The IMF bailout, or, how to argue that 108 billion equals zero

While Congress debates a financial overhaul bill that is supposedly going to put an end to the bailout culture, let’s remember the one-year anniversary of the $108 billion IMF bailout:

Congressional leaders agreed Tuesday to calculate the cost of a new U.S. contribution to the International Monetary Fund in a relatively inexpensive way, paving the way for possible Congressional approval within weeks.

The Obama administration has pledged a $108 billion contribution to the IMF, as part of a $500 billion global boost to IMF resources. The White House has argued that this is a necessary contribution to global financial stability and would send a signal that there is enough money to help prevent struggling countries from becoming further enmeshed in economic crises. Congressional approval would put pressure on European nations, China, Brazil and others to increase their lending to the IMF.

The bailout didn’t pass until later in the year, but one year ago Congress made the key decision to keep the bailout off-budget:

But the U.S. contribution became entangled in arcane — though politically important — budget math. The White House had argued that the action shouldn’t be characterized as a $108 billion expenditure, which would make it difficult to sell at a time when Congress has recently passed a series of multibillion-dollar spending bills.

The U.S. wouldn’t provide a lump sum, but would essentially make a line of credit available to the IMF, which the fund could draw on when it needed to make loans to other countries. In theory, the U.S. would hope to get the money back. So the White House argued that the budgetary impact should be calculated at zero.

That’s right, the Democrats decided that the IMF bailout didn’t cost anything because we were supposed to get all the money back. (And these people want to regulate risk on Wall Street?!)

Good grief. The IMF is sending $40 billion to Greece. (Our share is about $6.8 billion.) Whatever you think of the chances of Greece righting their ship, you have to imagine there’s at least a decent chance that the IMF is never going to see that money again. Our risk is not zero. Not even close.

POSTSCRIPT: One might have thought that a $108 billion off-budget bailout of foreign countries would have been a tough bill to pass, but the Democrats thought of that. They voted to attach the bailout to the troop funding bill.

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