U.S. Treasury Responds to CEPR's Cost Estimate for IMF Funding; CEPR Responds

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."

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.