I.M.F. Board Backs $650 Billion Support Plan to Assist Poor Nations

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VENICE, Italy – The International Monetary Fund said Friday that its board of directors approved a plan to issue reserve funds worth $ 650 billion, essentially creating money that troubled countries can use to buy vaccines that fund health care and be able to pay off debts.

The reallocation of so-called special drawing rights would be the largest such expansion of currency reserves in the history of the IMF. With final approval by the IMF Board of Governors, as expected, the reserves could be available by the end of next month.

“This is a shot in the arm for the world,” said Kristalina Georgieva, the IMF’s executive director. “The SDR allocation will help every IMF member country – especially vulnerable countries – and strengthen their response to the Covid-19 crisis.”

Ms. Georgieva made the announcement when the finance ministers and central bank governors of the Group of 20 Nations met in Venice to discuss international tax reform, climate change and the global economic response to the pandemic. The IMF, founded in 1944 to broker economic cooperation, has warned of a two-pronged economic recovery, leaving poor countries behind while the advanced economies experience rapid expansion.

It remains to be seen how far the $ 650 billion will go to help developing countries vaccinate people before new varieties of the virus emerge, including the Delta variant, which has plunged many countries back into health crisis.

The United Nations Conference on Trade and Development last month called for the IMF to provide $ 1 trillion in Special Drawing Rights as “helicopter drop-offs for those left behind.”

The United States has thrown its support behind the expansion of the IMF’s reserves, reversed the Trump administration’s policies, and angered Republican lawmakers in the process.

The Trump administration resisted the proposal last year and prevented it from moving forward. It argued at the time that topping up the emergency reserves was an inefficient way to help poor countries and that it would provide more resources to advanced economies that do not need it, such as China and Russia. Republican lawmakers have since accused the Biden administration of fortifying opponents’ fortunes while doing little to actually aid developing countries.

Under Treasury Secretary Janet L. Yellen, the US took a different view and is now supporting the allocation. Ms. Yellen believes that rich countries will need little SDR, but that developing countries can use them to get enough money to vaccinate their people.

Special drawing rights work by allowing IMF member countries to redeem the asset for hard currency. Their value is based on a basket of international currencies and is reset every five years.

Each of the 190 member countries of the IMF receives an SDR allocation based on its shares in the fund, which is based on the size of a country’s economy. The new reserves would also be distributed according to this formula, with the largest economic powers such as the USA receiving the largest tranche.

The drawing rights cannot be used to buy things yourself, but they can be exchanged for currencies that can. If two countries agree, they can exchange their special drawing rights for cash, with the IMF acting as a middleman to facilitate trade.

This has generated some criticism that the program will not work unless rich countries voluntarily transfer their stocks to poorer countries. To address some of these concerns, the IMF is working to develop a new trust fund into which rich countries can channel their excess SDRs or address climate change in conjunction with existing IMF programs.

The United States previously announced that it would provide about a fifth of its allocation, worth about $ 20 billion. At the urging of the United States, the IMF is also working to create more transparency about the use of the assets so that it is clear that American opponents are not benefiting from the proceeds.