G-20 nears consensus on boosting IMF reserve amid Covid-19 pandemic

Talks focused on a proposal for a $500-bn allocation of the IMF's special drawing rights

The Group of 20 nations on Friday moved closer to an agreement on boosting International Monetary Fund reserves to help poor nations devastated by the global pandemic, according to officials familiar with the discussions.

Talks focused on a proposal for a $500 billion allocation of the IMF’s special drawing rights, but the final decision likely will come closer to the lender’s spring meetings in April, the officials said, asking not to be identified before a public statement.

Friday’s virtual meeting of finance ministers and central bank governors was hosted by Italy.

The breakthrough came after US Treasury Secretary Janet Yellen leaned toward supporting the action, reversing opposition last year under President Donald Trump. Her predecessor, Steven Mnuchin, blocked the move in 2020, saying that because reserves are allocated to all 190 members of the IMF in proportion to their quota, some 70 per cent would go to the G-20, with just 3 per cent for the poorest developing nations.

Yellen on Thursday endorsed strengthening support for developing nations, saying that “without further international action to support low-income countries, we risk a dangerous and permanent divergence in the global economy.” The IMF and World Bank “must continue to play a role in financing the global health response,” she said. While an expansion in the IMF’s resources could help low-income nations in the fight against the coronavirus, the G-20 and others need to work toward “greater transparency and accountability” in the use of the fund’s firepower.

More than 200 groups, including the Jubilee USA Network, had called on the G-20 to support the creation of $3 trillion in SDRs. They say the funds are needed to provide debt relief in developing nations and help free up resources for health care and social spending. Some Democrats in Congress have pledged support for a similar-sized move.

There’s a practical reason to focus on the smaller package. Yellen is unlikely to need congressional approval to vote in favour of the increase if the it remains at around $500 billion. However, Republicans have already voiced opposition because the issuance would send billions of dollars to Iran, Russia and China, countries that the US sees as violating human rights.