The G20 countries should decide on how they want the richer countries to contribute some $100 billion worth of newly issued IMF reserves to poorer countries, the International Monetary Fund has said.
The goal of the IMF was to be able to present a viable option for distribution of the newly issued Special Drawing Rights to countries that are in need of the support by the time the $650 billion allocation is completed at the end of August, said the First Deputy Managing Director of the IMF, Geoffrey Okamoto.
“Countries expect us to have an option ready to go. We’re doing all we can to secure agreement on an option that we can begin implementing once the allocation is made,” Okamoto said in an interaction with the media at the sidelines of a G20 finance ministers and central bank governors meeting.
Reserves are planned to be distributed to all 190 member countries of the IMF in proportion to their ownership according to the global financial body’s SDR plan. The lion’s share of the funds is set to go to the G20 countries. SDRs are the IMF’s unit of exchange and are comprised of dollars, euros, yen, sterling and yuan. An exchange for underlying currencies needs to be arranged by countries to be able to spend them.
According to a draft G20 communique, the finance officials of the countries called on the IMF to “to quickly present actionable options for countries” so that part of their allocated SDRs can be channelled to aid pandemic recovery whjich could include distribution through creating a new trust fund.
However the current content of the communique falls short of endorsing IMF’s $100 billion SDR channeling target but also calls on “an ambitious target in support of vulnerable countries”, according to reports.
Creation of a new Resilience and Sustainability Trust has been proposed by the IMF such that the trust should include some vulnerable middle income countries and small island states. That will work in conjunction with the Poverty Reduction and Growth Trust to provide support to the poorest countries.
Signals for support of the new proposed trust of the IMF have been made by the Biden administration that controls the dominant shareholding of the United States in the IMF.
The PRGT can only accept $30 billion in SDRs, leaving potentially up to $70 billion for new facilities, Okamoto said.
The legal restrictions that some countries, including Germany, have on SDRs is the major challenge for designing of the new IMF trust fund. This is because SDRs require countries to hold them as reserve assets with no credit or liquidity risk.
Both credit and liquidity risk are associated with lending and/or contributing SDRs to other countries and therefore additional fund contributions would be needed that would provide a capital buffer, Okamoto said.
“The ambition to recycle SDRs needs to be matched by the ambition for donors to take credit risk, liquidity risk, or contribute grants, for countries to see maximum benefit,” Okamoto said. He added that he hoped to see a “meeting of the minds” on these issues at the G20 meeting.
(Adapted from Reuters.com)