IMF board backs $ 650 billion aid plan to help poor countries

VENICE – The International Monetary Fund took a step on Friday to ease worsening global inequalities and help poor countries access vaccines, saying its board has approved a plan to issue $ 650 billion in funding. reserve that countries can use to purchase vaccines, finance health care, and repay debt.

The decision comes at a pivotal time as Covid-19 infections continue to spread among populations that have not been inoculated and more contagious variants of the coronavirus pose new health threats. The pandemic has depleted the fiscal resources of poor countries over the past year, and the IMF this week predicted that faster access to vaccinations for high-risk populations could save 500,000 lives over the next six months. .

The new allocation of Special Drawing Rights would be the largest such expansion of foreign exchange reserves in IMF history. If approved by the group’s board of governors, as planned, the reserves could be available by the end of next month.

“It’s a punch for the world”, Kristalina Georgieva, Managing Director of the IMF, said in a press release. “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 as finance ministers and central bank governors from the Group of 20 countries gathered in Venice to discuss international tax policy, climate change and the global economic response to the pandemic. The IMF, established in 1944 to attempt to negotiate economic cooperation, has warned of a two-track economic recovery, with poor countries left behind while advanced economies expand rapidly.

Ahead of the meetings, Treasury Department officials said expanding access to vaccines would be a central topic of discussion. It is also a potentially controversial issue, as some developing countries have suggested that advanced economies are not doing enough to ensure equitable distribution of vaccines.

“The immediate priority for developing countries is widespread access to vaccines that match their deployment schedules,” World Bank President David Malpass said in a speech in Venice on Friday.

Mr. Malpass called on G20 countries to share doses and remove all trade barriers to the export of finished vaccines and their components. He noted that the pandemic had exacerbated structural weaknesses that had haunted developing countries for years.

“Even if this is accomplished,” Malpass said of the expanded vaccine distribution, “development faces years of setbacks and struggles.”

Closing the gap between the fortunes of advanced and developing economies was a central topic on the first day of the G20 meetings in Venice. Bruno Le Maire, France’s finance minister, told reporters on Friday that inequality poses a risk to Europe’s stability and security that could lead to an influx of refugees. He argued that it needed urgent attention.

It remains to be seen how far the $ 650 billion will go to help developing countries in their race to vaccinate people before new variants of the virus take hold, including the Delta variant, which has plunged back many countries in a health crisis.

The United Nations Conference on Trade and Development this year called for the IMF to make available $ 1 trillion in special drawing rights in the form of “helicopter drops for those left behind.”

Jubilee USA Network, a nonprofit that advocates debt relief for poor countries, welcomed the IMF’s decision and called on rich countries to do more to help.

“This is the largest emergency reserve fund creation we have ever seen, and developing countries will immediately receive over $ 200 billion,” said Eric LeCompte, executive director of Jubilee USA Network. “Rich countries that receive emergency reserves that they do not need should transfer those resources to developing countries battling the pandemic. “

The IMF, the World Bank, the World Health Organization and the World Trade Organization have created a new working group on vaccines and called for an additional investment of $ 50 billion to expand access to supplies. The groups also called on G20 countries to set an objective to have 40 percent of their populations vaccinated by the end of this year and 60 percent by the middle of next year.

The United States has supported the expansion of IMF reserves, reversing Trump administration policies and angering Republican lawmakers in the process.

The Trump administration opposed the proposal last year and prevented it from moving forward. He argued at the time that increasing emergency reserves was an inefficient way to deliver aid to poor countries and that it would provide more resources to advanced economies that did not need aid, like China and Russia.

Republican lawmakers have since accused the Biden administration of bolstering adversaries’ fortunes, while doing little to actually help developing countries. Although Republicans have introduced legislation that would place restrictions on how IMF reserves were used if allowed, such proposals are unlikely to be passed with Democrats in charge of Congress.

Under the leadership of Treasury Secretary Janet L. Yellen, the United States has taken a different view from that of the Trump administration and the United States supports the allocation. Ms. Yellen believes that rich countries will have little use for SDRs, but developing economies can use them to raise enough money to immunize their populations.

Special Drawing Rights work by allowing IMF member countries to cash in the assets in hard currency. Their value is based on a basket of international currencies and is reset every five years.

Each of the 190 IMF member countries receives an allocation of SDRs based on its share in the fund, which corresponds to the size of a country’s economy. The new reserves would also be distributed according to this formula, with the biggest economic powers like the United States getting the biggest slice.

Drawing rights cannot be used to buy things on their own, 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 an intermediary to facilitate trade.

This has sparked some criticism that the program will not work unless rich countries voluntarily transfer their holdings to poorer countries.

“It is a legitimate concern that the new SDRs mostly end up in the hands of big and rich countries that have little use for them rather than in the hands of smaller, poorer countries that really need them,” Eswar said. Prasad, the International. The former Chinese head of the Monetary Fund. “A reallocation of SDRs to the latter group, in addition to increasing the overall volume of SDRs, would be helpful in dealing with strains on the global financial system. “

To address some of these concerns, the IMF is working to create a new trust fund where rich countries can channel their excess SDRs. tackle climate change in conjunction with existing IMF programs.

The United States has previously indicated that it will make available about a fifth of its allocation, worth about $ 20 billion. At the behest of the United States, the IMF is also working to create greater transparency on how assets are used so that it is clear that American adversaries are not benefiting from the proceeds.

The IMF’s board of governors is expected to hold its vote in early August.

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