.
Is Treasury saying that the dollar is going to decline again in the coming years? If so, it should make this claim explicit.
Bottom line: the cost of the $108 billion that Treasury wants for the IMF is far greater than the $5 billion figure that was scored by the Congressional Budget Office. It is widely believed that the CBO figure was agreed to as part of a political bargaining process, with the Administration pushing for a zero cost, and the CBO wanting something considerably higher. The CBO has not published anywhere the methodology that it used to come up with an estimate of $5 billion. Our own estimate, published here, was between $16.6 and $26.3 billion; this was a conservative estimate that assumed that there was no risk of default.