IMF Head, Kristalina Georgieva
IN an attempt at improving aids coming to vulnerable countries of the world, International Monetary Fund (IMF) governing board has increased the lending capacity of the institution by $650bn.
IMF head, Kristalina Georgieva said this Special Drawing Rights approved by the institution’s board is the largest in its history and is a shot in the arm for the global economy at a time of unprecedented crisis.
According to her “It will particularly help our most vulnerable countries struggling to cope with the impact of the Covid-19 crisis,”
The SDR will be allocated to vulnerable countries on quota basis, emerging and developing nations would receive around $275 billion in total. The program, which had already been approved by the IMF’s executive board in mid-July, will be implemented on August 23.
But “we will also continue to engage actively with our membership to identify viable options for voluntary channeling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth,” Georgieva said.
Wealthy countries could, for example, transfer their SDRs by using those attributed to them to finance the IMF’s Poverty Reduction and Growth Trust Fund, which would increase the supply of loans to low-income countries.
The “new SDRs will bring much-needed liquidity to struggling developing countries without adding to their unsustainable debt burdens,” Nadia Daar, head of the Washington-based NGO, said in a statement.
It is “unfathomable that wealthy nations would fail to reallocate a substantial portion of their SDRs — at least $100 billion as agreed by the G7” at a mid-June summit, she said.
It is also necessary for governments to “work transparently and together with civil society” so that SDRs are used wisely,” Daar added.
SDR was created in 1969, its value is based on a basket of five major international currencies: the dollar, the euro, the pound, the renminbi or yuan and the yen.
Once issued, SDRs can be used either as a reserve currency that stabilizes the value of a country’s domestic currency or converted into stronger currencies to finance investments.
For poorer countries, the interest is also to obtain hard currencies without having to pay substantial interest rates.