The International Monetary Fund wants to increase its reserves and lending capacity by 650 billion dollars through a new issue of special drawing rights (SDRs), the monetary instrument of the IMF, said its managing director Kristalina Georgieva on Tuesday. The official said she has broad support among IMF member countries to increase the Fund’s assets and “do everything possible to weather the worst recession since the Great Depression.”
A formal proposal will be submitted by June to the institution’s Board of Directors. “I am very encouraged by the initial discussions on the possibility of an SDR allocation of 650 billion dollars,” said the boss of the IMF. “By meeting the long-term global need for reserve assets, a new allocation of SDRs would benefit all our member countries and support the global recovery from the Covid-19 crisis,” said the boss of the IMF.
A first since 2009
The proposal is for an SDR allocation in an amount equivalent to $ 650 billion that will provide additional ammunition to the institution to help countries overcome the crisis caused by the pandemic “by providing additional liquidity to the economic system”, according to the leader of the IMF. The G7 finance ministers, meeting Friday by videoconference under the aegis of the United Kingdom, had already officially supported the idea of strengthening aid to disadvantaged countries weakened by the pandemic, through the International Monetary Fund.
British Chancellor Rishi Sunak and “G7 finance ministers are in favor of a new and important special drawing rights issue to help vulnerable countries get through the current crisis,” the statement from the UK’s financial backers said. from France, Germany, Italy, Canada, the United States and Japan. This new issue of SDRs, rights equivalent to assets to provide liquidity to affected countries, will be the first since 2009, just after the financial crisis that led to the Great Recession.
“Developing countries need these resources”
If approved, the allocation “would substantially increase countries’ liquidity without increasing the debt burden,” argued Kristalina Georgieva. “It would also free up much needed resources for member countries to help fight the pandemic, including supporting immunization programs and other urgent measures. And that would complete the range of tools deployed by the IMF to support our members in this time of crisis, ”she added.
Created in 1969 by the IMF to supplement the foreign exchange reserves of its member countries, SDRs can be exchanged in the accounts of a member country for currencies. Their value is based on a basket of five major international currencies, the dollar, the euro, the pound, the renminbi or yuan, and the yen. On the side of the G7 partners, this support from the big money “lays the foundations for a potential agreement at the April meetings of the G20 and the IMF Committee” so that “no country is left behind in the economic recovery. after (the pandemic of) coronavirus ”, indicated the British minister.
The NGO Jubilee on Tuesday described the announcement as “incredible progress”, according to Eric LeCompte, director of Jubilee USA Network. “Developing countries need these resources to tackle the crisis as quickly as possible,” he added, hoping that with this new allocation, $ 224 billion should be immediately available for low and middle income nations. .
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