•Press Release Climate Change COVID-19 Economic Crisis and Recovery Globalization and Trade IMF Latin America and the Caribbean Special Drawing Rights
SDRs have strengthened economic stability and emergency fiscal response in Latin America and the Caribbean in times of crisis.
Washington, DC — A new report by the Center for Economic and Policy Research (CEPR) and the Latin American Network for Economic and Social Justice (Latindadd) shows that the 2021 Special Drawing Rights (SDR) issuance had an important and positive impact on Latin American and Caribbean countries. The study emphasizes the need for the International Monetary Fund (IMF) to allocate more SDRs to counteract the combined effects of the climate crisis and the increasing debt servicing burden afflicting the region. The report positions SDRs as the main alternative financing mechanism capable of creating resources for developing countries without increasing debt levels.
“SDRs were a lifeline for low- and middle-income countries in the Americas during the COVID-19 pandemic, providing crucial support that helped these countries respond to historic economic and health challenges,” report coauthor Andrés Arauz said. “Two-and-a-half years later, these countries are facing debt, food insecurity, climate, and other challenges that are no less severe, and SDRs could again provide quick, efficient, and debt-free support. Many countries in the region are on the front lines of the climate crisis, even though they are some of the least responsible for causing the crisis. The least that rich countries like the US can do is to allow these nations to receive more SDRs.”
The report, which was first published in Spanish in November, highlights that the last allocation of SDRs favored economic stability and strengthened countries’ fiscal response to the COVID-19 pandemic. In addition to increasing the international reserves of 32 LAC countries by an average of 9.4 percent, 19 of the recipient countries made ample use of their allocations to meet external needs, mainly for fiscal support purposes.
The report also shows that while SDR issuances are regressive in their accounting allocation, they are progressive in their actual use. Low- and middle-income economies benefited the most from active use of SDRs. Out of a total of 95 countries that actively used SDRs globally, 94 were developing countries.
In addition, the report questions restrictions on access to SDRs, which contravene the original spirit of the measure allowing for their creation. It notes that the exclusion of Venezuela, based on political criteria, deprived the region of US$5 billion at a critical time. Without this obstacle, support for the region through SDRs would have been about $51.5 billion in 2021.
“This report shows how effective SDRs were in responding to a historic crisis like the COVID pandemic,” Arauz said. “And years later, SDR issuances are the main alternative financing mechanism still in place. The US Treasury Department could do a lot to support countries in the region by ending its opposition to a new major allocation of SDRs and by ending its insistence that countries in need of more SDRs go through mechanisms like the IMF’s Resilience and Sustainability Trust, which needlessly converts SDRs to debt, with conditions attached.”
Read the full report here.
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