X

This is not a paywall.

Register for free to continue reading.

The news sucks. But your reading experience doesn't have to. Help us improve that for you by registering for free.



Please create a password or click to receive a login link.


Please enter your password or get a login link if you’ve forgotten


Open Sesame! Thanks for registering.

First Thing, Daily Maverick's flagship newsletter

Join the 230 000 South Africans who read First Thing newsletter.

A South African Hero: You

There’s a 99.7% chance that this isn’t for you. Only 0.3% of our readers have responded to this call for action.

Those 0.3% of our readers are our hidden heroes, who are fuelling our work and impacting the lives of every South African in doing so. They’re the people who contribute to keep Daily Maverick free for all, including you.

We need so many more of our readers to join them. The equation is quite simple: the more members we have, the more reporting and investigations we can do, and the greater the impact on the country. We are inundated with tip-offs; we know where to look and what to do with the information when we have it – we just need the means to help us keep doing this work.

Be part of that 0.3%. Be a Maverick. Be a Maverick Insider.

Support Daily Maverick→
Payment options

IMF Mulls Creating $650 Billion in Reserves After Yelle...

Business Maverick

Business Maverick

IMF Mulls Creating $650 Billion in Reserves After Yellen Nod

The International Monetary Fund headquarters in Washington, DC, US.
By Bloomberg
24 Mar 2021 0

The International Monetary Fund’s board conveyed broad support for drafting a proposal to create $650 billion in additional reserve assets to help developing economies cope with the pandemic, with an eye on considering a formal plan by June.

The institution’s executive board discussed the case for the reserves informally on Tuesday, IMF Managing Director Kristalina Georgieva said in a statement after the conclusion of the meeting.

Fund staff will develop new measures to enhance transparency and accountability and explore options for members with strong financial positions to reallocate the reserves, known as special drawing rights, to support vulnerable and low-income countries, Georgieva said.

“If approved, a new allocation of SDRs would add a substantial, direct liquidity boost to countries, without adding to debt burdens,” Georgieva said. “It would also free up badly needed resources for member countries to help fight the pandemic, including to support vaccination programs and other urgent measures.”

Momentum has been building for the injection of funds after U.S. Treasury Secretary Janet Yellen leaned toward supporting the action, reversing opposition last year under President Donald Trump. Her predecessor, Steven Mnuchin, blocked the move in 2020, saying that because reserves are allocated to all 190 members of the IMF in proportion to their quota, some 70% would go to the Group of 20, with just 3% for the poorest developing nations.

While the informal discussion came in advance of the IMF’s spring meetings April 5-11, the June target for a formal proposal fits with a requirement that the Treasury Department give Congress 90 days of advance notice before it’s free to support the reserves creation. The U.S. is the fund’s biggest shareholder.

G-20 finance ministers and central bankers last month called on the fund to formulate a proposal, and Group of Seven countries last week said that they back a sizeable allocation of IMF resources to boost members’ reserves and provide liquidity to vulnerable countries.

Read More

More than 200 groups including the Jubilee USA Network, a non-profit organization that advocates for debt relief for developing countries, had called on the G-20 to support the creation of $3 trillion in SDRs. They say the funds are needed to help free up resources for health care and social spending. Some Democrats in Congress had pledged support for a similar-sized move.

But an SDR issuance of roughly $650 billion would be about the maximum that the U.S. Treasury can support without needing to get approval from Congress, depending on the exchange rate.

“This announcement is incredible progress,” said Eric LeCompte, the executive director of Jubilee USA Network. “Developing countries need these resources to confront the crisis as soon as possible.”

Representative French Hill, an Arkansas Republican on the House Financial Services Committee, has urged opposition to an issuance, calling it a “giveaway to wealthy countries and rogue regimes” such as China, Russia and Iran.

Asked by Hill on Tuesday during a House Financial Services Committee hearing if Yellen could say that such “dictatorships” would not receive SDRs, she responded that countries will receive allocations according to their stakes in the IMF.

The reserves plan faced fresh pushback on Tuesday from Senator Pat Toomey, a Pennsylvania Republican.

“Allocating new SDRs without congressional approval is an inappropriate and wasteful use of taxpayer dollars that would end up benefiting repressive regimes and state-sponsors of terrorism,” Toomey said. “Moreover, the use of SDRs enables foreign countries to partially control the global supply of U.S. dollars. I urge Secretary Yellen to abandon her support for this proposal.”

Yellen also indicated that countries are working toward an agreement with China on ensuring that the Asian country provides SDRs to poor nations and that funds aren’t used to “repay loans from the Belt and Road Initiative,” Yellen said. That refers to China’s effort to build infrastructure including energy plants and railways in countries from Sri Lanka to Greece.

Georgieva, who first advocated for a reserves issuance a year ago, has called for strong action to avoid a scenario where a few emerging markets recover faster but most developing countries are left to languish for years to come. The IMF last issued SDRs during the 2009 global financial crisis, and repeating the move could serve the world well again now, Georgieva said in a blog post last month.

Yellen said Tuesday that she supports “augmenting the reserves of countries that need it so that at this very difficult time we don’t pressure countries to take contractionary, deflationary actions that would make recovery more difficult.

“It’s especially important to channel the world’s resources” to poor countries, she said.

Gallery

Comments - share your knowledge and experience

Please note you must be a Maverick Insider to comment. Sign up here or sign in if you are already an Insider.

Everybody has an opinion but not everyone has the knowledge and the experience to contribute meaningfully to a discussion. That’s what we want from our members. Help us learn with your expertise and insights on articles that we publish. We encourage different, respectful viewpoints to further our understanding of the world. View our comments policy here.

No Comments, yet

Please peer review 3 community comments before your comment can be posted