Will the latest move by the IMF lead to the recovery of a people? - Africa News Quick
  • August 12, 2021

Will the latest move by the IMF lead to the recovery of a people?

Last week, in response to the global economic crisis caused by the Covid19 pandemic, the governors of the International Monetary Fund (IMF) approved a historic allocation of $ 650 billion in special drawing rights (SDRs), an international reserve currency held by the IMF. The financing will be distributed among the reserves of the 190 member countries of the IMF, which means that countries that need it can use it to pay for vital public services, without increasing their debt levels.

This decision is a major achievement of the efforts of civil society around the world. entrepreneur for this much-needed respite for the global South to respond to the pandemic.

The SDR allocation is an important opportunity for the poorest countries to meet their individual needs at this time of crisis, especially since it does not come with any attached political conditions. At the same time, their potential to do good is undermined by the archaic and unfair rules of the global economic system that are manipulated against the Global South and those most in need.

First, SDRs are allocated to countries according to the IMF’s quota formula, which means that the poorest countries in the world that need the most support will only receive about 3% of the total allocation, while countries rich will receive more than 60%.


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Second, this same quota formula is also used to distribute voting rights on the IMF board, also known as the “one dollar one vote system.” This means that the United States alone has the power to block an allocation that is being made, which is precisely what the previous American administration did. As a result of these rules, the entire world lost critical liquidity support right at the beginning of the crisis. This same configuration also means that the power to change the quota formula rests with the same small group of rich countries that benefit from the current system.

Third, while rich countries signaling They will funnel some of their unused SDRs to countries in need, the fine print in those deals has the potential to undermine the benefits of SDRs and further deepen unequal power relations between the global North and South. By making these unused SDRs available as loans, rather than grants, they run the risk of further contributing to an unsustainable debt burden; while counting these contributions as official aid abroad may replace, rather than add to, existing aid commitments.

At the same time, the IMF will administer the main mechanisms being considered to channel these unused SDRs, which means that recipient countries are likely to require tough austerity measures. Despite the IMF making headlines that its dogmatic adherence to austerity has ended, it has actually continued to prescribe developing countries to return to “more ambitious” fiscal contractions beginning in 2021 and into 2025.

That It has been shown Time and again that early and overly aggressive budget cuts after crises do not work and will lead to more devastating cuts in critical healthcare and other public services, increased burdens of unpaid care work, and further economic contractions. It will also further reduce the fiscal space needed to combat the climate crisis. That is the exact opposite of what is needed after this unprecedented global economic blockade.

Instead, countries need the fiscal and political space to respond to the ongoing devastating impacts of the pandemic and achieve a ‘People Back’, including the ability to finance vaccines and strengthen public health and social protection systems. The need for economic stimulus at this time of crisis is already widely accepted, but it appears to be a privilege that only rich countries can pursue.

While countries like the UK enjoy the unprecedented high immunization rates and stimulus packages that they deployed in response to the pandemic, the world’s poorest countries lag behind in what is called “the great divergence.” This failed international financial response to the pandemic is a moral outrage and should force us to rethink the global economic system that brought us here.

Meanwhile, while SDRs are only a limited way in which fiscal space needs to be aggressively expanded in the recovery period, it can offer vital respite to public budgets that are extremely constrained by large debt pressures and needs. emergencies of the pandemic. In the months and years to come, it will be critical that governments can truly spend their SDRs where they are needed most, in a recovery that puts people and planet first, determined through public and transparent national dialogues and in ways that are democratically accountable.

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