Rich countries need to share the IMF’s $650bn gift

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International Monetary Fund updates

The writer, a Labour MP, is a former chief secretary to HM Treasury and chairs the global parliamentary network on the World Bank and IMF

When the IMF decided to mint $650bn of special drawing rights (SDRs), effectively creating money to be distributed to its 190 national members, it made a powerful weapon in the war on want. But this will only work if the IMF’s shareholders now agree three big steps to move the money out of the vaults and into the assault on poverty.

The huge issue of SDRs, made possible by the change of administration in Washington, could not come soon enough. The Covid-19 shock has led to the first global rise in poverty this century. The world’s poorest may spend a combined total of 120m additional years destitute. The struggle is toughest for those governments already facing difficulties: even before Covid, the debts of the world’s poorest nations had swelled 9.5 per cent to $744bn.

Unless we are bolder, we risk a great divergence in the world economy where the rich recover and the poor do not. IMF policymakers, not known for alarmist language, warn the social fabric in fragile places is in peril. Covid vaccines are only slowly getting into the arms of poorer citizens and while “building back better” is a nice idea, slogans mean little to the insolvent. It’s now time for leaders to back their battle-cries with some cheques: about $200bn to tackle Covid-19 and $250bn to invest in climate-friendly infrastructure in poorer countries.

The IMF agreement on SDRs will help. Invented in 1969 and originally pegged to gold, SDRs are a unit created by the IMF that can sit in member countries’ reserves. They give governments vital wriggle room to redeploy funds or exchange their stock for currencies, including dollars.

The new SDR issue will not be a panacea for poverty. But its impact can be maximised in the following ways.

First, richer nations must share all of their new SDRs with poorer nations. Because of the way they are allocated, just 4 per cent will flow to poorer nations. Of the new SDR issue, $623bn is set to flow to richer nations, which frankly do not need it.

We need a bold proposal to issue these SDRs without the old-fashioned traditions that meant wealthier countries only share 50 per cent of their quotas. The UK should lead the negotiation. It might help redeem our global reputation after we slashed our aid budget by £4bn in the middle of a pandemic despite the protests of every living former prime minister. 

Second, we need to ensure that SDRs aren’t simply loaned to poorer nations, even at zero per cent interest. We can maximise our help by maximising the value of SDRs we convert to grants. This is perfectly possible. As charities such as Cafod have shown, everything hinges on how countries such as the UK choose to use the foreign currency and SDRs in our reserves. When the new SDRs arrive this autumn, we could substitute them for a portion of our stocks of dollars, sell the dollars for pounds and redirect this windfall into aid.

This finance from richer nations could immediately supplement grant contributions to fighting Covid through donations to Covax, the programme to distribute vaccines to poorer countries, or the Covid-19 Technology Access Pool, a World Heath Organization initiative to boost the supply of Covid-19 health products globally. This increased funding would speed up the rollout of global vaccinations and slow down the mutation of new variants.

Finally, richer nations need to stay honest. We must refuse to dodge existing aid commitments by trying to count the SDRs we share as overseas development aid. It would be perverse if the IMF’s step forward triggered a step back in grant funding for the poorest.

Global co-operation has worked miracles during the pandemic, leading to the development and rollout of vaccines in just a year. Now the same effort must be made to prevent a subsequent pandemic of poverty.

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