U.S. President Barack Obama has racked up a series of foreign-policy triumphs over the last 12 months. But one that has gained less attention than others was the passage last December of legislation to reform the International Monetary Fund, after five years of obstruction by the U.S. Congress. As the IMF convenes in Washington, D.C., for its annual spring meetings from April 15-17, we should pause to savor the importance of this achievement. After all, if the United States had let yet another year go by without ratifying the IMF quota reform, it would have essentially handed over the keys of global economic leadership to China.
The IMF reform was crucial. The allocation of monetary contributions and voting power among member countries had to be updated to reflect the shifts in global economic power in recent decades. Specifically, emerging-market economies like Brazil, China, and India gained a larger role, primarily at the expense of European and Persian Gulf countries.
Obama managed to persuade the leaders of the other G-20 countries to agree to the reform at a 2010 summit in Seoul. The deal’s subsequent approval should have been a no-brainer for Congress, as it neither increased America’s financial obligations nor took away its voting dominance. More importantly, the reform represented a golden opportunity for the U.S. to demonstrate global leadership, by recognizing that the existing international order must accommodate changing economic-power dynamics.
Instead, Congress attempted to block IMF reform, effectively denying China its rightful place at the table of global governance. “Moving the goal posts” could succeed only in driving the Chinese to establish their own institutions. In this sense, Congressional intransigence may have undermined America’s position in its competition with China for global power and influence.
To most Asians, the U.S. is a more attractive regional hegemon than China, which has been aggressively pursuing territorial claims in the East and South China Seas. But recent U.S. behavior has caused some Asian countries to begin to question America’s commitment to supporting regional security and prosperity.
Against this background, many countries, both inside and outside Asia, were happy to join the China-led Asian Infrastructure Investment Bank, which promised to meet some of the region’s financing needs. The AIIB’s establishment in December was widely viewed as a severe diplomatic setback for the U.S.
Fortunately, thanks to Obama’s recent string of successes in terms of global engagement, the U.S. now has a chance to get back into the game. Last April, his administration oversaw a breakthrough agreement with Iran over its nuclear program. Moreover, in October, Congress was persuaded to give it Trade Promotion Authority, enabling the completion of the 12-country Trans-Pacific Partnership. More recently, the U.S. has reestablished diplomatic relations with Cuba, ending a 55-year policy of isolation that succeeded only in giving Cuba’s leaders an excuse for economic failure and handicapping America’s relationships throughout Latin America.
Finally, representatives of the 195 parties to the U.N. Framework Convention on Climate Change reached an agreement in Paris last December to reduce greenhouse-gas emissions, spurred in no small part by earlier action by Obama and Chinese President Xi Jinping. The two leaders are scheduled to sign the Paris agreement on April 22 on behalf of their respective countries, the world’s two largest emitters of greenhouse gases. Add to that the ratification, at long last, of IMF reform, and the U.S. does seem to be on a global winning streak.
None of these five achievements could have been predicted a year ago. With the Republicans having taken full control of Congress in November 2014, the overwhelming conventional wisdom was that the administration would be blocked from accomplishing much in its final two years.
Making matters worse, internationalism attracts opposition from the far left as well as the far right. Though trade is the most obvious example, it is not the only one. Beyond opposing the TPP, U.S. presidential candidate Bernie Sanders has historically joined with congressional Republicans in trying to block efforts to rescue emerging-market countries in Latin America and Asia during times of financial crisis. These rescues are invariably called “bailouts,” even when they cost the U.S. nothing – the U.S. Treasury actually made a profit on the 1995 loan to Mexico that Sanders opposed – and help sustain economic growth. Similarly, New York Senator Chuck Schumer joined the Republicans in trying to block the Iran nuclear agreement.
Obama’s recent international successes are not unassailable. Although the IMF deal is done, Obama’s other key initiatives could still be derailed by U.S. politics, especially if the political extremes unite. Congress could reject the TPP, in effect telling Asia it is on its own. It could undermine the emerging relationship with Cuba; after all, it has yet to repeal the embargo. As for the Paris agreement, a federal appeals court will first hear a challenge to the administration’s implementation strategy, the Clean Power Plan, on June 2.
The Republican presidential campaign adds another element of uncertainty. The two leading candidates for the party’s nomination, Donald Trump and Ted Cruz, both say that they would tear up the Iran nuclear deal, if elected. It is worth recalling the outcome of President George W. Bush’s analogous decision to tear up Bill Clinton’s “framework agreement” with North Korea: the Kim regime promptly and predictably developed a nuclear bomb.
Whether the U.S. will continue to lead the world remains unclear. What is clear is that U.S. politics, not global developments, will be the main determinant.
By Jeffrey Frankel
Jeffrey Frankel is Professor of Capital Formation and Growth at Harvard University. –Ed.