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S. 2124 – Ukraine Support Act

March 24, 2014


Noteworthy

Background: S. 2124 was marked-up by the Senate Foreign Relations Committee on March 13, 2014, the same day final text was made available to the member offices of the committee. It was reported out of committee that day.

Floor Situation: At 5:30 p.m. on Monday March 24, the Senate will vote whether to invoke cloture on the motion to proceed to the bill.

Executive Summary: This bill is the Senate’s response to the Russian invasion of Ukraine, support for an illicit referendum supporting the secession of the Crimea region from Ukraine, and subsequent annexation of that region. This bill has two primary objectives: 1) to authorize security, financial, and technical support for Ukraine; and 2) to authorize sanctions on people involved with human rights abuses in Ukraine or acts undermining the sovereignty or territorial integrity of Ukraine. It also contains a provision unrelated to the situation, authorizing the reform of U.S. contributions to the International Monetary Fund. The bill is paid for by rescissions to certain monies appropriated in the fiscal year 2014 Department of State/Foreign Operations Act, along with rescissions to specific Department of Defense accounts.


House Action

On March 6, 2014, the House approved on suspension H.R. 4152, a bill authorizing loan guarantees for Ukraine, paid for from amounts appropriated to the Economic Support Fund in fiscal year 2014 and from unobligated balances from prior acts making appropriations to the Department of State. The vote was 385-23, with all votes in opposition being from Republicans.

Bill Provisions

Section Three – U.S. Policy

  • Section three states U.S. policy relevant to this matter, such as to:
    • condemn Russian military intervention in Ukraine;
    • reaffirm the U.S. commitment under the 1994 Budapest Memorandum, which secures the independence, sovereignty, and territorial integrity and borders of Ukraine; and
    • enhance and extend U.S. security cooperation with and assistance to central and eastern Europe, to include NATO members and NATO aspirants.

Section Four – Loan Guarantees

  • Section four mirrors the relevant House bill, to authorize loan guarantees for Ukraine, paid for from amounts appropriated to the Economic Support Fund in fiscal year 2014 and from unobligated balances from prior acts making appropriations to the Department of State.

Section Five – Stolen Assets

  • Section five authorizes the Secretary of State to assist Ukraine in identifying and recovering assets linked to acts of corruption by former or current Ukrainian government officials.

Section Six – Democracy, Civil Society, Governance, and Technical Assistance

  • Section six authorizes $50 million in appropriations for a variety of assistance to Ukraine, such as improving democratic governance, transparency, accountability, rule of law, and anti-corruption efforts in Ukraine; supporting free and fair elections in Ukraine; and strengthening democratic institutions and civil society organizations in Ukraine.
  • It further requires from the president a strategy on carrying out such work.

Section Seven – Security Cooperation

  • Section seven authorizes $100 million for the president to enhance security cooperation among the United States, European Union, and countries in central and eastern Europe.
  • It further authorizes the president to provide defense articles and services, and additional security assistance, to Ukraine and countries in central and eastern Europe.

Section Eight – Ukraine Territorial Integrity Sanctions

  • Section eight directs the president, with waiver authority, to impose sanctions on people responsible for human rights abuses in Ukraine associated with the protests there; acts undermining the sovereignty or territorial integrity of Ukraine; or acts of corruption in Ukraine (including the expropriation of assets). The sanctions authorized include asset blocking, exclusion from the United States, or revocation of visas.

Section Nine – Russian Corruption Sanctions

  • Section nine encourages the president to impose sanctions on people in Russia responsible for acts of corruption there (including the expropriation of assets). The sanctions authorized include asset blocking, exclusion from the United States, or revocation of visas.

