IMF Calls For Bretton Woods-Style Monetary Reset (#GotBitcoin?)
Emergency Broadcast – IMF Calls For Bretton Woods Monetary Reset As Predicted. IMF Calls For Bretton Woods-Style Monetary Reset (#GotBitcoin?)
Simon Dixon: Streamed Live 3 Hours Ago
Simon Dixon (co-founder of BnkToTheFuture.com and author of Bank To The Future Protect Your Future Before Governments Go Bust), holds an emergency broadcast as news just released about the IMF calling for Bretton Woods Monetary Renegotiation.
This is exactly what Simon Dixon has been predicting all along.
IMF Calls For Bretton Woods-Style Monetary Reset
Facing the twin task of fighting the coronavirus pandemic today and building a better tomorrow, the world is experiencing a new Bretton Woods moment, IMF Managing Director Kristalina Georgieva said on Thursday.
Addressing the annual meeting of the International Monetary Fund’s Board of Governors, she said that what was true at Bretton Woods, when allies at the end of World War II gathered for a conference to create the institutions that would use economic cooperation to prevent future conflicts, remains true today.
“Once again, we face two massive tasks: to fight the crisis today and build a better tomorrow, she said.
Prudent macroeconomic policies and strong institutions are critical for growth, jobs and improved living standards, she said.
Strong medium-term frameworks for monetary, fiscal and financial policies, as well as reforms to boost trade, competitiveness and productivity can help create confidence for policy action now while building much-needed resilience for the future, she added.
“We know what action must be taken right now. A durable economic recovery is only possible if we beat the pandemic. Health measures must remain a priority. I urge you to support production and distribution of effective therapies and vaccines to ensure that all countries have access,” Georgieva said.
She urged countries to continue support for workers and businesses until a durable exit from the health crisis.
“We have seen global fiscal actions of USD 12 trillion. Major central banks have expanded balance sheets by USD 7.5 trillion. These synchronised measures have prevented the destructive macro financial feedback we saw in previous crises,” she said.
“But almost all countries are still hurting, especially emerging market and developing economies. And while the global banking system entered the crisis with high capital and liquidity buffers, there is a weak tail of banks in many in emerging markets. We must take measures to prevent the build-up of financial risks over the medium term, she said.
The IMF expects 2021 debt levels to go up significantly to around 125 per cent of GDP in advanced economies, 65 per cent of GDP in emerging markets; and 50 per cent of GDP in low-income countries, Georgieva further said.
The fund is providing debt relief to its poorest members and, with the World Bank, they support extension by the G20 of the Debt Service Suspension Initiative.
“Beyond this, where debt is unsustainable, it should be restructured without delay. We should move towards greater debt transparency and enhanced creditor coordination. I am encouraged by G-20 discussions on a Common framework for Sovereign Debt Resolution as well as on our call for improving the architecture for sovereign debt resolution, including private sector participation, she said.
Georgieva said that to reap the full benefits of sound economic policy, they must invest more in people. That means protecting the vulnerable. It also means boosting human and physical capital to underpin growth and resilience, she argued.
“Just as the pandemic has shown that we can no longer ignore health precautions, we can no longer afford to ignore climate change…We focus on climate change because it is macrocritical, posing profound threats to growth and prosperity. It is also people-critical and planet critical, said the IMF MD.
The IMF, she said, is working tirelessly to support a durable recovery, and a resilient future as countries adapt to structural transformations brought on by climate change, digital acceleration and the rise of the knowledge economy.
Since the pandemic began, IMF has committed over USD 100 billion and still has substantial resources from its USD 1 trillion in lending capacity, she said.
“We will continue to pay special attention to the urgent needs of emerging markets and low income countries especially small and fragile states, helping them to pay doctors and nurses and protect the most vulnerable people and parts of their economies, she said.
U.S. Banks Urged To Stop Using Libor On New Loans By End Of 2021
Regulators support plan to end benchmark in June 2023, allowing most existing transactions to mature.
U.S. regulators on Monday pressed banks to stop using the London interbank offered rate on new transactions by the end of 2021 while backing a plan to allow many existing transactions to mature before Libor fully winds down in June 2023.
