BRUSSELS, Belgium
Member nations approved the biggest resource injection in the International Monetary Fund’s history, with $650 billion meant to help countries deal with mounting debt and the fallout from the Covid-19 pandemic.
The creation of the reserve assets — known as special drawing rights — is the first since the $250 billion issued just after the global financial crisis in 2009, with Managing Director Kristalina Georgieva billing it as “a shot in the arm for the world” that will help boost global economic stability. The SDR allocation will be effective on August 23, the IMF said in a statement Monday.
“The SDR
allocation will benefit all members, address the long-term global need for
reserves, build confidence, and foster the resilience and stability of the
global economy,” Georgieva said. “It will particularly help our most vulnerable
countries struggling to cope with the impact of the Covid-19 crisis.”
The guardians of the
global economy have wrestled with the plan for more than a year. It was initially
delayed when the US — the IMF’s biggest shareholder — blocked it in early 2020.
President Donald Trump’s Treasury Secretary Steven Mnuchin said that the funds
wouldn’t get to the nations that most need it. Republican Representative French
Hill called it a “giveaway to wealthy countries and rogue regimes” such as
China, Russia and Iran.
The US’s position
changed under President Joe Biden and Mnuchin’s successor, Janet Yellen, and
with the fund exploring options for members with strong financial positions to
reallocate the reserves to support vulnerable and low-income countries. Still,
a global allocation of $650 billion was about the maximum that the US could
support without needing to get approval from Congress.
Reserves are
allocated to all 190 members of the IMF in proportion to their quota, and some
70% will go to the Group of 20 largest economies, with just 3% for low-income
nations. Overall, 58% of the new SDRs go to advanced economies, with 42% for
emerging and developing economies. So of the $650 billion, about $21 billion go
to low-income countries and $212 billion to other emerging market and
developing countries, without counting China, according to US Treasury
Department calculations.
The Group of
Seven advanced economies in June endorsed a plan to reallocate $100 billion of
new SDRs to poorer countries, but the G-20 in July only specified support for a
general allocation of $650 billion in SDRs, without detailing how much would be
re-lent.
Reallocation
will be crucial to help countries in Africa, for which only about $33 billion
is earmarked in the SDR issuance. France has committed to reallocating part of
its SDRs for countries on the continent.
South
African President Cyril Ramaphosa has previously said that from the total
allocation, about one-quarter — equivalent to around $162 billion — should be
made available to African countries. He has called on rich nations to donate —
and not just on-lend — their allotments.
Rich nations
currently can use the IMF’s Poverty Reduction and Growth Trust to help channel
reserves to low-income countries interest free. Fund staff also are working to
set up the so-called Resilience and Stability Trust for redirecting new
reserves to vulnerable low-middle-income countries and small island economies,
an option that Georgieva has said she hopes will be established by year-end.
The fund will “continue to engage actively with our membership to identify viable options for voluntary channeling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth” Georgieva said in Monday’s statement
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