Treasury Assisting IMF With $650 Billion For Countries Crippled By COVID-19

The U.S. Department of the Treasury is working with the International Monetary Fund (IMF) to allocate as much as $650 billion in currency aid to assist countries economically hit the hardest by the pandemic, according to a Treasury Department press release.

“An allocation of IMF Special Drawing Rights (SDRs) would help build reserve buffers, smooth adjustments and mitigate the risks of economic stagnation in global growth,” the release stated. “Importantly, it could also enhance liquidity for low-income and developing countries to facilitate their much-needed health recovery efforts.”

The global economy contracted 3.5 percent in 2020, the worst reduction on record since the Great Depression. The economic decline is expected to have far-reaching and long-lasting consequences, according to the release.

“A $650 billion SDR allocation would provide about $21 billion worth of SDRs in liquidity support to low-income countries and about $212 billion to other emerging market and developing countries (excluding China), complementing existing multilateral efforts to assist countries in need,” the release stated.

The U.S. can turn down SDRs from any country “whose policies run counter to U.S. interests,” according to the release. Advanced economies and China already hold an abundance of SDRs and probably won’t ask “to exchange their new SDRs for hard currency.”

An SDR allocation is no intended to be a cure-all and is just one part of a relief package that includes “robust support from the IMF, multilateral development banks and debt relief in some cases.” In addition, the countries themselves will also take “necessary reform steps.”

Oxford Economics said last month that the world economy is expected to show 6 percent growth in 2021, with the U.S. likely playing a key part. The anticipated larger role of the U.S. is the first time since 2005 that it has made a bigger contribution to global growth than China.

Also last month, the 37-member Organization for Economic Cooperation and Development (OECD) said a global economic recovery is dependent on how quickly vaccinations are distributed worldwide.

In November, the IMF asked the Group of Twenty (G20) member states to continue assisting their economies with cash infusions. Leaders of the G20 agreed in March 2020 that they would provide $5 trillion to help the global economy.