NEW YORK: The International Monetary Fund’s (IMF) board conveyed broad support for drafting a proposal to create US$650bil (RM2.68 trillion) 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 (SDRs), 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 US 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 (G-20), with just 3% for the poorest developing nations.
While the informal discussion came in advance of the IMF’s spring meetings on 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 US 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.
More than 200 groups including the Jubilee USA Network, a non-profit organisation that advocates for debt relief for developing countries, had called on the G-20 to support the creation of US$3 trillion in SDRs.
They say the funds are needed to help free up resources for healthcare and social spending. Some Democrats in Congress had pledged support for a similar-sized move.
But an SDR issuance of roughly US$650bil would be about the maximum that the US 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.” — Bloomberg