WASHINGTON: IMF chief Kristalina Georgieva on Wednesday secured approval from the Group of 20 major economies for a new trust that will allow wealthy IMF members to donate their share of the newly created emergency reserves to a larger range of countries in need.
G20 finance officers supported the new Resilience and Sustainability Trust (RST) in their press release https://www.g20.org/wp-content/uploads/2021/10/G20-FMCBG-Communiqueper centCCper cent81-Fourth- G20-FMCBG- meeting-13-October-2021.pdf, and called on the International Monetary Fund and the World Bank to “work closely” to develop and implement funding under the new trust.
Treasury Secretary Janet Yellen also supported efforts to channel reserves, known as Special Drawing Rights (SDRs), and the “early establishment” of the new trust, the US Treasury said in a statement. after Yellen met with G7 finance officials.
The RST will allow IMF members to lend or donate their share of the US $ 650 billion in new IMF SDRs to provide long-term financing to small island states and vulnerable middle-income countries, as well as to low-income countries already served by the Poverty Reduction and Growth Trust.
The creation of the trust aims to address concerns about many low- and middle-income countries that have been hit hard by the COVID-19 pandemic, leaving them with fewer resources to prepare for and deal with extreme weather events.
Georgieva first revealed her trust work in June https://www.reuters.com/business/exclusive-imf-exploring-creation-new-trust-provide-sdrs-broader-group-countries-2021- 06-13, saying its funds could be used to address risks from climate change and pandemics, uses not covered by the current trust.
Georgieva told reporters on Wednesday that she was encouraged by the IMF’s board review of the RST at a meeting on Friday, and said some wealthier members had already expressed interest in contributing.
An IMF staff document consulted by Reuters predicted a demand of $ 30-50 billion for the new trust over 10 years, assuming income-based eligibility for the 69 PRGT-eligible countries, 15 small developing states and 55. middle-income countries.
He proposed requiring RST applicants to have an existing IMF program with higher tranche credit conditionality and to agree to reforms aimed at strengthening external and internal stability.
Kevin Gallagher, director of the Global Development Policy Center at Boston University, called the G20’s early approval of the new trust a “historic achievement” which underscored the urgency of the challenges facing countries around the world .
But he said it would be wrong to require candidates to have an existing IMF program, as it would leave countries like the Dominican Republic, which were at risk of extreme weather events such as hurricanes, without access to it. aid.
REACHING THE GOAL The IMF director said she expected advanced economies to meet their target of transferring about $ 100 billion of the new SDR allocation to countries in need.
She said the fund is also putting in place measures to increase transparency on the use of any SDRs.
Asked about reservations voiced by some critics that the RST trust would overlap with the World Bank’s mandate, Georgieva said the fund was working closely with the Multilateral Development Bank as it developed the new trust.
She said that the first IMF presentation on RST was made to the board of directors of the World Bank and that a large team from the World Bank participated in the staff presentation to the board of the IMF.
Some members remain cautious. German Finance Minister Olaf Scholz, in a statement prepared for Thursday’s meeting of the International Monetary and Financial Committee, called for a “clear delineation” of tasks between the fund and institutions like the World Bank, and said that any new trust must be “carefully designed to avoid unintended consequences and inconvenience.”
He also said the IMF should act to avoid “facility shopping” and any risk to members’ ability to repay regular IMF programs, and noted that climate change and pandemic preparedness remained primarily the responsibility of the IMF. multilateral development banks.
Martin Muehleisen, who headed the IMF’s strategic division from 2017 to 2020, cited what he called justified concerns about a “fundamental reorientation” of the fund’s program and growing overlap with the World Bank in an article for the New Atlanticist. https://www.atlanticcouncil.org/blogs/new-atlanticist/the-imf-needs-to-prepare-for-the-post-covid-world
He said the fund’s legal mandate was limited to providing short-term balance of payments support to help countries preserve financial stability, and that it lacked expertise to advise countries on detailed climate policies. .
(Reporting by Andrea Shalal and David Lawder; Editing by Andrea Ricci and Stephen Coates)