A key prong of United States work with the International Monetary Fund (IMF) was thrown into doubt last week when the Senate did not give permission in its draft appropriations bill for the Treasury Department to direct its share of the IMF’s emergency financial backing to developing countries.
This snag, several observers said, is the latest signal that the Biden administration’s work with multilateral partners on international development has been disorganized and lower-priority, amid hardening bilateral relations with China and a turbulent domestic fight over the Democratic Party platform.
The Senate’s omission has inflamed existing frustrations at development institutions over the fact that the key U.S. official charged with handling IMF and World Bank relationships has not yet been nominated.
The Treasury undersecretary for international affairs is a pivotal post for strategy on issues like green financing, and one of the most powerful roles at the Treasury, previously held by Tim Geithner, Larry Summers, and Paul Volcker. The undersecretary coordinates U.S. leadership at the G7, G20, and the Financial Stability Board, as well as the World Bank and IMF. Fed Governor Lael Brainard held the job during Obama’s management of the 2008 financial crisis and the subsequent eurozone crises.
But President Biden has yet to even nominate someone for the position, leaving vacant the role equipped to both smooth over the fight with the Senate and lend credibility to international financing pledges at the United Nations’ global climate change conference in Glasgow, COP26.
The issue in Congress involves Special Drawing Rights (SDRs), an international reserve asset issued by the IMF that can be exchanged for major currencies including U.S. dollars, euros, and yen. Countries can use SDRs to cover debt service or imports, and help address balance-of-payment risks stemming from economic distress. But they flow heavily to high- and middle-income countries, which have less use for them. So the G7 pledged during the pandemic to redirect much of their own share toward poorer countries.
The Treasury undersecretary for international affairs is a pivotal post for strategy on issues like green financing.
Treasury Secretary Janet Yellen has made SDR reallocation part of a larger push for a Resilience and Sustainability Trust to provide liquidity to developing countries. The trust would help countries to weather climate shocks without major increases in their debt burdens, and provide more financing for adaptation, according to a Boston University policy brief on the proposal.
In the coming weeks, Yellen is expected to lobby the Senate for permission to channel U.S. SDRs toward developing countries, according to Scott Morris, an expert at the Center for Global Development, a Washington-based think tank. Unlike the Senate, the House granted that permission in its draft bill.
The authorization could also be punted to the Senate Foreign Relations Committee, chaired by Bob Menendez (D-NJ) and James Risch (R-ID). The senators have each expressed concerns over SDRs benefitting U.S. rivals or illegitimate regimes.
“The U.S. really led on this initiative. So it’s certainly embarrassing, then, not to participate alongside other countries on the timeline that they envisioned,” Morris said.
Asked what the agency will do absent reauthorization, Treasury spokesperson Alexandra LaManna declined to comment.
Ted Truman, who has held posts at the Treasury including assistant secretary for international affairs, said some legislators are concerned that the SDR issuance was originally proposed as a pandemic relief effort, and the mandate of the resiliency fund has since been broadened to include climate spending.
“Even some of the supporters in the House are a little uneasy about that. They were promised one thing, and there’s bait and switch going on,” Truman said.
Yellen is now headed to Italy for G20 meetings, before she travels on to Scotland for COP26. The secretary has been focused on ambitious reforms to international corporate taxation, and at COP26 she will lack an undersecretary for international affairs to coordinate the U.S. approach to financing low-carbon growth, one of the main priorities of the conference.
In addition to the missing undersecretary, nominees for assistant secretary for international markets and deputy undersecretary for international finance and development—two other positions that could help coordinate on international finance—have also not been confirmed.
At COP26, Secretary Yellen will lack an undersecretary to coordinate the U.S. approach to financing low-carbon growth, one of the main priorities of the conference.
Yellen will instead travel to Glasgow with Andy Baukol, who remains the interim undersecretary. She is also counseled by David Lipton, the former second in charge at the IMF, and John Morton, a former Obama administration adviser who now leads a newly formed “climate hub” at the Treasury. Those roles did not require Senate confirmation, however, which lends crucial credibility to U.S. negotiators whose pledges are viewed as fickle, especially since Congress has declined to ratify past global treaties on climate.
“Confirmation is particularly important in international roles because it allows you to speak definitively on behalf of the United States government. A non-Senate-confirmed person cannot be the official spokesperson for the government in a role that requires Senate confirmation,” said Aaron Klein, who was previously the Treasury’s deputy assistant secretary for economic policy.
Republican Sens. Pat Toomey and Ted Cruz are partly to blame for the delay in confirming Treasury officials. They are holding confirmations hostage over demands that the White House revoke its approval for the Nord Stream 2 pipeline, a controversial plan to run gas from Russia to Germany. Republicans fear the project—where tempers are running hot amid Europe’s energy crunch—would embolden Russian president Vladimir Putin.
Having now failed to stop Nord Stream, economic historian Adam Tooze wrote, “the Republican hawks are sanctioning the US Treasury instead.”
Republican holdouts on Senate confirmation are only part of the problem, since the undersecretary has not even been nominated. There’s also the question of how much of the new leadership team will be drawn from Wall Street.
Deputy Treasury Secretary Wally Adeyemo is a veteran of BlackRock, the global asset manager that has led the business push ahead of COP26 to “de-risk” investment in developing markets with government subsidies. In her comments to the World Bank and IMF earlier this month, Yellen stressed the role of private capital in green development.
Heidi Crebo-Rediker, a banker who cut her teeth at Bear Stearns and Lehman Brothers, was floated but not ultimately picked for the undersecretary job.
The Treasury’s work on international financing for climate may look shambolic, but some of the blame lies not with the administration but with tepid popular and congressional support for multilateral initiatives.
Yellen and Adeyemo are “certainly solid supporters of multilateral institutions,” Truman said. “U.S. public opinion is less supportive of internationalism.”