The International Monetary Fund (IMF) is reportedly planning to create around $650 billion in additional reserve assets to support the developing economies to cope with the pandemic and is expected to finalize the decision next month.
The executive board of the institution is currently discussing the staff proposal informally and one of its priorities will be to consider how much to issue in the units known as special drawing rights (SDR), a claim on freely usable currencies of IMF members. Attention is now focused on a $650 billion issuance, after the previous talk of $500 billion. IMF Managing Director Kristalina Georgieva is expected to release a statement after the meeting, sources said.
The injection of funds has been gaining momentum after the US Treasury Secretary Janet Yellen showed her readiness in supporting the action, reversing the opposition last year under President Donald Trump.
Last year, Ms.Yellen’s predecessor, Steven Mnuchin had suspended the move, saying that because reserves are allocated to all 190 members of the IMF in proportion to their quota, some 70 percent would go to the Group of 20, with just 3 percent for the poorest developing nations.
According to the sources, the IMF is planning to make a formal announcement of the creation of the reserve around its spring meetings between April 5 and 11. Last month, the finance ministers and central bankers of G-20 called on the fund to develop a proposal, and a group of seven countries last week said that they support a sizeable allocation of the institution’s resources to boost members’ reserves and give liquidity to vulnerable countries.
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.
The group says that the funds are needed to offer debt relief in developing nations and help to free up resources for health care and social spending. Some Democrats in Congress had pledged support for a similar move. But an SDR issuance of roughly $650 billion would be about the maximum that the US can support without getting approval from Congress, depending on the exchange rate.
Representative French Hill, an Arkansas Republican on the House Financial Services Committee, has urged opposition to an issuance, stating it as a giveaway to wealthy countries and rogue regimes like China, Russia and Iran.
Ms. Georgieva, who first showed interest in a reserves issuance a year ago, has demanded strong action to avoid a situation 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, Ms. Georgieva said in a blog post earlier.
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