VENICE – The International Monetary Fund took a step on Friday to reduce growing global inequality and help poor nations gain access to vaccines and pay off debts.
The decision is made at a crucial time as Covid-19 infections continue to spread among unvaccinated populations and more contagious variants of the coronavirus pose new health threats. The pandemic drained funds in poor countries last year, and the IMF this week forecast that faster access to vaccinations for high-risk groups could save 500,000 lives in the next six months.
The reallocation of so-called special drawing rights would be the largest such expansion of currency reserves in the history of the IMF. If the group’s board of governors is approved as expected, the reserves could be available by the end of next month.
“This is a shot in the arm for the world,” said Kristalina Georgieva, the IMF’s executive director. “The SDR allocation will help every IMF member country – especially vulnerable countries – and strengthen their response to the Covid-19 crisis.”
Ms. Georgieva made the announcement when the finance ministers and central bank governors of the Group of 20 Nations met in Venice to discuss international tax policy, climate change and the global economic response to the pandemic. The IMF, founded in 1944 to broker economic cooperation, has warned of a two-pronged economic recovery, leaving poor countries behind while the advanced economies experience rapid expansion.
Before the meetings, Treasury officials said expanding access to vaccines would be a key topic of discussion. It is also potentially controversial as some developing countries have suggested that advanced economies are not doing enough to ensure equitable distribution of vaccines.
“The immediate priority for developing countries is widespread access to vaccines that match their deployment programs,” said David Malpass, President of the World Bank, in a speech in Venice on Friday.
Mr Malpass urged G20 countries to share doses and remove all trade barriers to exporting finished vaccines and their ingredients. He noted that the pandemic had exacerbated structural weaknesses that had haunted developing countries for years.
“Even if this is achieved,” said Malpass of the expanded vaccine distribution, “the development will be exposed to years of setback and struggle.”
Closing the gap between industrialized and developing countries was a key issue on the first day of the G20 meeting in Venice. French Finance Minister Bruno Le Maire told reporters on Friday that inequality is a risk to European stability and security that could lead to an influx of refugees. He argued that it urgently needed to be addressed.
It remains to be seen how far the $ 650 billion will go to help developing countries vaccinate people before new varieties of the virus emerge, including the Delta variant, which has plunged many countries back into health crisis.
The United Nations Conference on Trade and Development this year called for special drawing rights worth US $ 1 trillion, which the IMF is to make available as a “helicopter drop-off for those left behind”.
Jubilee USA Network, a nonprofit advocating debt relief for poor countries, praised the IMF’s move and urged rich countries to do more to help.
“This is the largest emergency reserve fund facility we have seen and developing countries will receive more than $ 200 billion instantly,” said Eric LeCompte, executive director of the Jubilee USA Network. “Rich countries that are getting emergency reserves they don’t need should transfer those resources to developing countries struggling through the pandemic.”
The IMF, World Bank, World Health Organization and World Trade Organization have created a new task force on vaccines and have requested additional investment of $ 50 billion to expand access to supplies. The groups have also called on the G20 countries to set themselves the goal of vaccinating 40 percent of their population by the end of this year and 60 percent of their population by the middle of next year.
The United States has thrown its support behind the expansion of the IMF’s reserves, reversed the Trump administration’s policies, and angered Republican lawmakers in the process.
The Trump administration resisted the proposal last year, preventing it from moving forward. It argued at the time that topping up emergency reserves was an inefficient way to provide aid to poor countries and that it would provide more resources to advanced economies that do not need it, such as China and Russia.
Republican lawmakers have since accused the Biden administration of fortifying opponents’ fortunes while doing little to actually aid developing countries. Although Republicans have passed laws that would restrict the use of IMF reserves if approved, such proposals are unlikely to be adopted with the Democrats under the control of Congress.
Under Treasury Secretary Janet L. Yellen, the United States has taken a different view from the Trump administration, and the United States supports the allocation. Ms. Yellen believes that rich countries will have little need of SDRs, but that developing countries can use them to get enough money to vaccinate their people.
Special drawing rights work by allowing IMF member countries to redeem the asset for hard currency. Their value is based on a basket of international currencies and is reset every five years.
Each of the 190 member countries of the IMF receives an allocation of SDRs based on its shares in the fund, which is based on the size of a country’s economy. The new reserves would also be distributed according to this formula, with the largest economic powers such as the USA receiving the largest tranche.
The drawing rights cannot be used to buy things yourself, but they can be exchanged for currencies that can. If two countries agree, they can exchange their special drawing rights for cash, with the IMF acting as a middleman to facilitate trade.
This has led to some criticism that the program will not work unless rich countries voluntarily transfer their stocks to poorer countries.
“It is a legitimate concern that new SDRs will mainly end up in the hands of large and rich countries that have little use for them, and not the smaller and poorer countries that really need them,” said Eswar Prasad, Der International former China head of the Monetary Fund. “A shift from SDRs to the latter group, in addition to increasing the total volume of SDRs, would be helpful in dealing with pressures on the global financial system.”
To address some of these concerns, the IMF is working to develop a new trust fund into which rich countries can channel their excess SDRs. The aim is to create a $ 100 billion dollar pool from which poor countries can borrow so that they can expand their health systems or combat climate change in conjunction with existing IMF programs.
The United States previously announced that it would provide about a fifth of its allocation, worth about $ 20 billion. At the urging of the United States, the IMF is also working to create more transparency about the use of the assets so that it is clear that American opponents are not benefiting from the proceeds.
The IMF Board of Governors is expected to vote in early August.