IMF Board Supports $650 Billion Aid Plan to Help Poor Countries

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VENICE — The International Monetary Fund took a step Friday to alleviate rising global inequality and help poorer nations access vaccines, saying its board of directors has approved a release plan. $650 billion reserve fund countries can use to purchase vaccines, finance healthcare, and pay off debts.

The decision comes at a crucial moment as Covid-19 infections continue to spread among unvaccinated populations and more contagious variants of the coronavirus pose new health threats. The pandemic has drained poor countries’ finances over the past year, and the IMF predicted this week that faster access to vaccines for high-risk populations could save 500,000 lives over the next six months.

The new allocation of so-called Special Drawing Rights will be the largest such expansion of foreign exchange reserves in IMF history. If approved as expected by the group’s board of directors, the reserves could become available by the end of next month.

“This is a weapon for the world,” said Kristalina Georgieva, managing director of the IMF. said in a statement. “SDR allocation will help every IMF member country, especially vulnerable countries, and strengthen their response to the Covid-19 crisis.”

Georgieva made the announcement as finance ministers and central bank governors of the 20-nation Group meet in Venice to discuss international tax policy, climate change and the global economic response to the pandemic. Established in 1944 to mediate economic cooperation, the IMF warned of a two-pronged economic recovery as poor countries lagged behind as advanced economies experienced rapid expansion.

Ahead of the meetings, Treasury Department officials said expanding access to vaccines would be a central topic of discussion. It’s a potentially controversial issue, as some developing countries argue that developed economies are not doing enough to ensure fair distribution of vaccines.

“The immediate priority for developing countries is widespread access to vaccines that fit their distribution schedules,” World Bank chief David Malpass said in a speech in Venice on Friday. Said.

Mr Malpass urged G20 countries to share doses and remove all trade barriers to exporting finished vaccines and their components. He noted that the epidemic aggravated the structural weaknesses that had followed developing countries for years.

Regarding expanded vaccine distribution, Mr Malpass said, “Even if this is achieved, development faces years of setback and struggle.”

Narrowing the wealth gap between advanced and emerging economies was a central issue on the first day of the G20 meetings in Venice. French Finance Minister Bruno Le Maire told reporters on Friday that inequality is a risk to Europe’s stability and security that could lead to an influx of refugees. He argued that it should be resolved immediately.

We’ll see how far $650 billion will go to help developing countries racing to vaccinate people. put many countries back into health crisis.

The United Nations Conference on Trade and Development has called for the provision of $1 trillion in Special Drawing Rights by the IMF this year as “a drop of helicopter money for those left behind.”

Jubilee USA Network, a nonprofit that advocates 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 we’ve ever seen, and developing countries will immediately receive more than $200 billion,” said Eric LeCompte, executive director of the Jubilee USA Network. Rich countries that get emergency reserves they don’t need should transfer these resources to developing countries struggling with the pandemic,” he said.

The IMF, World Bank, World Health Organization and World Trade Organization created a new vaccine task force and called for an additional $50 billion investment to expand access to supplies. The groups also appealed to G20 countries. set a goal 40 percent of their population have been vaccinated by the end of this year and 60 percent by the middle of next year.

The United States backed the expansion of IMF reserves, reversing Trump administration policy and angering Republican lawmakers in the process.

The Trump administration opposed the proposal last year and blocked its progress. He argued that increasing emergency reserves at the time was an inefficient way of providing aid to poor countries, and doing so would provide more resources to advanced economies like China and Russia that did not need help.

Republican lawmakers have since accused the Biden administration of bolstering rivals’ wealth while doing little to really help developing nations. While Republicans have passed legislation that would impose restrictions on how IMF reserves are used if authorized, such proposals are unlikely to pass through Congress-controlled Democrats.

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 use SDRs very little, but emerging economies can use them to get enough money to vaccinate their people.

Special Drawing Rights work by allowing IMF member countries to convert the asset into fixed currency. Their value is based on a basket of international currencies and resets every five years.

Each of the 190 countries that are members of the IMF receives an SDR allocation based on the size of a country’s economy and their share in the tracked fund. New reserves will also be distributed according to this formula, and the biggest economic powers like the USA will get the biggest slice.

Withdrawal rights cannot be used to buy things on their own, but can be exchanged for currencies that can. If the two countries agree, they can exchange Special Drawing Rights for cash, and the IMF acts as an intermediary to facilitate trade.

This has led to some criticism that the program will not work unless rich countries voluntarily transfer their assets to poorer countries.

“It is a legitimate concern that the new SDRs will be in the hands of the big, rich countries that are of little use to them, rather than the smaller and poorer countries that really need them,” said Eswar Prasad of the International. Former Chinese head of the Monetary Fund. “Reallocation of SDRs to the second group will help in tackling stresses on the global financial system as well as increasing the overall volume of SDRs.”

To address some of these concerns, the IMF is trying to develop a new trust fund through which rich countries can channel their excess SDRs. Addressing climate change in conjunction with existing IMF programs.

The United States has previously stated that it will use about one-fifth of its allocation, or about $20 billion. At the insistence of the United States, the IMF is also working to create more transparency over how assets are used so that it becomes clear that American adversaries are not benefiting from the proceeds.

The IMF board is expected to vote in early August.

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