ECLAC chief welcomes IMF Special Drawing Rights for C'bean countriesMonday, April 05, 2021
SANTIAGO, Chile (CMC) — Executive Director of the Economic Commission for Latin America and the Caribbean (ECLAC), Alicia Bárcena, has hailed as “a much welcome and needed initiative”, the recent call to action by US Treasury Secretary Janet Yellen to the G20 for a new issue of International Monetary Fund (IMF) Special Drawing Rights (SDRs) and the re-allocation of excess SDRs to low-income countries (LICs), such as those in the Caribbean.
The G20 recently approved the SDRs.
“Concerted international action and solidarity are the only means to confront and overcome the COVID-19 crisis,” Bárcena said.
“A truly multilateral and global response to the pandemic must extend the benefits of this initiative to all developing countries, irrespective of their level of income, including to middle-income countries (MICs).”
She said MICs represent 75 per cent of the world's population, and roughly 30 per cent of global aggregate demand.
More importantly, Bárcena said MICs account for 96 per cent of developing country public debt, excluding China and India.
“Their success in confronting COVID-19 is central for global recovery and financial stability,” she said. “Developing countries have, without doubt, borne the brunt of the social and economic impact of the current crisis.
“The increases in poverty and extreme poverty rates, the number job losses and declines in per capital income have been unprecedented,” she added. “These impacts are not only concentrated in LICs, but also affect MICs.”
Bárcena said Latin America and the Caribbean (LAC) has been the most impacted region in the world in terms of real gross domestic product (GDP) contraction (-7.7 per cent for 2020).
She said this has been accompanied by the closure of more than 2.7 million firms, and the rise in number of jobless people to 44.1 million, and in the number of people living in poverty from 185.5 to 209 million people, reaching 33.7 per cent of the total population.
The ECLAC chief said that extreme poverty has increased by eight million to 78 million people, and that, by the end of 2020, the level of per capita GDP equaled that of 2010, stating that it is “another 'lost decade' by any measure.”
She said the effects of the pandemic and the policies implemented in response have increased the liquidity needs of developing countries, including those of LAC.
At the same time, she said fiscal emergency measures to contain the decline in output have led to rising debt levels, “which -if not carefully monitored- may jeopardise the recovery and countries' capacity to build forward better.”
Bárcena said LAC is the most indebted region in the developing world, stating that the debt of the general government in 2020 reached 79.3 per cent of GDP.
She said the external debt service stood at 57 per cent relative to exports of goods and services, according to IMF 2020 data.
In contrast to developed economies, Bárcena said “LAC – as the rest of developing economies – face enormous obstacle to create the policy space to substantially increase their debt levels without jeopardizing their credit ratings, exchange rate stability, or even their international reserve positions.”
She said the bulk of the global counter-cyclical monetary and fiscal measures to combat the pandemic — amounting US$12 and US$7 trillion dollars in 2020 (24 percent of world GDP) — were implemented by developed countries.
“A new and significant issue and reallocation of SDRs is the most effective and expedient manner to guarantee enough liquidity for developing economies, and provide the required policy space to confront the effects of the pandemic,” Bárcena said.
“Linking the creation of new international resources with financial transfers to developing countries to attend their development requirements is a long-standing demand,” she added. “Now it is more relevant than ever – indispensable for placing the Sustainable Development Goals, within developing countries' reach.”
Bárcena said Access to SDRs is an “indefeasible right of all IMF members,” stating that “SDRs do not generate additional debt nor do they require conditionalities.
“Also, they are not subject to the fastidious negotiations of quota increases or borrowing arrangements,” she said. “A new SDR issue would strengthen the IMF's 'fire power' (currently at roughly US$ 800 billion dollars, a third of the estimated financing needs of developing countries) and provide greater incentive for all countries to participate in this initiative.”
Bárcena said the IMF's financial support for COVID-19 represents barely 12 percent of its lending capacity.
“A new issue of 500 billion SDR, requiring the approval of 85 per cent of the voting power of IMF board of governors, would generate que equivalent of US$56 billion dollars in additional reserves for Latin American and Caribbean countries,” she said. “This would benefit some of the most indebted economies in the region.
“Since any new issue of SDRs would be allocated mainly to developed countries, roughly 60 per cent of the total, a mechanism must be put in place for the voluntary reallocation of excess SDRs from developed to developing countries,” she urged.
“A mechanism to pool SDRs within the existing multilateral facilities and their reallocation to strengthen the financial capacity of Regional Financial Arrangements (RFAs) and other regional financial institutions should receive serious consideration as a means to increase liquidity and put SDRs at the service of economic and social development,” Bárcena added.
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