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The distribution of IMF quotas to poor countries is welcome

The US Treasury Secretary’s proposal of a new IMF’s allocation of SDR (about $500 bn, one fifth of the new fiscal deficit she proposes for the US) is a welcome idea and a positive change from the short-sighted Trump’s period.

Since SDR allocation is proportional to the countries’ quota in the Fund, all countries of Africa would receive only 5% of the total and G7 countries almost half of it (see Vera Songwe, FT Feb. 24). It will be, not only, unfair but not smart. Therefore, this increase in SDR can only work if rich countries redistribute the totality to poor countries.

This is a question of elementary equity, rich countries indulge in a big fiscal deficit to mitigate the covid crisis (US fiscal deficit amounted to 15% of GDP in 2020, more than 10% this year) without apparent economic consequences (up to now) thanks to QE. Poor countries cannot use the same monetary financing of their deficit without incurring a strong outflow of their foreign exchanges (monetary approach to the balance of payments).

The Chief executive of Save the Children is right when he says that the WB & the IMF must “do for the poorest countries what central banks and finance ministries have been doing for rich countries’’ Nevertheless, it would be naïve to think that this extra liquidity (expressed in international currency) will save all problems of poor countries (health, education, nutrition, environment, etc.) It will be mainly used to reimburse foreign debt. It is therefore the interest of rich countries to be generous to poor countries giving them extra foreign exchange to limit an undue adjustment during a period of hardship not due to their own.

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