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The IMF wins support for $650 billion reserve currency plan as the US proposes global minimum corporate tax and G-20 extends debt relief package
There are signs that the $650 billion issuance of new Special Drawing Rights, the International Monetary Fund's reserve currency, will offer a bigger boost to African treasuries than expected. On 7 April, alongside the IMF and World Bank spring meetings, the Group of 20 biggest economies urged the IMF 'to explore options for members to channel SDRs on a voluntary basis to the benefit of vulnerable countries, without delaying the process for a new allocation.'
Leaders have stated that the new SDRs should be used primarily to support poorer countries who lack the fiscal space to introduce stimulus programmes to support their economies against the disruption caused by the pandemic (AC Dispatches, Recovery will need better trade terms and debt relief deals).
Under the IMF quota system, most of the SDRs would have been allocated to rich industrialised countries. Civil society groups were lobbying those economies to transfer their SDR allocation to developing economies hardest hit by the pandemic and its economic shocks.
In previous crises, some richer member states transferred some of their SDRs into the IMF's Poverty Reduction and Growth Trust to provide zero-interest loans to the hardest hit countries.
Another plan proposes that rich countries should pay some of their new SDR allocation into Covax, the UN-led public-private initiative to speed up vaccine distribution to the poorest countries.
African countries account for 6.4% of the SDR quota under the current IMF rules, equivalent to $41.6 billion, less than a fifth of the $250bn that the IMF believes that the continent's treasuries need to finance their recover over the next three years.
The G-20 also agreed to extend its Debt Service Suspension Initiative (DSSI) until the end of 2021, although ministers insisted that this would be the 'final extension'. That could be worth an additional $9.9bn in savings if all countries participate in the programme.
So far, the DSSI has had only a modest effect on debt obligations partly because some indebted countries are reluctant to use it in case they are downgraded by the credit ratings agencies (AC Vol 61 No 22, A DIY debt trap).
Officials of heavily-indebted countries and civic activists want to see a much more comprehensive approach to the deepening debt crisis rather than the current ad hoc, case-by-case strategy, which they say lacks transparency and offers too little, too late.
Some finance ministers in Africa have welcomed the support of the United States Treasury for a global minimum corporate tax, as part of policies being pushed by President Joe Biden's administration against profit-shifting and tax avoidance schemes in a generalised crackdown on illicit financial flows.
A report by South Africa's former President Thabo Mbeki calculated that Africa was losing over $80bn a year in illicit financial flows. In December the African Union and the European Union set up a joint technical team to monitor and staunch these losses.
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