Steven Mnuchin has defended the Trump administration’s opposition to a bid to provide liquidity to emerging markets that are facing capital outflows through the IMF, saying it would mostly benefit large G20 nations that did not need the support.
The issuance of new reserve assets by the IMF has emerged as a primary source of tension between Washington and other nations as the Fund and the World Bank try to co-ordinate a global response to the crisis facing developing economies.
The US has backed other measures including a debt relief package that was adopted by the G20, including China, this week, a short-term liquidity line for emerging countries that has been approved by the IMF board, and an expansion of the Fund’s emergency financing capacity to directly help struggling countries.
But it is resisting a proposal to increase the allocation of a general “special drawing right” to countries, which has been called for by a number of EU and African leaders as key to the global pandemic economic response.
SDRs are an international reserve asset created by the IMF in 1969 to supplement member countries’ official reserves. The existing stock of SDRs amounts to about $275bn, which was mostly issued during the 2009 financial crisis.
Speaking to the International Monetary and Financial Committee (IMFC) on Thursday during the virtual IMF and World Bank spring meetings, the US Treasury secretary said that additional SDRs were “not an effective tool to respond to urgent needs”.
“Almost 70 per cent of an allocation would be provided to G20 countries, most of which do not need, and would not use additional SDRs to respond to the crisis. By contrast, all low-income countries, including those facing urgent balance of payment needs, would receive just 3 per cent of any allocation,” Mr Mnuchin added.
A better way for the IMF to help poor countries weather the coronavirus fallout would be through two trusts, the Catastrophe Containment and Relief Trust, and the Poverty Reduction and Growth Trust, set up by the Fund to offer grants and loans to low-income economies, he argued.
Mr Mnuchin said the Trump administration was “currently exploring” a US contribution to those facilities and said that advanced economies could use their existing SDR stock to bolster the effort.
“The IMF and World Bank Group have a key role to play in this response, including supporting countries’ health systems and fiscal efforts, delivering immediate balance of payments and budget support assistance, providing timely economic analysis and offering technical advice and capacity development,” Mr Mnuchin said, adding that there was a need for “all members” to “deploy extraordinary fiscal and monetary actions” to limit the fallout.
However, Mr Mnuchin said the IMF should prioritise its “core mandate” of “macroeconomic analysis and surveillance, debt sustainability and transparency, and financial sector assessments” but issues with longer-term macroeconomic implications, such as “climate risk and financial technology” should be “limited and prioritised” during this period.
Source: Economy - ft.com
