Monday, October 21, 2024

Global finance world ‘nervous as heck’ on eve of US election

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Oct 21, 2024 View in browser
 
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By Adam Behsudi, Victoria Guida and Sam Sutton

Presented by Structured Finance Association

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QUICK FIX

The timing for this year’s International Monetary Fund and World Bank annual meetings couldn’t be more precarious.

Just a few weeks from now, the United States, the largest shareholder in both institutions, could see a major political shift. A return of former President Donald Trump to the White House could throw into question broader U.S. engagement with the world, its sizable contribution to global development, and efforts by both institutions to meet new challenges like climate change amid increasing geoeconomic fragmentation.

“People are going to be wringing their hands: What does this U.S. election mean for the future of multilateralism, interdependence, the U.S. role in the world?” said Mark Sobel , U.S. chair at the Official Monetary and Financial Institutions Forum and a former U.S. representative to the IMF.

“Those are huge questions that are going to be discussed behind the scenes and I think people are nervous as heck,” he said of global finance officials who are gathering in Washington this week.

In December, the Biden administration will make a pledge to replenish funding for the International Development Association, an arm of the World Bank that provides financing to the poorest countries. That’s among a number of international development, health and climate funds that are seeking $100 billion over the next year. It will be up to a new U.S. administration and Congress to make good on those promises as groups like the Center for Global Development have called out a “traffic jam” in fundraising.

Officials aren’t acknowledging that it’s a problem, yet.

“We don’t spend any time at the World Bank discussing the outcome of the U.S. election,” World Bank President Ajay Banga said during a press conference Thursday. He was quick to point out that another major lending arm of the bank actually got a substantive capital increase during the first Trump administration.

Geoffrey Okamoto, who served in Trump’s Treasury and then as No. 2 at the IMF (he’s now at Goldman Sachs), made a similar point.

“The Trump administration was useful in augmenting resources in exchange for proper reforms, so while that’s difficult for the institutions to have to negotiate with and work through … I would be careful not to characterize that in a negative way,” he said. “Some of these reforms are absolutely necessary.”

Beyond short-term funding needs, the election may put the relationship between the U.S. and the international institutions at a more existential junction. Project 2025, a conservative policy template that Trump has distanced himself from, has advocated the U.S. pulling out of both institutions.

That scenario may be unlikely. Biden officials have defended U.S. involvement and have been making the point that both institutions play a key role in addressing negative “spillovers” from China’s economic policies. One senior Treasury official this month even called on the IMF to do more to scrutinize China’s lending and exchange rate policies.

“In a Trump presidency, the scrutiny will be all around how China is benefiting and participating,” said Matt Swinehart, who served in the Treasury Department under the administrations of Presidents Barack Obama , Trump and Joe Biden. That fight could come to a head next year when the IMF is expected to begin work on realigning its shareholder quota. Beijing may push for a larger slice, giving it more voting power to reflect the increased size of its economy.

“I don’t think there will be this wholesale retrenchment from the institutions,” Swinehart added. “Most people who would be considered for these positions [in a Trump administration] realize it’s pointless just to walk away or not to engage meaningfully.”

Okamoto said any administration will assess which of its options are best to use in a given situation. The U.S. has a significant foreign assistance budget that allows it to provide bilateral support in many circumstances. But he also pointed to the Trump administration’s use of the IMF as a multilateral tool to provide economic support to Jordan, a key geopolitical ally for the U.S.

“What is the agenda you want to execute, and what tools do you have to do it?” he said. “In the last administration, there was substantial interest in how the IMF can be used to advance U.S. priorities.”

But regardless of who wins, the U.S. drift toward protectionism and industrial policy puts the founding and arguably most important member at odds with both institutions’ efforts to encourage global integration.

 

A message from Structured Finance Association:

BASEL III CAPITAL REQUIREMENTS: The BASEL III Endgame proposal touches nearly all aspects of banking in America. The Structured Finance Association opposes a provision in B3E that would arbitrarily and excessively punish institutions simply for turning illiquid loans into liquid securities. Existing capital standards already incorporate post-crisis reforms and add a surcharge for securitization. Under the Basel III proposal, millions of people and businesses could lose access to low-cost credit because the cost of securitization would rise. Learn more at www.structuredfinance.org.

 

While Kamala Harris may not eschew the multilateral order as much as Trump, both candidates’ politics are catering to a Rust Belt slice of the electorate that is increasingly turning inward. That’s setting both sides of the political aisle toward a more confrontational relationship with China while making costly campaign promises that risk a further ballooning of the U.S. budget deficit, which the IMF has warned could have global implications.

U.S. political navel-gazing is occurring as war continues to rage in the Middle East and Ukraine while much of the world grapples with low economic growth and dangerous levels of debt. The balance of power in both the White House and Congress will be consequential for finance officials gathered in Washington.

“The U.S. really is a huge financier for a lot of these organizations,” said Clemence Landers , a senior fellow at the Center for Global Development and former Treasury official. “The outcome of the election obviously has really big implications on how big of a financier it continues to be.”

