Updates to the International Monetary Fund
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The author, a Labor MP, is a former general secretary of HM Treasury and chair of the World Parliamentary Network on the World Bank and IMF.
When the IMF decided to make $ 650 billion in Special Drawing Rights (SDRs), which effectively created money for its 190 national members, it made a powerful weapon in the war against scarcity. But it will only work if IMF shareholders now agree on three major steps to pull the money out of the vaults and into the onslaught of poverty.
The big issue of SDRs, made possible by the change of administration in Washington, could not come soon enough. The Covid-19 shock led to the first global increase in poverty this century. The poorest in the world may spend a combined total of 120m additional years needy. The struggle is the hardest for governments already experiencing problems: even before Covid, the debt of the poorest countries in the world increased by 9.5 percent to $ 744 billion.
Unless we are braver, we are running a huge divergence in the world economy, where the rich recover and the poor do not. The IMF policymakers, who are not known for their alarmist language, warn that the social fabric is in fragile places in danger. Covid vaccines are only slowly entering the arms of poorer citizens, and while ‘better reconstruction’ is a good idea, slogans mean little to the insolvent. It is now time for leaders to support their cries of war with a few checks: about $ 200 billion to tackle Covid-19 and $ 250 billion to invest in climate-friendly infrastructure in poorer countries.
The IMF agreement on SDRs will help. Invented in 1969 and originally linked to gold, SDRs are a unit created by the IMF which can sit in member states’ reserves. They give governments significant space to redeploy money or exchange their stock for currencies, including dollars.
The new SDR issue will be no panacea for poverty. But its impact can be maximized in the following ways.
First, richer nations must share all their new SDRs with poorer countries. Because of the way they are allocated, only 4 percent will flow to poorer countries. Of the new SDR expenditure, $ 623 billion will flow to richer countries, which honestly do not need it.
We need a bold proposal to issue these SDRs without the old-fashioned traditions that have meant that richer countries share only 50 percent of their quotas. The UK should lead the negotiation. It can help redeem our global reputation after we reduced our aid budget by £ 4 billion amid a pandemic despite protests from every living former prime minister.
Second, we must ensure that SDRs are not just lent to poorer countries, even at zero percent interest rates. We can maximize our help by maximizing the value of SDRs we convert into grants. This is entirely possible. As charities like Cafod It showedit all depends on how countries like the UK choose to use the foreign exchange and SDRs in our reserves. When the new SDRs arrive this fall, we can replace them for a portion of our stock dollars, sell the dollars for pounds and forward this windfall in aid.
This funding from richer countries can immediately supplement contributions to the fight against Covid through donations to Covax, the program to distribute vaccines to poorer countries, or the Covid-19 Access pool for technology, an initiative of the World Heath Organization to boost the supply of Covid-19 healthcare products worldwide. This increased funding will accelerate the rollout of global vaccinations and slow down the mutation of new variants.
Ultimately, richer nations must remain honest. We must refuse to evade existing aid obligations by trying to count the SDRs we share as foreign development aid. It would be perverse if the IMF move caused a step back in allocating funding for the poorest.
Global collaborations performed miracles during the pandemic, which led to the development and roll-out of vaccines in just one year. Now the same effort must be made to prevent a subsequent pandemic of poverty.