Foreign Desk Report
WASHINGTON: The United States may prevent the International Monetary Fund from deploying one of its most powerful tools to help countries fight the impact of the coronavirus this week: creating a new allocation of Special Drawing Rights. Economists, finance ministers and non-profit groups are behind the creation of the new rights, known as SDRs, a move akin to a central bank “printing” new money. It could provide as much as $500 billion in urgently needed liquidity for the IMF’s 189 member countries.
Finance officials will debate the issue during this week’s virtual IMF and World Bank Spring Meetings. Multiple sources familiar with the Fund’s deliberations say the United States, the IMF’s dominant shareholder, actively opposes the new fundraising. The Trump administration doesn’t want Iran and China to have access to billions of dollars in new resources with no conditions, two of the sources said. SDRs USDXDR=R, based on dollars, euro, yen, sterling and yuan, are the IMF’s official unit of exchange. Member countries hold them at the Fund in proportion to their shareholdings.
The IMF last approved a $250-billion new allocation of SDRs in 2009, during the last financial crisis, boosting liquidity for cash-strapped countries. Doing so again now could provide more flexibility to the 100 countries that have already sought IMF emergency loans and grants, and allow new lending to countries with “unsustainable” debt burdens, such as Argentina. An SDR expansion has attracted some celebrity advocates, such as investor George Soros and U2 lead singer Bono’s ONE anti-poverty organization, along with trade unions and faith-based groups. Some say $500 billion is too little.
“If ever there was a moment for an expansion of the international money known as Special Drawing Rights, it is now,” former U.S. Treasury Secretary Larry Summers and former UK Prime Minister Gordon Brown wrote in an op-ed in the Washington Post Wednesday. “If global money is to stay in balance with the domestic monetary expansion in rich countries, an increase in SDRs of well over $1 trillion is urgently needed.”
The Trump administration’s opposition comes at a time when U.S. tension with China is running high over the causes of the virus and a long-running trade war. U.S.-Iran tension nearly boiled over into armed conflict in January.
The U.S. Treasury Department would prefer to see the IMF focus on using its $1 trillion in existing resources, including $100 billion in emergency loans and grants, to aid countries’ health responses to the crisis, the sources said.
