The United States needs to have a greater leadership role in the International Monetary Fund (IMF) and other international financial institutions to support impoverished countries and limit China’s influence, according to Treasury Secretary Janet Yellen.
Yellen appeared before the House Financial Services Committee, defending a proposal to bolster the government’s participation in the IMF’s New Arrangements to Borrow program to ensure financial support for the organization’s resources. Yellen also requested authorization to extend financing to the IMF’s two critical trust funds—the Poverty Reduction and Growth Trust and the Resilience and Sustainability Trust—and bolster U.S. involvement in the African Development Fund and the International Development Bank.
“These actions will help the IMF address economic crises, with a particular emphasis on supporting vulnerable developing countries amid heightened risks,” she said in her prepared testimony. “These investments will bolster our engagement in these regions at a time of geopolitical competition.”
The former head of the Federal Reserve noted that the United States “is not a passive shareholder” and regularly shapes “the priorities of these institutions.” She added that lending to international financial entities can function “as an important counterweight to nontransparent, unsustainable lending from China.”
China’s Role in International Finance
In recent years, as part of its Belt and Road Initiative (BRI), Beijing has served as a substantial lender to many poor countries, such as Ghana and Sri Lanka. But a chorus of U.S. officials, including the Treasury secretary, have expressed growing concern about how China engages with impecunious countries, eventually leaving them trapped in significant levels of debt without achieving the broader aim of economic development.Experts say that the Chinese government has initiated restructuring discussions with its borrowers, but Rep. French Hill (R-Ark.), vice chair of the House Financial Services Committee, said that China keeps dragging out these talks.
“The IMF has completely failed to bring China into compliance with international norms. The Fund must get serious about standing up to the Chinese government if it takes its mission seriously,” he said. “If the Fund keeps letting Beijing drag out restructuring talks with its borrowers, there won’t be much of a case for additional IMF resources at the end of this year.”
Yellen acknowledged the current administration’s concern about more indebted countries seeking debt relief to restore economic growth, many of which will ask for assistance from the IMF and obtain help to install structural reforms.
But Rep. Blaine Luetkemeyer (R-Mo.) said that if the government is loaning additional funds to “phony foreign financial institutions,” the United States needs to exert “more control over them” to prevent China from either accessing the money or undermining these groups.
“We need to be exerting our authority to be able to ... put China back in his place,” he told Yellen.
“To counter the BRI, the United States needs an alternative positive narrative that says more than ‘Don’t work with China.’ Hoping that BRI fails is not a strategy. We need a higher quality infrastructure and energy alternative to the BRI over the next 20 years,” Daniel Runde, senior vice president at the Center for Strategic and International Studies, testified at the hearing.
Another mechanism the United States and its partners can employ is demanding that China provide debt relief to overburdened borrowing nations, according to Mark Rosen, former acting U.S. executive director of the IMF.
Remarks on the Debt Ceiling
Yellen informed lawmakers that she is “relieved” that Congress addressed the debt ceiling to avert a default, adding that these types of negotiations “cannot be normalized.”“But while we were able to avoid default, the United States once again came dangerously close to the line,” Yellen said in her statement. “This cannot be normalized as the way we do business in Washington. Waiting until the last minute hurts our global leadership and credibility on the world stage. We are a nation that keeps our word and pays our bills. We should never give anyone any reason to think otherwise.”
Hill told Yellen that this issue could have been managed last year in the previous Congress by then-House Speaker Nancy Pelosi (D-Calif.).
Moreover, he stated that there was frustration surrounding “the lack of transparency” of when the Treasury anticipated the debt ceiling to be breached, also known as the X-date.
Rep. Patrick McHenry (R-N.C.) penned a letter to Yellen requesting all the information pertaining to projections and calculations.
“The response was lacking, to put it mildly. Congress as a whole did not hear from you again until May 1,” Hill said.
Following the passage of the Limit, Save, Grow Act, Yellen presented two different X dates—June 1 and June 5—with “zero explanation, zero transparency.”
President Joe Biden signed the Fiscal Responsibility Act into law on June 3, suspending the debt limit until January 2025.