Section Ten – Reforming U.S. Contributions to the IMF

  • Section ten authorizes a restructuring of U.S. contributions to the International Monetary Fund. The reforms are unnecessary to an IMF loan package or other IMF support to Ukraine.
  • The IMF is one of the key institutions of international finance, having its origins in the July 1944 Bretton Woods conference. According to Article I of its founding charter, the main purposes of the IMF include efforts to facilitate trade, create monetary stability, and provide short-term financing to member countries.
  • In the recent years of the international economic crisis, IMF lending has expanded substantially.
  • The primary means of national contribution to the IMF is through the “quota” system, based on a country’s relative weight to the global economy. As CRS explains, a country’s quota determines its:
    • subscriptions, i.e., its contributions;
    • access to financing, as in the amount it may receive from the fund; and
    • voting power, or the ability to influence IMF decisions.
  • In addition to quotas, the IMF maintains what are essentially two backstop resources serving as additional pools of money from which to lend: New Arrangements to Borrow (NAB) and General Arrangements to Borrow (GAB).
    • As CRS explains, the IMF does not hold NAB funds, but rather calls upon NAB members to provide the monies they committed to provide if the IMF needs to call upon them for use.
  • In response to the financial crisis, the Obama Administration proposed to increase the U.S. commitment to the NAB by $100 billion, along with an $8 billion increase in the U.S. quota. Congress is responsible for authorizing and appropriating all U.S. financial commitments to the IMF. Thus, to meet this increased commitment, Congress appropriated an additional $5 billion—given the esoteric budgetary treatment of quota and NAB matters—in the fiscal year 2009 supplemental, after a voteto strip that appropriation was defeated.
    • A 2011 amendment attempting to rescind these additional appropriations, authorities, and commitments was defeated by a vote of 44-55.
  • A shift in IMF resource allocation and other reform proposals is now underway. In summary, the additional NAB resources that were committed in 2009 are to be repositioned to new quota allocations. This bill carries out those reforms for the United States.  
    • As CRS summarizes: one of the main reforms is to double the IMF quota and roll back the NAB.
    • 22 U.S.C. § 286c requires Congress to authorize any change in U.S. quota arrangements at the IMF.
    • Moreover, appropriations will also likely be necessary to effectuate the new quota contributions.
    • This bill directs that the cost estimate for the increase in the U.S. contribution to the quota be completed on a “present value basis.” CBO estimated the budgetary effects of the NAB rollback, i.e., rescission of NAB funds, on a “fair value basis,” consistent with the budgetary treatment used at the time of providing the funds in 2009.
    • As the IMF says: “On December 15, 2010, the Board of Governors, the Fund’s highest decision-making body, approved a package of far-reaching reforms of the Fund’s quotas and governance, completing the 14th General Review of Quotas. Once the reform package is approved by member countries (it includes an amendment to the Articles of Agreement that requires acceptance by three-fifths of the members having 85 percent of the total voting power) and implemented, it will result in an unprecedented 100 percent increase in total quotas and a major realignment of quota shares to better reflect the changing relative weights of the IMF’s member countries in the global economy.”
  • CRS provides further detail on the matter: If implemented, the quota reform would result in a shift in the composition of U.S. financial commitments to the IMF as the NAB is reduced and the quota is increased, but would not increase total U.S. commitments to the IMF. Currently, the United States has committed about $65 billion to the IMF quota and about $106 billion to the NAB.
  • IMF decisions to lend and certain other policy decisions are done by majority vote. Other decisions require super majority votes of 70 percent, and in some cases 85 percent in favor. Given the U.S. voting share, it effectively has a veto over those decisions requiring 85 percent majority vote.
    • While decisions to lend from the quota pool are done by majority vote, the United States can essentially veto a proposal to lend from the NAB.
  • The United States is actually under-represented at the IMF. Its quota share is 17.69 percent, which translates to a voting share at the IMF of 16.75 percent, whereas its share of global GDP in 2011 was 21.6 percent. The United States is the largest single financial contributor to the IMF by far.
  • Under these reform proposals, the U.S. quota share would fall to 17.4 percent, which still would translate to more than the 85 percent threshold required for certain major decisions. Oddly enough, as CRS points out, Russia’s voting influence would actually increase under the proposed IMF quota reforms.

Section Eleven – Russian Military Power Report

  • Section eleven directs the Secretary of Defense to submit an annual report on the current and future military power of Russia.

Sections Twelve and Thirteen – Rescissions

  • Sections twelve and thirteen respectively rescind funds from certain monies appropriated in the fiscal year 2014 Department of State/Foreign Operations Act and specific Department of Defense accounts.

Administration Position

A Statement of Administration Policy was not available at the time of publication.

Cost

CBO assessed S. 2124 in total would reduce budget authority from 2014-2024 by $1.26 billion, and reduce outlays by $373 million over the same period. CBO estimated that the entire bill would result in increased outlays of $288 million in fiscal year 2014.

CBO further estimated that if the NAB rescission were not included in the bill, changes in budget authority over the 2014-2024 period would be negligible, while there would be an increase in outlays of $351 million in the first year (2014), $243 million over the first six years (2014-2019), and $320 million over the 2014-2024 period

It specifically estimated that the additional U.S. contributions to the IMF quota would require $315 million in budget authority in fiscal year 2014, with estimated outlays of $79 million in this fiscal year, and $16 million each year thereafter.

It further specifically estimated that the rescission of NAB contributions to the IMF would result in a reduction of budgetary authority of $1.26 billion this fiscal year, with a reduction in estimated outlays at $63 million this year and each fiscal year thereafter.

As noted earlier, this bill directs that the cost estimate for the increase in the U.S. contribution to the quota be completed on a “present value basis.” CBO estimated the budgetary effects of the rescission of NAB funds on a “fair value basis,” consistent with the budgetary treatment used at the time of providing the funds in 2009.

Possible Amendments

As of the publication of this notice, there is no unanimous consent agreement limiting the consideration of amendments.