IMF backs $250 bln plan to bolster members' reserves
The IMF will vote in August on a proposal to tap a resource it hasn't used in 30 years in order to bolster the reserves of its 186 member countries by some $250 billion so they can better weather the global economic crisis, Reuters reported.
The International Monetary Fund said the one-off allocation of IMF Special Drawing Rights (SDRs), an international reserve asset and the fund's internal unit of account, will boost the reserves of emerging and developing economies by $100 billion and comes without conditions.
Some $18 billion of that will be disbursed to poor countries, representing nearly 20 percent of their reserves and substantially more than some receive in aid each year.
The SDRs are disbursed in proportion to each member's IMF quota.
For the first time in the fund's history, developed countries, which will receive the bulk of the allocation because they have larger IMF quotas, will be allowed to donate or loan their SDRs to other countries that may need it more.
Western European countries are contemplating such a move for their neighbors in central and eastern Europe, for example, according to IMF board sources.
Countries that choose to use their SDRs will be able to exchange them into hard currency such as U.S. dollars, yen, euros or pounds.
SDRs gained prominence this year when China proposed that they could be used as an alternative to the U.S. dollar as the world's reserve currency.
"The SDR allocation is a key part of the fund's response to the global crisis, offering significant support to its members in these difficult times," IMF Managing Director Dominique Strauss-Kahn said in a statement.
The plan was first agreed by the Group of 20 member nations in April as a way to inject liquidity into the global financial system at a time the foreign exchange reserves of countries are being drained to fight the global crisis.
The vote by IMF member countries will close on Aug. 7, and countries can receive their allocation on Aug. 28. Approval will require 85 percent of IMF members to back the proposal, which is widely expected to happen.
Under the new SDR allocation the United States will receive about $42.6 billion, Japan about $15 billion, China some $9 billion, Russia $6.6 billion, India $4.5 billion, Brazil around $3 billion, South Africa $2 billion, Turkey $1.3 billion, and Mexico about $3.6 billion.
The new allocation comes at a time when there is still a lot of uncertainty about a global economic turnaround from the current deep recession, although the IMF has said it expects world economic growth to resume in 2010.
Some countries worried that if a large number of countries decided to use their SDRs it could stoke inflation.
However, Isabelle Mateos y Lago, adviser in the IMF's Policy and Review Department, said that was unlikely to be the case because the allocation represented only one-third of a percentage point of GDP, about 3 percent of global foreign exchange reserves and 1 percent of global trade.
"The size suggests there wouldn't be much of an impact, especially if you consider that not all of the $250 billion are likely to be spent right away," she said.