The IMF “helps stabilize the world economy” with the issuance of SDRs, “but more will be needed” – Eurasia Review

The announcement last Friday that the board of directors of the International Monetary Fund (IMF) approved an allocation of $ 650 billion in special drawing rights (SDRs) is a “necessary step in the right direction”, Center for Economic and Policy Research (CEPR) Co-Director Mark Weisbrot said: “But more will be needed, and IMF member countries should aim to eventually allocate the trillions of SDRs, which most members of the US Congress have supported, for address the scale of challenges countries continue to face as a result of the pandemic. With the expected approval of the IMF’s board of governors, these special reserve assets could be distributed to countries around the world by the end of August.

“It’s a historic victory,” Weisbrot said. “With this issuance and distribution of reserve assets, the IMF is playing an important role that many of its founders envisioned when it was created 77 years ago, helping to stabilize the global economy in the face of serious threats.”

The $ 650 billion allocation is well below the $ 2.8 trillion SDR included in legislation passed last year by the US House of Representatives. But the 40% of those SDRs that will go to low- and middle-income countries will save many lives as they seek to avert the economic crises caused by the pandemic and fight the spread of new variants of COVID.

Legislation for much larger issuance of DTS was introduced this year in the US House and Senate.

More than 110 organizations, representing tens of millions of Americans, have supported a new allocation of SDRs to the IMF since early 2020, and earlier this year, more than 200 civil society organizations from around the world – including Oxfam, Jubilee USA , International Trade The Confederation of Union and the United States Conference of Catholic Bishops – have called for the issuance of $ 3 trillion in SDRs. It should be noted that, given that countries receive SDR allocations commensurate with their IMF quotas, an allocation of SDR 3 trillion would allow developing countries to receive approximately $ 1.2 trillion of these assets.

“This is something that will need to be reformed at the IMF, because around 60% of SDRs currently go to high income countries, which do not need them, and by IMF rules, will not use them,” said Weisbrot. “However, there is currently no cost or waste of resources involved in this 60% of the issuance, as it simply creates an accounting entry for high income countries that is not converted into currency.”

Discussions are currently underway at the IMF to reallocate part of the SDRs received by high income countries to low and middle income countries. However, Weisbrot stressed that such a reallocation, if it occurs, should not accumulate more debt on developing countries and should not include conditions attached to any loan. In the past and present, he noted, conditions attached to IMF loans have sometimes caused economic damage to borrowing countries.

SDRs are assets that are used to supplement countries’ international reserves, thus helping to stabilize their finances and prevent balance of payments crises, as well as other financial crises that can cause serious economic damage, an increase in extreme poverty and loss of life. They can also be exchanged for hard currency by countries in need and used to import essential goods, including vaccines and medical supplies. The Congressional Budget Office has confirmed that SDR allocations are completely free to the US government.

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