FRENCH HILL: A reckless plan

Sometimes an idea is so objectively bad in Washington that you are almost tempted to admire it just for beating the odds. Such is the case with claims from the left that the International Monetary Fund must pour money into developing economies to defeat covid-19.

Congressional Democrats have repeatedly pushed for urgent “must pass” legislation to require the IMF to issue at least two trillion Special Drawing Rights, or SDRs, to its 190 member countries, which governments could then trade for nearly $ 3 trillion in hard currency. defend against the pandemic.

That’s not what SDRs are for, and that’s certainly not how they would be used if Democrats in Congress got their wish. Under long-standing IMF rules, SDRs are supposed to meet a “long-term global need” for reserves; they are not intended to arm countries for short-term spending emergencies.

Nor would it be feasible: there are no conditions attached to how a government uses SDRs, and they never have to be repaid. Donor countries may wish recipient states to focus on acquiring personal protective equipment, vaccines, etc. A blank check would relinquish responsibility for how the money is used, inviting waste and corruption.

Another likely scenario is that the SDRs would end up paying debts to the Chinese government, as well as to private creditors who piled up in risky debts before the coronavirus emerged. As the developing world’s largest creditor, Beijing has fought against multilateral agreements to suspend debt repayments for poor countries during the pandemic, yielding only in small ways. China has also resisted pressure from the United States and its allies for greater transparency on its predatory lending terms. Granting SDRs to borrowers in developing countries would make it less likely to restructure or cancel Chinese government loans, giving Beijing the green light to continue operating in a post-pandemic world. No wonder Yi Gang, governor of China’s central bank, championed the cause of the IMF’s issuance of more SDRs.

It’s getting worse. Since the IMF must allocate SDRs to countries according to their weight of participation in the organization, those most in need would be the least able to benefit from them. A wealthy IMF member like the Netherlands would receive more than three times as much as Nigeria. Or consider that New Zealand, despite having virtually eliminated covid-19 on its shores, would be entitled to more SDRs than Congo. Good Luxembourgish citizens, with a population of 600,000, would earn more than the 163 million Bangladeshis. The evil examples go on and on.

China reportedly has over $ 170 billion in direct support as it perpetrates genocide in Xinjiang, locks up democracy supporters in Hong Kong, and retaliates against US allies like Australia for calling for an investigation on Beijing’s responsibility for covid-19. And it is China, the usurer of the developing world, whose failure to meet international credit standards has cornered so many poorer countries with unsustainable debt. Putting billions more in Beijing’s coffers is the last thing President Biden should want to approve, even if his allies in Congress think otherwise.

The Democrats’ plan would also send some $ 20 billion in SDRs to Iran, the world’s largest sponsor state of terrorism, and even more to the Maduro regime in Venezuela. Another $ 75 billion would go to the Kremlin, a curious reward for Vladimir Putin in the wake of the SolarWinds hack and the imprisonment of opposition leader Alexei Navalny.

The Treasury Department, which speaks for the United States on the IMF board, has pushed back Democratic lawmakers under the Trump administration. Secretary Janet Yellen is also expected to hold the line.

Although Ms Yellen did not make a commitment during her Senate confirmation hearing, she noted last year that SDRs are not well targeted to the poor. As former Federal Reserve Chairman, Yellen will understand that the injection of new global demand for billions of dollars could complicate America’s economic priorities.

The United States does not need to lead the world in the fight against covid-19. Thanks in part to the CARES Act, the IMF has been able to accumulate around $ 1 trillion in firepower through contributions from its shareholders, which can now be targeted to countries that need it most. The IMF also has two dedicated emergency programs to ease the debt burden of the poor during the pandemic.

These are the tools we should turn to if we want a responsible covid response overseas, not a gift from the IMF to rich countries and rogue regimes.


U.S. Representative French Hill, a Republican, represents the 2nd Congressional District of Arkansas and sits on the House Committee on Financial Services.

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