The International Monetary Fund (IMF) may issue fresh special drawing rights (SDRs) to member countries, ignoring India’s resistance, after US treasury secretary Janet Yellen decided to go with the G20 proposal, reversing the stand of the administration of former president Donald Trump
The International Monetary Fund (IMF) may issue fresh special drawing rights (SDRs) to member countries, ignoring India’s resistance, after US treasury secretary Janet Yellen decided to go with the G20 proposal, reversing the stand of the administration of former president Donald Trump. The move will help poor countries fight the economic fallout of the coronavirus outbreak.
Yellen told G20 finance ministers in a letter on Thursday that fresh SDR allocation could boost liquidity for poor countries, which were hit by the pandemic. “To make this tool effective, the G20 must work with a broad coalition of countries on a set of shared parameters for greater transparency and accountability in how SDRs are exchanged and used. We would also encourage G20 members to channel excess SDRs in support of recovery efforts in low-income countries, alongside continued bilateral financing. We look forward to discussing potential modalities for deploying SDRs," she said.
SDR is an international reserve asset created by the IMF comprising the dollar, euro, yen, sterling, and yuan, which is allocated to its members in proportion of their quota. One SDR is currently valued at $1.44.
Enthused by the change in stance by the US, IMF managing director Kristalina Georgieva said at the G20 meeting on Friday: “I am very encouraged by the growing support for a new SDR allocation to boost reserves of all members in a transparent and accountable manner. We stand ready to present to our members a robust assessment of long-term reserve needs and implementation modalities." The US is the largest shareholder of the multilateral lending organization.
A fresh SDR issue by IMF will help the least developed and developing countries facing foreign exchange crisis following the disproportionately steep fall in per capita income. The US and India had opposed the move last year, reportedly because they had feared that poor countries will utilize the liquidity to pay off bilateral debt to China, the biggest bilateral creditor, shielding it from exposure to an expected wave of debt restructuring. Some believe that India fears that Pakistan, with a teetering economy, may leverage the funding recourse to continue with its asymmetric warfare.
The proposal was dropped as the US enjoys a unique veto power at the IMF with 16.52% voting rights. A supermajority vote at the IMF for major policy decisions requires 85% of votes. India has a voting right of 2.6%. Though India’s vote did not make a material difference, its support to the US had drawn criticism from experts.
A query to the finance ministry did not elicit any response till press time.
Arvind Virmani, former executive director at the IMF said poor and most needy countries will receive only a small share of total fresh SDR allocations while the US, the EU, China, and Japan will get the bulk of it as SDRs are issued to IMF members in proportion to their shareholding in the organization.
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