IT’S MONDAY — If you’re in town for the IMF/World Bank meetings, say hi! You can find us at abehsudi@politico.com and vguida@politico.com.

And as always, find Sam at ssutton@politico.com.

Driving the Week

Monday… SEC Chair Gary Gensler, Commodity Futures Trading Commission Chair Rostin Behnam and BlackRock Chair Larry Fink will speak at SIFMA’s annual meeting … The International Monetary Fund and the World Bank Group kick off their fall meetings with a town hall from IMF Managing Director Kristalina Georgieva at 10 a.m. … The Peterson Institute for International Economics kicks off its Macro Week programming with a speech from Saudi Arabia's Minister of Finance Mohammed Al-Jadaan at 5:15 p.m.

Tuesday … The IMF and World Bank will hold press briefings on the organizations’ outlooks for the global economy, financial stability and the G-24 starting at 9 a.m. … The Georgetown University Law Center's Institute of International Economic Law’s Fintech Week conference begins at 9 a.m. with remarks from Acting Comptroller of the Currency Michael Hsu, followed by Rep. French Hill (R-Ark.) and FDIC Vice Chair Travis Hill … Consumer Financial Protection Bureau Director Rohit Chopra will speak at the eighth annual Philadelphia Fed Fintech Conference at 10:20 a.m. …

Wednesday … The Center for Global Development holds a discussion on "Bretton Woods at 80: Priorities for the Next Decade” at 9 a.m. … Fed Gov. Michelle Bowman speaks at the Philadelphia Fed’s Fintech Conference at 9 a.m. … Rep. Ro Khanna (D-Calif.), Behnam, New York Department of Financial Services Superintendent Adrienne Harris , and Chopra are scheduled to speak on day two of Georgetown’s Fintech Week conference … The IMF and World Bank will hold a fiscal monitor press briefing at 9 a.m. … European Central Bank President Christine Lagarde will speak at an Atlantic Council event at 10 a.m. … The Fed’s beige book is out at 2 p.m. …

Thursday … Georgieva holds a press conference at 8 a.m. … The Association of Certified Sanctions Specialists kicks off its sixth annual conference at 8:40 a.m. with remarks from David Hanke, the staff director of the House Select Committee on China … Bank of England Governor Andrew Bailey and the CFTC’s Behnam will speak at the inaugural Michael D. Gill Lecture on International Financial Regulatory Understanding and Cooperation at 3:30 p.m. …

Friday … The IMF/World Bank will hold a series of press briefings on Africa, the Western Hemisphere and monetary and financial policy starting at 8 a.m. … The University of Michigan’s Consumer Sentiment Index is out at 10 a.m. …

An AI deal in the works — Congressional leaders in the House and Senate are privately negotiating a deal to address increasing concerns about artificial intelligence, and they’re hoping to move a bill in the lame-duck period, two people close to the negotiations tell our Ursula Perano.

Next steps for Ukraine — The U.S. is willing to contribute up to $20 billion to a G7 loan to Ukraine that will be repaid with profits generated by Russia’s frozen assets, the FT reports, citing three people familiar with the matter.

Who might be the next Treasury secretary — Any Treasury secretary pick by Harris would be an early signal of the extent to which she’ll pursue support from corporate America or seek to placate the progressive wing of her party — one deeply skeptical of big business. Trump’s pick for Treasury secretary would be advancing an agenda that shapes an issue central to his legacy.

Read the analysis from POLITICO staff on who might serve in the role (and other Cabinet positions) in a Harris administration or a Trump administration.

 

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The Economy

The American Dream has been repriced — It’s gotten more expensive to buy a home or a car, go to college or care for children – and it appears to be creating an economic fault line in U.S. politics.

Fighting for Black voters — Harris and Trump are battling over which administration provided better economic conditions for Black Americans, the NYT reports. The answer is not so simple.

Hassett’s take — Trump’s former chief economist and potential future Federal Reserve chair, Kevin Hassett, defended the central bank’s decision to pursue a larger rate cut last month in an interview with the FT.

Regulatory Corner

—A financial technology trade association is suing the CFPB over its rule that would impose some of the consumer protections that apply to conventional credit cards — including the right to dispute charges and to demand a refund from the lender — to Buy Now, Pay Later products, our Katy O’Donnell reports.

ODDS AND ENDS

—ICYMI: Former Vice President Mike Pence argues that Nippon Steel’s proposed purchase of U.S. Steel is necessary to prevent the world from becoming more reliant on cheap Chinese steel.

 

A message from Structured Finance Association:

New proposed capital rules under Basel III Endgame could raise costs on everything from personal mortgages to business credit. These changes would arbitrarily double the capital that banks must reserve for securitized loans, making it harder for banks and others to offer low-cost credit to consumers and businesses. These proposed rules on securitization capital requirements would be significantly more restrictive than even the stringent European Union regulations. Learn how these changes could affect your access to credit at www.structuredfinance.org.

 
 

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