The moves amount to the strongest and clearest guidance yet from regulators about the risks to banks for writing new contracts based on Libor, an interest-rate benchmark that global policy makers moved to scrap after concluding it was balky and prone to manipulation.
Entering into new contracts using Libor after 2021 would “create safety and soundness risks,” U.S. regulators warned in a joint statement, pledging to “examine bank practices accordingly.”
At the same time, U.S. officials said they welcomed a plan to offer an additional 18 months for so-called legacy contracts—the roughly $200 trillion of existing interest-rate derivatives and business loans tied to the rate—to mature before Libor fully winds down in June 2023. Previously, U.K. and U.S. policy makers have said Libor couldn’t be guaranteed after 2021.
“These announcements represent critical steps in the effort to facilitate an orderly wind-down” of dollar-based Libor transactions, John Williams, president of the Federal Reserve Bank of New York, said in a statement. “They propose a clear picture of the future, to help support transition planning over the next year and beyond.”
Regulators estimate that most of the legacy contracts will mature before June 2023. For the rest, legislation will be needed to switch benchmarks for contracts that lack a clear-cut fallback once Libor ceases to exist, senior Fed officials told reporters on Monday.
“Today’s plan ensures that the transition away from Libor will be orderly and fair for everyone—market participants, businesses, and consumers,” Fed Vice Chair for Supervision Randal Quarles said in a statement.
The Bank Policy Institute, an industry group, said that “The decision to extend Libor for legacy contracts until 2023 is a prudent step that will help facilitate an orderly transition.”
Deeply rooted in markets, Libor was exposed by a 2012 scandal that led to convictions for some traders and penalties for numerous banks.
If the transition doesn’t go as planned, consumers could end up on the hook for increased payments on credit-card loans and other borrowings, while small businesses could face higher fixed rates for loans.
Libor’s Delayed Demise Rewards Slow-Moving U.S. Bankers
Why switch to the alternative if regulators will keep moving the goalposts?
When it comes to overseeing Wall Street, regulators must know that if they give an inch, banks and other large financial institutions will take a mile.
That’s part of the reason the years-long global effort to phase out the London interbank offered rate by the end of 2021 has been both impressive and nerve-wracking. On the one hand, the world’s policy makers have had more than three years to develop and adopt alternative lending benchmarks to replace Libor, which as of 2018 was tied to some $400 trillion of financial contracts.
And yet, as recently as October, or roughly 14 months before Libor’s supposed demise, financial markets were spooked by the prospect of a “big bang” shift on interest-rate swaps to the top U.S. alternative: The secured overnight financing rate, or SOFR, which has gained some traction but is still just a sliver of Libor’s reach.
Perhaps because of the slow adoption of SOFR in the U.S. financial industry, the ICE Benchmark Administration on Nov. 18 raised the possibility that the dollar version of Libor could survive the Dec. 31, 2021, expiration date. On Monday, it went even further, announcing it’s considering extending the retirement of the key three-month dollar Libor tenor to June 30, 2023.
It might also extend six-month and 12-month dollar Libor while sticking to its plan to cease publishing one-week and two-month Libor by the end of 2021.
At first glance, the move seems mostly technical. “Extending the publication of certain USD Libor tenors until June 30, 2023 would allow most legacy USD Libor contracts to mature before Libor experiences disruptions,” the IBA said in a statement.
In a separate joint press release, the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency struck the same tone.
But reading between the lines, it’s hard not to wonder whether bankers will seize on this as an opportunity to once again put off switching from the rate that has dominated financial markets for nearly a half-century. While the official stance from U.S. regulators is that they’re calling for banks to stop writing new U.S. dollar Libor contracts by the end of 2021, the actual language remains somewhat squishy:
“The agencies encourage banks to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021.
New contracts entered into before December 31, 2021 should either utilize a reference rate other than LIBOR or have robust fallback language that includes a clearly defined alternative reference rate after LIBOR’s discontinuation. These actions are necessary to facilitate an orderly— and safe and sound— LIBOR transition.
If the administrator of LIBOR extends the publication of USD LIBOR beyond December 31, 2021, the agencies recognize that there may be limited circumstances when it would be appropriate for a bank to enter into new USD LIBOR contracts after December 31, 2021.”
