Biden Win Revives Hopes for $500 Billion IMF Firepower Boost
U.S. President Elect Joe Biden. (Photographer: Stefani Reynolds/Bloomberg)

Biden Win Revives Hopes for $500 Billion IMF Firepower Boost

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Joe Biden’s victory in the U.S. presidential election is reviving hopes of a significant boost to International Monetary Fund resources to help nations fight the global pandemic.

IMF Managing Director Kristalina Georgieva called in March for the Group of 20 biggest economies to back a “sizable” increase in reserve assets called special drawing rights, or SDRs.

That would echo a similar decision in the 2009 financial crisis which was supported by the U.S., the fund’s largest shareholder, when Biden was vice president. President Donald Trump’s administration blocked a proposed $500 billion issuance, criticizing it for failing to target poor countries.

Biden Win Revives Hopes for $500 Billion IMF Firepower Boost

Biden has yet to speak about the proposal, but allies have advocated for it. Former Treasury Secretary Larry Summers, who advised the president-elect’s campaign on economic policy, in October reiterated his prior call for a $1 trillion issuance. Summers is a paid contributor to Bloomberg.

In July, the Democrat-controlled House of Representatives voted for an allocation of at least $2.8 trillion as part of a larger defense appropriations bill now in the Republican-controlled Senate.

“There are many in the Democratic fold writ large who have argued the case for an SDR allocation,” said Mark Sobel, who served at the U.S. Treasury at the time of the 2009 allocation. “While an allocation has its pros and cons, it might be a good way to send a multilateral signal by a new administration.”

The U.S. is the linchpin for approving the move because the nation holds 16.5% of the voting power at the fund’s 24-member executive board, almost three times the sway of any other country. Passage requires 85% of votes, giving America a de-facto veto.

The IMF press office declined to comment, referring questions to the Biden campaign. A campaign spokesman didn’t return an email seeking comment.

Unequal Distribution

Advocates of new reserves argue that they would provide billions of dollars to poor countries struggling to pay for health care costs and social spending amid the pandemic.

France, which failed to persuade the U.S. to agree to SDR issuance when the pandemic first struck, sees an opportunity to lobby again and is hopeful for a different outcome with Biden in office, according to an official at the nation’s finance ministry in Paris.

Opponents, including U.S. Treasury Secretary Steven Mnuchin, counter that because reserves are allocated to all 190 members of the IMF in proportion to their quota, 70% would go to the G-20, with just 3% for the poorest developing nations. Mnuchin announced U.S. opposition at a G-20 meeting in April, and that stance hasn’t changed, a senior U.S. Treasury Department official said on Friday.

An SDR allocation likely would continue to be opposed by Republicans, said Ted Truman, a longtime Federal Reserve economist who was a counselor to Treasury Secretary Timothy Geithner and worked to build support for the last SDR allocation. U.S. backing for that $250 billion increase was debated even among Democrats within the Obama administration.

One concern for critics and some Republicans is that the move would provide funding to governments that the U.S. has tried to cut off from financing.

On example is Iran, which the American government has tried to squeeze over its nuclear program and support for terrorist groups. A global issuance of $500 billion in SDRs would give the nation access to almost $4 billion of the reserves.

But the U.S. Congress would be less of an obstacle if a total SDR issuance is kept to less than about $650 billion, the current IMF quota of all nations.

A move of that size would only require Biden to consult with Congress, not to receive legislative approval, said Sobel, who also served as a U.S. representative to the IMF at the end of the Obama and start of the Trump administrations before joining the economic think tank OMFIF.

Any SDR allocation should be linked to China and private creditors providing debt relief and transparency, to make sure that reserves don’t simply pay off loans owed to them, Sobel said.

Truman, now at the Peterson Institute for International Economics, compared the reserves to the $1,200 stimulus checks that the U.S. government mailed to some taxpayers earlier this year. While they would go to everyone, and some might not spend them immediately, they would make a big difference to those that need them.

“It has the advantage of being a relatively simple deliverable,” he said. “I would think that it’s a possibility.”

©2020 Bloomberg L.P.

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