Member countries approved the largest infusion of resources in the history of the International Monetary Fund (IMF), with $ 650 billion (€ 547 billion) to help countries cope with growing debt and fallout of the Covid-19 pandemic.
The creation of reserve assets – known as Special Drawing Rights (SDRs) – is the first since the $ 250 billion issued just after the global financial crisis in 2009, with managing director Kristalina Georgieva calling it “a coup.” thumbs up to the world. ”Which will help strengthen global economic stability. The SDR allocation will be effective on August 23, the IMF said in a statement on Monday.
“The SDR allocation will benefit all members, meet the long-term global need for reserves, build confidence and promote the resilience and stability of the global economy,” Georgieva said. “This will especially help our most vulnerable countries struggling to cope with the impact of the Covid-19 crisis. “
Guardians of the global economy have been grappling with the plan for over a year. It was initially delayed when the United States – the IMF’s largest shareholder – blocked it in early 2020. President Donald Trump’s Treasury Secretary Steven Mnuchin said the funds would not reach countries who need it most. Republican Representative French Hill called it a “gift to rich countries and rogue regimes” such as China, Russia and Iran.
The position of the United States has changed under President Joe Biden and Mnuchin’s successor Janet Yellen and with the fund exploring options for members with a strong financial position to reallocate reserves to support vulnerable and weak countries. income. Yet a global allocation of $ 650 billion was about the maximum the United States could support without needing congressional approval.
Reserves are allocated to the 190 members of the IMF in proportion to their quota, and some 70 percent will go to the Group of the 20 largest economies, with only 3 percent for low-income countries. Globally, 58% of new SDRs go to advanced economies, including 42% to emerging and developing economies. Thus, of the $ 650 billion, about $ 21 billion goes to low-income countries and $ 212 billion to other emerging and developing countries, not including China, according to calculations by the US Treasury Department.
The Group of Seven Advanced Economies approved a plan in June to reallocate $ 100 billion in new SDRs to the poorest countries, but the G20 in July only specified support for a general allocation of $ 650 billion. of SDRs, without specifying the amount that would be loaned again.
The reallocation will be crucial in helping African countries, for which only around $ 33 billion is earmarked for issuing SDRs. France has undertaken to reallocate part of its SDRs to the countries of the continent.
South African President Cyril Ramaphosa has previously said that of the total allocation, about a quarter – or about $ 162 billion – should be made available to African countries. He called on wealthy nations to donate – not just lend – their allowances.
Rich countries can currently use the IMF’s Poverty Reduction and Growth Trust to help channel their reserves to low-income, interest-free countries. Fund staff are also working to set up the so-called Resilience and Stability Trust to redirect new reserves to vulnerable low-middle-income countries and small island economies, an option that Georgieva says will be implemented. up by the end of the year.
The fund “will continue to actively engage with our members to identify viable options for the voluntary channeling of SDRs from the richer member countries to the poorest and most vulnerable in order to support their recovery from a pandemic and achieve resilient and sustainable growth, ”Georgieva said in a Monday statement.
More than 200 groups, including the Jubilee USA Network, a nonprofit that advocates for debt relief for developing countries, have called on the G20 to support the creation of $ 3 trillion in SDRs, claiming that funds are needed to help free up resources for health care and social spending.
“Developing countries need more help to emerge from the crisis,” Eric LeCompte, executive director of Jubilee USA Network, said in a statement Monday evening. “Rich countries receive most of these emergency reserves and must donate them to developing countries. – Bloomberg