Yes, banks are “encouraged” to stop using Libor and they “should” use an alternative rate. And the regulators vow to “examine bank practices accordingly.” Bloomberg Intelligence analysts Ira Jersey and Angelo Manolatos say they don’t expect the transition to alternative rates to slow too much based on this announcement.
But Libor is so accessible and so ubiquitous that it’s hard to imagine that banks will move with the same sense of urgency — and certainly not with any greater haste — if key tenors are extended through June 2023.
It’s understandable, of course, why regulators felt the finance industry needed more runway before Libor disappeared. As my Bloomberg Opinion colleague Mark Gilbert noted, banks and other institutions have clearly been slow to embrace the alternatives, with at least one survey of hedge funds, private equity firms and banks showing that one in five hadn’t even started down the path of making the transition.
To further prove the point, Gilbert cited International Swaps and Derivatives Association data showing $96 trillion of dollar Libor swaps were traded this year, compared with $1.8 trillion for SOFR. It’s no contest.
The last thing financial regulators need coming out of a global pandemic that shook markets to their core is a mad dash to amend old Libor contracts and all the potential disruptions that come with that.
The question is whether this move opens the door to further delays and backtracking. If hedge funds, private equity firms and banks continue to drag their feet on adjusting to a post-Libor reality, particularly in the U.S., will the authorities keep accommodating them?
It should not be lost on anyone that the amount of swaps tied to the U.K.’s SONIA interest rate benchmark in 2020 has eclipsed those in sterling Libor, $15.6 trillion to $12 trillion. At least in some regions, people are taking the end of the Libor era seriously.
That’s seemingly why the IBA is comfortable moving ahead with its plan to cease the publication of all Libor settings for the British pound, the euro, the Swiss franc and the Japanese yen at the end of 2021. Yes, the dollar Libor market is bigger, accounting for roughly half of all the global contracts, but that doesn’t fully explain being this far behind in the transition.
The New York Fed, nestled in the heart of Wall Street, started a Twitter hashtag campaign, #LIBORsTickingClock, on Aug. 19, or 500 days until the end of Dec. 31, 2021. “NASA says it may take 500 days (or longer!) to go to Mars and back. No time to become an astronaut? You can prepare for the transition away from LIBOR instead!”
The “or longer!” turned out to be prescient — and exactly what late adopters were counting on.
Why IMF Help For Poor Nations Will Benefit Rich Ones
The International Monetary Fund is preparing to give its member countries the biggest resource injection in its history, $650 billion, to boost global liquidity and help emerging and low-income nations deal with mounting debt and Covid-19. The choice of vehicle — reserves known as special drawing rights — has drawn some criticism. Under IMF rules, SDRs are distributed in proportion to each country’s share in the fund — roughly equal to their economic output. That means that 58% of the new SDRs go to advanced economies, with 42% for emerging and developing economies and just 3.2% to the smaller subset of low-income nations.
1. Why Now?
U.S. President Joe Biden reversed the stance of his predecessor, Donald Trump, whose Treasury secretary, Steven Mnuchin, said the IMF plan didn’t do enough to target the aid to poorer countries. The U.S. is the IMF’s largest shareholder and carries a de facto veto on such matters. IMF Managing Director Kristalina Georgieva said she plans to have the final proposal ready for the board to approve in June.. U.S. Treasury officials project that central banks could receive the assets in August.
2. What Are Special Drawing Rights?
SDRs are an international reserve asset that can be converted into five currencies: the dollar, euro, yen, British pound and yuan. When SDRs are allocated by the IMF, recipient nations can hold them as part of their foreign currency reserves or exchange them for the hard currency of other IMF members. (The seller pays 0.05% interest on such sales if its SDR holdings dip below its IMF-allotted level.) The appeal of SDRs to poorer nations is that they come condition-free, unlike many of the fund’s loan programs.
3. What Are SDRs Used For?
Under the IMF’s rules, they must meet a global need for more long-term reserve assets and can’t fuel inflation. The most recent and largest-ever ($250 billion) general allocation of SDRs came in response to the 2009 financial crisis. This time, some nations might put the money toward paying for vaccines and medical equipment. Argentina is said to be weighing using SDRs to make a payment due to the IMF in September toward the $45 billion it owes on a loan it received in 2018, the biggest one ever extended by the fund. Many countries will simply hold onto the reserves, if 2009 is any guide.
