The Cable

Harry Reid Drops IMF Reform from Ukraine Bill

In the face of staunch Republican opposition in the House of Representatives, Senate Majority Leader Harry Reid dropped a provision to reform the International Monetary Fund as part of an urgent rescue package to Ukraine's cash-strapped government.

Dropping the contentious IMF language clears the way for swift passage of legislation giving Kiev $1 billion in loan guarantees and hundreds of millions of dollars in assistance for election monitoring, civil society and security. Beyond the money itself, lawmakers believe the aid influx would provide a morale boost of sorts for Ukraine's beleaguered new leaders in the wake of Russia's conquest and annexation of Crimea.

Reid's decision to strip the IMF language out of the aid package comes just a day after the White House renewed its push for the reforms. Speaking to reporters Tuesday, the Senate leader said the bill would simply have not made it through Congress with the IMF provisions intact.

"As much as I think a majority of the Senate would liked to have gotten that done with IMF in it, I think it was headed to nowhere in the House," Reid said.

The provisions, a longtime goal of the Obama administration, would have sharply increased the lending capacity of the IMF. The U.S. is currently the only major industrialized nation that hasn't approved a 2010 package of reforms that would expand the power of developing countries within the IMF and shift money from its emergency to general account so it can provide more cash to struggling economies.

The White House had for weeks insisted that helping Ukraine and reforming the IMF were part and parcel of each other. "It's only through the IMF, a reformed IMF, that Ukraine is going to get the help it needs to stand on its own two feet," Secretary of State John Kerry said earlier this month.

Many House Republicans, though, opposed the changes because of fears they would undermine Washington's influence within the IMF. Other GOP lawmakers opposed the administration's plan to pay for the reforms by taking money out of Pentagon programs aimed at missile and aircraft procurement.

Until now, the Senate and House have been at loggerheads over the reforms. On Monday, the Senate bill including the IMF language passed a procedural vote by an overwhelming 78-17. On Tuesday, however, the House of Representatives passed its own Ukraine aid bill that did not include IMF reform language.

Speaking with reporters, Reid said he wanted to include IMF reform into the bill, but was stripping it from the legislation at the request of the Obama administration. "As John Kerry said yesterday, he wants both of them. But the main thing is to get the aid now. So I'm following John Kerry's lead," Reid said.

Getty Images

The Cable

House Democrats Criticize White House for Slowing Down Ukraine Rescue Package

Three weeks after Secretary of State John Kerry promised a $1 billion loan guarantee to the cash-strapped government of Ukraine, Kiev remains empty-handed. The reason for the delay is a dispute on Capitol Hill over reforms to the International Monetary Fund. The White House insists any aid package to Ukraine include the long-desired IMF reforms, but Republicans oppose those changes. Now, a growing cohort of Democrats say the White House needs to drop the issue so an urgent aid package for Ukraine can make it through a divided Congress.

"IMF reform is important, but I think right now getting a clear message to the Russians and an indication of support to Ukraine is crucial and should be done immediately," Rep. Brad Schneider (D-Ill.) said in an interview.

"This was just a misread [by the administration]," added Rep. Brad Sherman (D-Calif.), a member of the House Foreign Affairs Committee.

The White House says the two issues are inseparable and that passing the IMF reforms will help Ukraine in the long run. If enacted, the provisions would increase the lending capacity of the IMF. The U.S. is currently the only major industrialized nation that hasn't approved a 2010 package of IMF reforms that expands the power of developing countries within the organization and shifts money from its emergency to general account so it can provide more cash to struggling economies. "Securing passage of IMF legislation now to preserve our leading influential voice in an institution that promotes our national security and economic goals is critical to helping Ukraine," said White House spokeswoman Laura Lucas Magnuson.

Many Republicans oppose the changes because of fears they will undermine Washington's influence in the international organization. Others oppose the administration's plan to pay for the reforms by taking money out of Pentagon programs aimed at missile and aircraft procurement.  Democrats in the House are mostly upset that a crisis is raging in Ukraine and Congress is stuck arguing about the IMF.

"It makes us look silly and weak," Rep. Eliot Engel of New York, the most senior Democrat on the House Foreign Affairs Committee, said in an interview. "If there's one thing Ukraine needs, it's aid, it's help ... I'm for these reforms happening but I'm even more for immediate loan guarantees and aid to Ukraine."

As it stands, the House and Senate are on a collision course over the issue. On Monday night, the Senate held a procedural vote on a Ukraine bill that contains the controversial reform language, and passed it overwhelmingly. Meanwhile, the House Foreign Affairs Committee is set to markup a separate Ukraine bill on Tuesday that does not contain the IMF reform language. It's unclear which chamber will ultimately win out.

In mid-March, the Senate Foreign Relations Committee approved the IMF language in a 14-3 vote that suggested bipartisan support for the measure. Congressional Democrats, though, say that it had long been clear that the House's GOP leadership strongly opposed the provision and would be willing to hold up the entire aid package over it.

"I spoke to Eric Cantor directly, face-to-face ... and he was adamant that they would not include it in any kind of package to Ukraine," Engel said.

Sherman said that it was a mistake to "just assume that because you've won over John McCain that you've got the Republican House caucus."

"Democrats sometimes have a hard time realizing how Republicans think," he said. "It's an unusual theology, but one that I have studied out of necessity."

For his part, House Speaker John Boehner has been fairly outspoken about his opposition to the reforms. "Let's make sure we all understand something: The IMF money has nothing to do with Ukraine," he told reporters on March 13. A leadership aide tells Foreign Policy that House Republicans have no plans of conceding on the issue at the moment.

In hearings before Congress, the administration has tried to make the argument that the measure is part and parcel of any Ukraine package. "It's only through the IMF, a reformed IMF, that Ukraine is going to get the help it needs to stand on its own two feet," Kerry told lawmakers in mid-March. But even Democrats acknowledge that passing a clean loan guarantee bill would help the debtor country.

Last month, Ukraine's acting President Oleksander Turchinov warned that Ukraine was close to default, and requested $35 billion in international assistance in the next two years. "I know the administration feels very strongly, because I've spoken with them, that if these reforms don't get done now, there are going to be penalties for the United States at the IMF," Engel said. "But I don't think having this dragged on is an option."

Getty Images