Summary

UK civil society organizations including the Bretton Woods project outline what the UK government must do to seize the opportunity presented by the IMF’s historic SDR allocation in August

On Monday, August 23, the International Monetary Fund (IMF) finalized the allocation of $ 650 billion in Special Drawing Rights (SDRs) – an international reserve asset – to its member states. This is the largest allocation of SDRs ever distributed by the IMF and represents a historic opportunity to help low and middle income countries respond to the Covid-19 crisis.

SDRs are allocated roughly according to the size of a country’s economy, meaning that high-income countries received nearly $ 400 billion of allocated SDRs, with low-income countries receiving only $ 21 billion. $ 230 billion and middle-income countries $ 230 billion. As the G7 recognizes, in order to amplify the impact of this allocation, advanced economies must channel part of their SDRs to countries with more pressing needs.

The UK, as one of the largest members of the IMF, has received around $ 27.5 billion (£ 20 billion) in SDRs, more than all low-income countries combined. SDRs, of minimal relative value to the UK, if channeled under appropriate circumstances to economically vulnerable countries, would have a marked impact on the direction of the global recovery.

The UK has indicated, along with the wider G7, its intention to channel some of its SDRs to countries in need. But the important questions to discuss now are how much The SDRs that the UK will re-channel, when it will distribute the SDRs and, above all, Through what mechanisms, it will channel the DTS.

On these three points, there are serious concerns that the UK is heading in the wrong direction. The likely course of action – on-lending SDRs to certain trusts within the IMF, World Bank and other multilateral development banks, in turn to lend to low-income countries – risks burdening countries with debt. increased, detrimental and time consuming. consumer conditionality and limitation of development space.

Rather than thinking about which re-channeling routes would offer the most benefit to those in need, the UK seems to be thinking about what is technically the simplest and most beneficial for its own interests. Therefore, instead of supporting the global recovery, the UK’s likely course of action could prove to be counterproductive.

Over the next few months, decisions will be made by the UK, the G7 and other countries on how to re-route their SDRs. The timing represents an extraordinary opportunity for the UK to show leadership – while incurring minimal cost to the UK taxpayer – and, more importantly, to maximize the enormous potential of the SDR allocation to counter crises. global health and economic issues that risk pushing 150 million people into extreme situations. poverty.

The signatory organizations below call on the UK government to ensure that:

  • At least 75% of the UK SDR allocation (or hard currency equivalent) is reallocated, and this is undertaken within the next 12 months. At present, it seems likely that the UK will only channel 10-20% of its SDRs, not enough to have a significant impact.
  • Channeling of SDRs should be used to provide debt-free financing to countries, so as not to further exacerbate the problem of the unsustainable debt burden of developing countries. Grant-based financing should be the preferred approach deployed and the mechanisms within and beyond the IMF to do so should be urgently explored by the UK.
  • SDR channeling mechanisms should retain the core feature of SDRs unrelated to economic policy conditionality. In addition to slowing down the process of channeling SDRs, IMF conditionality is a failed solution that mixes austerity and structural reform to worsen economic conditions, employment, labor and women’s rights, health and inequalities.
  • Middle-income countries (MICs), as well as low-income countries, must be able to access redirected SDRs. Many of those particularly over-indebted are MICs and the instruments offered, such as the IMF’s Poverty Reduction and Growth Fund or the World Bank’s International Development Association, focus on low-income countries. .
  • UK Treasury to consider the possibility of deploying UK reserve currencies, following the influx of SDRs, as a form of re-channeling. Such an approach will make the channeling of SDRs more liquid, opening up opportunities for re-channeling SDRs to support multilateral initiatives such as Covax, climate initiatives or the Global Social Protection Fund. The arguments that such an approach would lead to an imprudent balance in the UK’s foreign exchange reserves are not sincere. The status quo is shortsighted and unimaginative during this unprecedented global crisis.
  • UK channeling of SDRs to complement existing ODA and climate finance commitments. Loans or grants stemming from the SDR allocation should not result in a reduction in the UK’s broader aid or climate spending, as the SDR allocation itself adds to the budget. UK annual.
  • Finally, that all together, the United Kingdom must take a clearly ambitious approach on the issue of re-channeling SDRs., seeking the best method to maximize benefits for countries in urgent need of support that have so far been underserved by the international financial response to the pandemic, instead of taking the path of least resistance.

The above principles are politically and technically feasible. It is a question of will. We call on the UK to seize this unique opportunity for what is arguably the greatest financial contribution to global development, relative to the cost to the country, that the UK has ever been able to make.

Signatories

Bind
Bretton Woods Project
CAFOD
Christian help
Jubilee Debt Campaign
Oxfam FR
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