The decision was announced despite India’s resistance to the proposal
A fresh SDR issue by the IMF is likely to help the least developed and developing countries facing foreign exchange crisis in the wake of the pandemic
G20 finance ministers late on Wednesday finally gave their nod to the International Monetary Fund (IMF) to issue fresh Special Drawing Rights (SDR) worth $650 billion to member countries, which will help boost the reserves of all nations, and avoid pushing low-income countries into further distress. The decision was announced despite India’s resistance to the proposal.
“At the centre of today’s discussion was also the support of the most vulnerable countries. Following several initiatives adopted by the international community to help address the immediate liquidity needs of these countries, the G20 called on the IMF to make a proposal for a new SDR general allocation of $650 billion to meet the long-term global need to supplement reserve assets. Ministers and governors also agreed on a final extension of the Debt Service Suspension Initiative (DSSI) by six months through end-December 2021," G20 chair Italy said in an official communiqué after the virtual meeting of finance ministers.
An Indian finance ministry statement, however, remained silent on the SDR issue, but welcomed the extension of DSSI. “For boosting support to the most vulnerable economies, the finance minister (Nirmala Sitharaman) supported extending the DSSI till December 2021," the ministry said.
Mint’s query to the finance ministry did not elicit any response till press time.
SDR is an international reserve asset created by the IMF comprising the dollar, euro, yen, sterling and yuan. It is allocated to members proportionate to their respective quotas. One SDR is currently valued at $1.425.
A fresh SDR issue by the IMF is likely to help the least developed and developing countries facing foreign exchange crisis in the wake of the pandemic. However, India has so far held that national forex reserves should be the first line of defence during a crisis such as the covid-19 outbreak.
The fresh SDR issuance was cleared after US treasury secretary Janet Yellen supported the proposal in February, reversing the Donald Trump administration’s stand. India was the only country opposing the move.
The proposal was earlier dropped as the US enjoys a unique veto power at the IMF with 16.52% voting rights. A supermajority vote at the IMF for major policy decisions requires 85% of votes. India has a voting right of 2.6%.
Last week, IMF managing director Kristalina Georgieva said she was very encouraged that support is building among IMF members for a possible SDR allocation of $650 billion.
“This would benefit all our members, but especially the most vulnerable, by boosting reserves without adding to debt burdens. It will send a powerful signal of multilateral solidarity, freeing up resources for vaccination programmes and other urgent needs," she had said.
However, the move has drawn criticism from economists as it will lead to skewed allocations towards developed countries who need it the least, with the US, EU and the UK receiving about half the funds, while low-income countries are expected to get only about $21 billion worth of liquidity.