The IMF and Special Drawing Rights: Saving lives, backlash and attempted coup, and structural reform

In August, the IMF distributed $650 billion worth of SDRs to its member countries. These are international reserve assets, that can be converted into hard currencies. This is probably the most important constructive step that the IMF has taken

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I’m going to look at an ongoing struggle that doesn’t get much attention, but that I think is important for several reasons: most importantly because so many lives are at stake. But also because I think it shows some important things about the fight for harm reduction and even structural change at multilateral institutions, including the most powerful of these institutions, the International Monetary Fund (IMF).


On August 23rd, the IMF distributed $650 billion worth of Special Drawing Rights (SDRs) to its member countries. These are international reserve assets, created by the IMF, that can be converted into hard currencies, including dollars and euros.


This issuance is unprecedented in terms of its size and impact. It is probably the most important constructive step that the IMF has taken — and therefore the most important thing the high-income countries that control the IMF (overwhelmingly the United States) — have done to help low- and middle-income countries since the pandemic began.


Don’t get me wrong — it is still disgraceful that the high-income country governments have done so little to help the rest of the world since the pandemic began. And also much more disgraceful that these governments have used their control over vaccine production to prevent developing countries from producing life-saving vaccines that many desperately need — which others have already mentioned.


Those of us who care about the 6 billion people on this planet who do not live in high-income countries must seek to take advantage of any opportunity to reduce the harm caused by this fundamentally unjust economic and political order — the same political and economic order that has held back access to vaccines for much of the world.


This issuance of SDRs will probably save hundreds of thousands of lives throughout the world. Partly this is by increasing the capacity of many developing countries to deal with COVID itself. But millions of people also die from the economic effects of the world recession and disruptions of economic activity that result from the pandemic/recession, as well as the very uneven economic recovery. The World Food Program in June estimated that the number of people who were acutely food insecure or at high risk increased by more than 120 million since the start of the pandemic, an 81 percent increase. This results in many deaths, because malnutrition increases the number of preventable deaths from other causes, especially among children.


And so these international reserve assets issued by the IMF can save lives by helping to prevent economic crises, including balance of payment crises and debt crises. They can be used to pay off debt to the IMF. They can also be converted to hard currency in order to pay for essential imports, including vaccines, medicine, food, and infrastructure needed for things like safe water.


These SDRs are not loans — they do not have to be paid back. And unlike almost all IMF loans, they do not have any conditions attached to them. Those who are familiar with the macroeconomic policy and conditions attached to IMF lending for decades will know immediately what a big plus this is, and what a big difference this makes for the net impact of this distribution.


Of course, we are not the only ones to notice how different this whole distribution is from typical IMF programs and lending, which generally carry conditions on what borrowing governments’ economic policies will be.


The IMF is normally a neocolonial institution in many important ways. Despite having 190 member countries, it is controlled by the high-income countries — overwhelmingly by the US government, because Europe almost always defers to the US at the IMF; and together the high-income country group has 60 percent of the vote. So, the IMF governing bodies normally don’t even have to vote; they just reach an agreement, with the US generally having a veto over decisions that it doesn’t want.


For example: IMF Managing Director Kristalina Georgieva first proposed the IMF issuing SDRs in March of 2020, in response to the pandemic — and she said that the needs of developing countries were at least $2.5 trillion. The Trump administration — that would be then treasury secretary Mnuchin — immediately rejected the idea of any issuance, and that was the end of discussion at the IMF.


The US Congress can overrule the Treasury Department — which normally is in charge at the IMF — and so a number of organizations (including my own, CEPR) went to Congress and asked for an issuance worth trillions of dollars. This coalition brought together more than 100 organizations representing tens of millions of people; and the US House passed legislation for $2.8 trillion worth of SDRs. But the Republicans blocked it in the Senate.


The fight over the SDRs in the US Congress brought more attention to the issue, and support of Democrats in Congress. As a result, when Biden took office, the Treasury supported an issuance of $650 billion — which is close to the most that US Treasury can support at the IMF without a vote of Congress. And so that happened in August, since almost all of the rest of the world was for it.


But the fight continues, because the developing world needs much more. The US House of Representatives has passed legislation again for the US government to support another $1.5 trillion worth of SDRs.


The issuance of SDRs doesn’t cost any government anything — including the US. In that sense, it is similar to quantitative easing of central banks. The US Federal Reserve has created more than $3.6 trillion dollars since the pandemic began; the European Union has created trillions of euros. The IMF is not a world central bank and there is no world currency; but the rules and arrangements of Special Drawing Rights allow for it to provide some similar help to the world economy.


The high-income countries have also had many trillion dollars in expansionary fiscal policy. The US government ran unprecedented deficits: 15 percent of GDP for 2020, and 12.4 percent this year.


But again, the governments of low- and middle-income countries generally do not have the same capacity as the high-income countries to boost their economies in a pandemic/recession — for a number of reasons that I won’t have time to go into here. So the SDRs can really make a difference.


In conclusion: As the saying goes, no good deed goes unpunished. The head of the World Bank, David Malpass, launched an investigation in January of this year, targeting IMF Managing Director Kristalina Georgieva. It was based on very dubious allegations dating from when she was CEO at the World Bank, in 2017. Malpass is a Trump appointee who advised Trump in his 2016 presidential campaign. Malpass is also on the record saying that “he did not believe that carbon dioxide created from human activity was warming the planet.” (This by itself says a lot about the institutions of “global governance,” as they are called — how can a climate denier be running the largest multilateral creditor institution in the world?)


Nobel laureate Joseph Stiglitz called the investigation that targeted Georgieva an attempted coup d’etat, and it sure looked that way. Finally, after hours of discussion at the executive board on October 11, the board issued a statement “reaffirm[ing] its full confidence in the Managing Director’s leadership …” But the US Treasury Department issued its own statement — more unfriendly to Georgieva — the same day, reflecting the differences between the US and its allies.


The struggle for more SDRs continues, even as the ones issued are being used by dozens of countries. The fight for SDRs is different from most of the struggles involving the IMF over the past few decades, in that it is a fight for a beneficial policy, rather than the many fights against harmful policies. For example, in 2018 the IMF made its largest loan ever to Argentina, $57 billion, and the country is still suffering from the devastating impact of the conditions attached to it. And right now, there is a fight to stop the IMF from adding surcharges to the cost of its loans, which are grossly unfair and harmful, as they apply to some of its most heavily indebted borrowers.


Ultimately, the IMF — the most powerful multilateral financial institution in the world — will change when its governance changes; or, as began to happen to a large degree in the first decade of this century, after the IMF’s disastrous intervention in the Asian Financial Crisis, countries stop borrowing from it. Until then, there will be a lot of work ahead to hold it accountable as much as possible. And for anyone here who can influence or talk to their own government to support the next issuance of SDRs, or the elimination of surcharges, we need your help.


Speech delivered at the Arise Festival of Labour's Left Ideas on November 27, 2021.


- Mark Weisbrot is Co-Director of the Center for Economic and Policy Research in Washington, DC. 


Reproduced with authorization from CEPR.
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