The board of governors of the International Monetary Fund gave the green light on Monday to increase the institution’s lending capacity by $ 650 billion, the latest step in approving an initiative to increase aid to the most vulnerable.
“This is a historic decision – the largest allocation of SDRs (Special Drawing Rights) in IMF history and a boost to the world economy in this time of unprecedented crisis,” said IMF director Kristalina Georgieva in a statement.
“This will especially help our most vulnerable countries struggling to cope with the impact of the Covid-19 crisis,” she said.
The program, which had already been approved by the IMF’s executive board in mid-July, will be implemented on August 23.
Newly issued SDRs will be allocated to member countries in proportion to their IMF quota, the lender said.
Emerging and developing countries are expected to receive around $ 275 billion in total.
But “we will also continue to actively engage with our members to identify viable options for the voluntary channeling of SDRs from the richer member countries to the poorest and most vulnerable in order to support their recovery in the event of a pandemic and achieve resilient and sustainable growth, ”said Georgieva.
Rich countries could, for example, transfer their SDRs using those allocated to them to finance the IMF’s Poverty Reduction and Growth Trust Fund, which would increase the supply of loans to low-income countries.
The NGO Oxfam welcomed the IMF’s decision.
The “new SDRs will provide much needed liquidity to struggling developing countries without increasing the burden of their unsustainable debt,” Nadia Daar, director of the Washington-based NGO, said in a statement.
It is “inconceivable that rich countries fail to reallocate a substantial part of their SDRs – at least $ 100 billion as agreed by the G7” at a summit in mid-June, she said.
It is also necessary that governments “work transparently and with civil society” so that SDRs are put to good use, Daar added.
Created in 1969, SDRs are not currency and have no physical existence.
Their value is based on a basket of five major international currencies: the dollar, the euro, the pound, the renminbi or yuan and the yen.
Once issued, SDRs can be used either as a reserve currency that stabilizes the value of a country’s national currency, or converted into stronger currencies to finance investments.
For the poorest countries, the interest is also to obtain hard currencies without having to pay substantial interest rates.