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Established in 2006 as a Community of Reality

Welcome to the Neno's Place!

Neno's Place Established in 2006 as a Community of Reality


Neno

I can be reached by phone or text 8am-7pm cst 972-768-9772 or, once joining the board I can be reached by a (PM) Private Message.

Established in 2006 as a Community of Reality

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Established in 2006 as a Community of Reality

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    Why IMF Help for Poor Nations Will Benefit Rich Ones

    Rocky
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    Why IMF Help for Poor Nations Will Benefit Rich Ones Empty Why IMF Help for Poor Nations Will Benefit Rich Ones

    Post by Rocky Fri 02 Apr 2021, 8:38 am

    [size=60]Why IMF Help for Poor Nations Will Benefit Rich Ones
    By 
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     and 
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    April 1, 2021[/size]









    The International Monetary Fund is preparing to give its member countries the biggest resource injection in its history, $650 billion, to boost global liquidity and help emerging and low-income nations deal with mounting debt and Covid-19. The choice of vehicle -- reserves known as special drawing rights -- has drawn some criticism. Under IMF rules, SDRs are distributed in proportion to each country’s share in the fund -- roughly equal to their economic output. That means that 58% of the new SDRs go to advanced economies, with 42% for emerging and developing economies and just 3.2% to the smaller subset of low-income nations.


    1. Why now?

    U.S. President Joe Biden [You must be registered and logged in to see this link.]of his predecessor, Donald Trump, whose Treasury secretary, Steven Mnuchin, said the IMF plan didn’t do enough to target the aid to poorer countries. The U.S. is the IMF’s largest shareholder and carries a de facto veto on such matters. IMF Managing Director Kristalina Georgieva said she plans to have the final proposal ready for the board to approve in June.. U.S. Treasury officials project that central banks could receive the assets in August.



    [size=18]Reserves Infusion

    IMF members are set to receive $650 billion in special drawing rights

    Source: International Monetary Fund
    Note: Dollar estimates are based on IMF quota share

    2. What are special drawing rights?

    SDRs are an [You must be registered and logged in to see this link.] that can be converted into five currencies: the dollar, euro, yen, British pound and yuan. When SDRs are allocated by the IMF, recipient nations can hold them as part of their foreign currency reserves or exchange them for the hard currency of other IMF members. (The seller pays 0.05% interest on such sales if its SDR holdings dip below its IMF-allotted level.) The appeal of SDRs to poorer nations is that they come condition-free, unlike many of the fund’s loan programs.


    3. What are SDRs used for?

    Under the IMF’s rules, they must meet a global need for more long-term reserve assets and can’t fuel inflation. The most recent and largest-ever ($250 billion) general allocation of SDRs came in response to the 2009 financial crisis. This time, some nations might put the money toward paying for vaccines and medical equipment. Argentina [You must be registered and logged in to see this link.] to be weighing using SDRs to make a payment due to the IMF in September toward the [You must be registered and logged in to see this link.] on a loan it received in 2018, the [You must be registered and logged in to see this link.] by the fund. Many countries will simply hold onto the reserves, if 2009 is any guide.


    4. How would this SDR allocation be divided?


    About $21 billion would go to low-income countries and $212 billion to other emerging market and developing countries, without counting China, according to U.S. Treasury Department calculations.

    5. Why would the IMF go this route to help poor nations?

    It’s the fastest way to get resources to countries that need them, even if the lion’s share goes to richer countries. IMF loans, by contrast, take time to negotiate, and some nations in need might be reluctant to seek them for fear of creating a negative perception with investors. Also, lower-income countries are the ones most likely to convert their SDRs into other currencies to meet balance of payments and fiscal needs. Still, African finance ministers [You must be registered and logged in to see this link.] that the planned distribution of SDRs “would barely be adequate to meet the continent’s financing needs,” and they urged the IMF to consider ways to reallocate SDRs specifically to low-income and middle-income countries.

    6. Is there a way to get more money to poor countries?


    The IMF says it’s [You must be registered and logged in to see this link.] for wealthier countries to lend or donate their newly acquired SDRs to vulnerable and low-income nations. Group of Seven finance ministers [You must be registered and logged in to see this link.] they would “explore how countries could voluntarily recycle their SDR holdings to further support low-income countries.” U.S. Treasury Secretary Janet Yellen has [You must be registered and logged in to see this link.] Group of 20 nations to “channel” their excess SDRs to low-income countries. One [You must be registered and logged in to see this link.] put forward in a United Nations discussion paper was for richer countries to put their unneeded SDRs into either a new trust fund, for use by other members, or into one of the IMF’s existing funds such as the Poverty Reduction and Growth Trust or the Catastrophe Containment and Relief Trust. Some two-thirds of the PRGT’s $24 billion in new loan resources during the current crisis, used for interest-free lending to the poorest countries, has come from the use of existing SDRs, [url=https://www.imf.org/en/About/FAQ/special-drawing-right#Q1. What is an SDR?]according[/url] to the IMF.

    7. Who stands to benefit?

    UBS AG economist Arend Kapteyn estimates that the SDR creation will boost global foreign exchange reserves by 4.5%, with countries including Venezuela, Pakistan, Ecuador, Kazakhstan, Turkey and Argentina seeing the biggest boost in percentage terms among emerging markets. All of those countries would see an increase of 10% or more in their reserves. Smaller island nations like Antigua and Barbuda and St. Lucia, greatly reliant on tourism, also would see large boosts relative to existing reserves. Morgan Stanley estimated that Chad and Zambia -- two nations that have requested debt restructuring under a framework agreed to by the G-20 -- could also see significant reserves increases.

    8. What is the opposition to the idea?

    Like the 2009 allocation of SDRs, the one currently under consideration has critics who [You must be registered and logged in to see this link.] that such unconditional financing contributes to [You must be registered and logged in to see this link.], could fuel inflation and provides added international reserves the world doesn’t need. Some Republicans in Congress say the new SDRs will be used to pay off the developing world’s debts to China -- loans that might otherwise be restructured or even written off entirely -- and bankroll U.S. adversaries including Iran, Venezuela and Russia. (The U.S. Treasury Department says [You must be registered and logged in to see this link.] to purchase SDRs from any country with which it currently has sanctions -- a list that includes Iran, Syria and Venezuela -- and will work with other countries to convince them to do the same.) Both the U.K. and U.S. have pledged that any allocation will be partnered with a renewed focus on transparency and accountability in the use of SDRs.

    The Reference Shelf

    [/size]

    • An IMF [You must be registered and logged in to see this link.] on SDRs.

    • The Center for Global Development [You must be registered and logged in to see this link.], “How Might an SDR Allocation Be Better Tailored to Support Low-Income Countries?”

    • Isabelle Mateos y Lago, a managing director at BlackRock, wrote [You must be registered and logged in to see this link.] on “Managing global liquidity through COVID-19 and beyond.”

    • The SDR plan “would be a clumsy and ill-targeted way” to help countries in financial distress, a former director of the IMF Institute and former deputy director of the IMF’s European Department [You must be registered and logged in to see this link.].


    [size]
    — With assistance by Zoe Schneeweiss


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    [/size]

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