IMF Reserves No Substitute for Debt Restructuring, Official Says

(Bloomberg) -- The International Monetary Fund’s proposal to create $650 billion in reserve assets is meant to meet global liquidity needs and not take the place of debt restructurings or loan programs for nations that need them, a top official said.

Geoffrey Okamoto, the fund’s first deputy managing director, said that the IMF is working to approve the special drawing rights, or SDRs, in the coming months to help poorer countries weather the pandemic, as some face delays in vaccination until later this year or 2022. The fund is also working to find ways to reallocate the assets from rich to poor nations, he said.

Proposals from Democrats in Congress as well as religious groups originally called for issuing trillions of dollars in SDRs to make an even bigger effort to get resources to distressed countries. But Okamoto made clear that the IMF has no plans for an issuance beyond the proposed $650 billion and has other programs in place for nations that need funding due to underlying economic weaknesses exposed by Covid-19.

“SDRs are for reserve adequacy, they are not to supplant upper credit tranche programs or full-fledged IMF loans that support structural reform programs in countries,” Okamoto said in an interview with Bloomberg TV’s David Westin Friday. “They are also not there to sidestep needed debt restructuring.”

Read more: Special drawing rights, the IMF’s imperfect tool

The IMF at its spring meetings this week implored governments to act to avoid a two-speed rebound where vaccinated, rich nations recover more strongly from the pandemic than poorer countries languishing under the burden of disease and debt.

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