This is the plan to save poor countries from the pandemic

In a global economy defined by extreme levels of inequality, the pandemic has exacerbated divisions. The wealthiest countries in North America and Europe are on track for a strong recovery, having used their fortunes to save their economies and secure huge stocks of COVID-19 vaccines. Poor countries face the continued devastation of the coronavirus, almost completely unprotected and with limited resources due to their ever-growing debts.

Now, fears that the world might emerge from the pandemic as a more unequal place than ever has sparked a major new initiative to close the gap: As part of a near-finalized proposal, the International Monetary Fund (IMF) would issue $ 650 billion in reserve funds, essentially creating money that struggling countries could use to buy vaccines, fund medical services, and pay off debts.

Such a measure would represent “perhaps the largest distribution of capital since the end of World War II”, United Nations Development Program administrator Achim Steiner said at a press conference this week.

However, international development experts say that the mere creation of new reserves would have limited benefits for poor countries, unless more prosperous countries voluntarily transfer part of their financial holdings to them, a solution that IMF government officials hope to promote.

The IMF’s executive board is expected to present the proposal at a meeting on Friday before submitting it for final approval to its board of governors, made up of representatives of the fund’s 190 member states. Officials expect the initiative to be fully authorized before August.

The International Monetary Fund, an institution known to all as impenetrable, governed by unique conventions and a blatant respect for technocratic jargon, takes an approach that involves not just money but special drawing rights – paid reserve funds by the institution. the accounts of its Member States. Governments can exchange these SDRs for ordinary currencies, to invest them in whatever they need.

According to IMF rules, member states contribute to the institution’s coffers. Their monetary commitments are defined according to the size of their economies and their right to vote is proportional to what they pay. New reserves will be allocated according to this ranking, meaning that major economic powers like the United States would get the largest share.

Without a mechanism allowing rich countries to redirect part of their assets, 58 high-income countries would capture $ 438 billion in new reserves, according to an analysis released Thursday by the United Nations Development Program.

In contrast, a group of 82 countries assessed as “highly vulnerable by debt” – including around 20 of the world’s poorest countries – would receive only $ 54.5 billion, or 8% of the total. This equates to only five percent of its total external debt.

Fund officials are drawing up a plan in which the richer member states would transfer part of their reserves to the poorer countries to enable them to reduce their debt and expand their poverty reduction programs.

“We are working to amplify the impact of this new allocation of funds,” IMF Managing Director Kristalina Georgieva said Wednesday in a speech at the African Development Bank.

He said the fund’s plan “would motivate countries to voluntarily channel some of their SDRs”, with the aim of generating “$ 100 billion for the poorest and most vulnerable nations.”

The United States is prepared to funnel about a fifth of its allocated amount, which is worth around $ 20 billion, according to a treasury official who requested anonymity. The Biden administration seeks to persuade other members of the Group of Seven to contribute similar shares.

Poor countries borrowing from the fund could use the money to expand health systems or tackle climate change alongside existing IMF programs. This trust fund is expected to be a topic of discussion next month at the Group of Seven finance ministers meeting in Italy.

In Washington, the universal nature of the proposed allocation has met with opposition from Republicans, who argue that it would increase the finances of American adversaries such as China, Russia and Iran, and do little to help poor countries.

This month, Republican Senator from Louisiana John Kennedy introduced a bill that would prevent Special Drawing Rights allocations from going to “perpetrators of genocide and states sponsoring terrorism” without congressional approval.

The Trump administration opposed the proposal for similar reasons, while the Biden administration embraced the idea as a way to help developing countries without straining the pockets of taxpayers.

Debt is the main concern of low-income countries, as many have entered the pandemic with severe debt levels.

In 2019, 25 countries – most in Africa and South Asia – were spending more on debt payments to large financial institutions in rich countries than on education, health and support programs for poor communities, according to a report. UNICEF study.

An IMF reserve injection would not change the market incentives that have diverted vaccines to the world’s wealthiest people, but it could support the purchasing power of governments now forced to prioritize debt repayment.

“How many more waves does it take for us to realize this pandemic is not going to end, for us to be able to vaccinate the world?” Steiner said. “Right now we are in the middle of this nightmare and we can act faster.”

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