The IMF announces that States will be able to use their reserves to finance regional development banks

The IMF announces that States will be able to use their reserves to finance regional development banks
The IMF announces that States will be able to use their reserves to finance regional development banks

The board of directors of the International Monetary Fund (IMF) has authorized its member countries to use part of their special drawing rights (SDR) to acquire certain financing tools issued by regional development banks (RDBs), the institution announced on Wednesday. SDRs represent the unit of account used by the IMF, which corresponds to a basket of the main currencies, from which the amounts likely to be granted to countries under the Fund’s aid programs are calculated.

Taking place on Friday, the vote concretely authorizes States to acquire up to 15 billion SDRs in total (nearly 20 billion dollars) of hybrid capital instruments, which have the characteristics of both debt and equity, issued by the BRDs. Each country has a certain number of SDRs which is proportional to its share in the capital of the IMF, giving it voting rights on the board of directors.

Favored advanced countries

This distribution logically favors advanced countries, in particular the United States and the member countries of the European Union, but in financial matters this also implies that these countries have the largest share of financing that can be mobilized via the Fund, to the detriment of developing or emerging countries. According to a joint press release from the Inter-American Development Bank (IDB) and the African Development Bank (AfDB), the IMF’s decision could allow these institutions to lend four times the amount that will come from purchases of hybrid instruments via DTS.

“The international community now has an innovative approach to mobilize development financing without costing taxpayers anything. This is the type of solution we need,” said AfDB President Akinwumi Adesina, quoted in the press release. His counterpart at the IDB, Ilan Goldfajn, welcomed this decision “very favorably”, which gives the institution access to “an economically efficient method to finance much-needed sustainable development projects”.

The question of the re-allocation of SDRs is one of the main debates within the framework of the ongoing reforms of the IMF, the difficulty lies in the fact that the institution cannot simply re-allocate SDRs from rich countries to those who need it, at the risk of leading to a redistribution of the voting rights associated with it. The solution envisaged is therefore to authorize the most advanced countries to make their SDRs available to the IMF, and now to other international financial institutions, for specific uses to have new means of financing.

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