U.S. stalling massive IMF
liquidity boost over Iran, China:
sources
WASHINGTON
(Reuters) - U.S. opposition to opening new avenues
of funding for Iran and
China is preventing the International Monetary Fund from deploying a powerful
tool to help countries fight the economic impact of the coronavirus, according
to two sources familiar with the matter.
A massive IMF
liquidity injection through issuance of new Special Drawing Rights, something
akin to a central bank “printing” new money, has the backing of many finance
ministers, prominent economists, and non-profit groups.
It could
provide hundreds of billions of dollars in urgently needed foreign exchange
reserves for all of the IMF’s 189 member countries, and finance officials are
debating the issue during this week’s virtual IMF and World Bank Spring
Meetings.
But sources
said the United States, the IMF’s dominant shareholder, actively opposed the
new fundraising.
The Trump
administration does not want Iran and China to have access to billions of
dollars in new resources with no conditions, two of the sources familiar with
the IMF’s deliberations said, asking not to be identified given the sensitivity
of the issue.
They added that the IMF’s move
would give even wealthy countries new assets that are not necessarily needed.
Even embattled Venezuela would get an allocation, although the IMF has blocked
Caracas’ access to its SDRs while international recognition of its government
remains unclear.
India also opposes a new SDR
allocation, the two sources said, but New Delhi’s reasons have not been made
known. A spokesman for India’s Finance Ministry did not respond to a request
for comment.
MONEY FOR NOTHING?
SDRs USDXDR=R, based on
dollars, euro, yen, sterling and yuan, are the IMF’s official unit of exchange.
Member countries hold them at the Fund in proportion to their shareholdings.
The IMF last approved a
$250-billion new allocation of SDRs in 2009, boosting liquidity for
cash-strapped countries during the last financial crisis.
Doing so again now could
provide more flexibility to the 102 countries that have already sought IMF emergency
loans and grants, and allow aid to flow to high-debt countries that can’t
qualify for new IMF loans, such as Argentina and Zimbabwe.
An SDR expansion has attracted
some celebrity advocates, such as investor George Soros and U2 lead singer
Bono’s ONE anti-poverty organization, along with trade unions and faith-based
groups.
IMF Managing Director
Kristalina Georgieva floated the idea of a $500 billion SDR issuance in March
to G20 finance officials. But the group said in a statement after a
videoconference on Wednesday there was “no consensus on the issue.”
Georgieva, who also has
acknowledged U.S. resistance, told a news conference on Wednesday: “What we are
concentrating on, is to act decisively with what we have, and where there is
full consensus among members. We recognize that there are other options to be
explored, and we will continue to do so,” she said.
Among these efforts is
persuading wealthier countries to donate or lend their existing, unused SDRs to
IMF lending facilities for poor countries. The Fund is trying to triple the
resources in its Poverty Reduction and Growth Trust to $18 billion, she said.
Some say $500 billion is too
little. Former U.S. Treasury secretary Larry Summers and former British Prime
Minister Gordon Brown, who both pushed for the 2009 SDR allocation, called on
Wednesday for a $1 trillion-plus SDR issuance.
“If ever there was a moment for
an expansion of the international money known as Special Drawing Rights, it is
now,” they wrote in an op-ed in the Washington Post Wednesday.
On Tuesday, the IMF said the
recession sparked by the virus would be far deeper than the Great Recession of
2008 and 2009, shrinking the global economy by 3.0% in 2020.
HIGH TENSIONS
The Trump administration’s
opposition comes at a time when U.S. tension with China is running high over
the causes of the virus and a long-running trade war. U.S.-Iran tension nearly
boiled over into armed conflict in January.
The U.S. Treasury Department
has pressed the IMF instead to focus on quickly deploying its $1 trillion in
existing resources, including expanding emergency loans and grants to more than
100 countries that have sought aid.
A U.S. Treasury spokeswoman
declined to comment specifically on the SDR allocations, but said the agency
supported a variety of efforts at the IMF to provide rapid, targeted assistance
to countries in need.
“We support accelerating IMF
procedures, higher access from the IMF’s emergency lending facilities, and
support from donors for the IMF’s assistance to low income countries, including
grants to help these countries make debt payments to the IMF,” the spokeswoman
said in an emailed statement.
PATIENT APPROACH
French Finance Minister Bruno
Le Maire argued in favor of a new SDR allocation of about $500 billion, saying
in a statement to the IMF’s steering committee it would provide an extra $16
billion to low-income nations that could be “decisive” in battling the virus.
Columbia University professor
Joseph Stiglitz, a former World Bank chief economist, said new SDRs would not
cost U.S. taxpayers anything.
“And if we can help emerging
markets and developing countries, it will rebound to us in terms of health and
in terms of the economic recovery,” he said.
IMF officials, while
acknowledging that a deal for a new SDR allocation is unlikely this week, are
taking a patient approach, hoping to eventually persuade U.S. Treasury
officials of the merits of the move.
“Nothing is off the table,” IMF
chief economist Gita Gopinath told Reuters on Tuesday.
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