US Treasury Needs to Move Quickly on IMF Relief, and Support Full Amount, to Save Lives

The US Treasury Department needs to support the full amount of IMF Special Drawing Rights (SDRs) allowed without a congressional vote, as soon as possible, Center for Economic and Policy Research Co-Director Mark Weisbrot and Demand Progress Executive Director David Segal said today.

That amount, according to US law, would be 475.8 billion SDRs, or about $688 billion dollars at today's exchange rates.

The US House of Representatives passed legislation twice last year for an amount more than four times greater, or two trillion SDRs. The legislation instructed the US Treasury, at the IMF, to support this amount. But the Trump administration was opposed, and Republicans blocked matching legislation in the Senate. Earlier this month, new legislation supporting a two trillion SDR issuance was introduced in both the House and Senate. This week, the US Conference of Catholic Bishops and over 200 civil society organizations from around the world called on the G20 group of countries to support an allocation of $3 trillion worth of SDRs.

"This is something that almost all of the 189 member countries of the IMF want, and the majority of the US Congress, too," Mark Weisbrot said. "There's no reason for delay; it was only the Trump administration that was blocking it at the IMF, where the US has veto power over an SDR issuance, and that administration is gone."

There is no cost to the US government for an IMF issuance of SDRs, a reserve asset that the IMF creates and distributes to all its member countries. The Congressional Budget Office has confirmed this.

As many as one million people in the world are currently projected to die from COVID in just the next three months, according to the University of Washington. But millions more could die in the coming year from the indirect effects of the virus, including hunger and disease related to the worldwide recession. It is therefore urgent that these funds be made available quickly.

One of the main advantages of this form of relief is that it is simple and can be relatively quick. It was done in the 2009 World Recession, with the creation of 182.7 billion SDRs. In the US -- whose vote is required to pass this at the IMF -- there is a three-month waiting period after Treasury notifies Congress that it intends to support an SDR issuance at the IMF.

It is also worth noting that the United States lost about two million export-related jobs last year as a result of the world recession, as other countries cut their purchases of US exports. Most of these jobs will come back with a world economic recovery.

A letter from US Treasury Secretary Janet Yellen on February 25 expressed qualified support for an SDR issuance. While this is a welcome development, the letter proposed a number of conditions and concluded, "[W]e look forward to discussing potential modalities for deploying SDRs."

In addition, much of the public discussion has been focused on an SDR allocation valued at 500 billion dollars. This seems to have evolved from the approximately 500 billion SDR limit that can be approved by the Treasury without a congressional vote, as various governments -- including the new US administration -- concluded that Republicans would block any legislation for SDRs in Congress.

But an SDR allocation equivalent to 500 billion dollars would be 27 percent less than the 475 billion SDRs (worth $688 billion) that can be approved without Congress, and that would almost certainly be approved at the IMF if the US were to support it. This is a huge cut for the poorest countries of the world; Ethiopia, for example, would receive 208 million SDRs (worth $299 million), instead of 285 million SDRs (worth $410 million).

This is especially important because only a very small percentage of the SDRs is expected to be converted into hard currency; in 2009 it was less than 2 percent.

However, the new legislation proposed in both the House and Senate provides for two trillion SDRs, just as it did last year. One reason that the greater amount of SDRs would save many more lives is that the SDRs that are not used still have a potentially enormous beneficial effect on the economies of developing countries. They are a reserve asset that, for countries which can show need, can be converted to hard currency such as dollars. Therefore, these additional reserves help lower borrowing costs for poor countries; they also help them avoid balance of payments crises, as debt and fiscal crises, which can have enormous economic and human costs.

"It was a terrible injustice to the world, including to Americans, that Republicans were able to block the international relief that the whole world wanted, for most of last year. It remains a terrible injustice," David Segal said.

"But now the Biden administration can change that with the stroke of a pen. It should move quickly to approve the full amount (475 billion) of SDRs that it can do under US law."