4. How Would This Sdr Allocation Be Divided?
About $21 billion would go to low-income countries and $212 billion to other emerging market and developing countries, without counting China, according to U.S. Treasury Department calculations.
5. Why Would The IMF Go This Route To Help Poor Nations?
It’s the fastest way to get resources to countries that need them, even if the lion’s share goes to richer countries. IMF loans, by contrast, take time to negotiate, and some nations in need might be reluctant to seek them for fear of creating a negative perception with investors. Also, lower-income countries are the ones most likely to convert their SDRs into other currencies to meet balance of payments and fiscal needs. Still, African finance ministers declared that the planned distribution of SDRs “would barely be adequate to meet the continent’s financing needs,” and they urged the IMF to consider ways to reallocate SDRs specifically to low-income and middle-income countries.
6. Is There A Way To Get More Money To Poor Countries?
The IMF says it’s working on options for wealthier countries to lend or donate their newly acquired SDRs to vulnerable and low-income nations. Group of Seven finance ministers said they would “explore how countries could voluntarily recycle their SDR holdings to further support low-income countries.” U.S. Treasury Secretary Janet Yellen has called on Group of 20 nations to “channel” their excess SDRs to low-income countries.
One proposal put forward in a United Nations discussion paper was for richer countries to put their unneeded SDRs into either a new trust fund, for use by other members, or into one of the IMF’s existing funds such as the Poverty Reduction and Growth Trust or the Catastrophe Containment and Relief Trust. Some two-thirds of the PRGT’s $24 billion in new loan resources during the current crisis, used for interest-free lending to the poorest countries, has come from the use of existing SDRs, according to the IMF.
7. Who Stands To Benefit?
UBS AG economist Arend Kapteyn estimates that the SDR creation will boost global foreign exchange reserves by 4.5%, with countries including Venezuela, Pakistan, Ecuador, Kazakhstan, Turkey and Argentina seeing the biggest boost in percentage terms among emerging markets. All of those countries would see an increase of 10% or more in their reserves.
Smaller island nations like Antigua and Barbuda and St. Lucia, greatly reliant on tourism, also would see large boosts relative to existing reserves. Morgan Stanley estimated that Chad and Zambia — two nations that have requested debt restructuring under a framework agreed to by the G-20 — could also see significant reserves increases.
8. What Is The Opposition To The Idea?
Like the 2009 allocation of SDRs, the one currently under consideration has critics who argue that such unconditional financing contributes to moral hazard, could fuel inflation and provides added international reserves the world doesn’t need. Some Republicans in Congress say the new SDRs will be used to pay off the developing world’s debts to China — loans that might otherwise be restructured or even written off entirely — and bankroll U.S. adversaries including Iran, Venezuela and Russia.
(The U.S. Treasury Department says it will refuse to purchase SDRs from any country with which it currently has sanctions — a list that includes Iran, Syria and Venezuela — and will work with other countries to convince them to do the same.) Both the U.K. and U.S. have pledged that any allocation will be partnered with a renewed focus on transparency and accountability in the use of SDRs.
The Case For Bold Debt Relief For The Poorest Countries
The growing risk of debt crises in the developing world threatens to hamper the global recovery from Covid-19.
Uneven growth rates among countries this year are not the only risk to the global economic recovery that must be addressed this week when officials from 190 countries gather virtually for the spring meetings of the International Monetary Fund and the World Bank.
They also need to get their arms around the growing risk of a systemic debt crisis in the developing world that highlights the striking contrast between worrisome debt dynamics in the most vulnerable economies and the luxuries afforded to the richest countries in the world.
This contrast is fueled by differences in policy flexibility and financial resilience that stand to amplify the inequality shock inflicted on the global economy by Covid-19. Efforts to combat these risks can become self-reinforcing through more timely and audacious pro-growth debt relief.
Almost all economies worldwide followed a similar game plan when responding to the “sudden stop” that followed the outbreak of Covid-19 last year. They deployed significant fiscal and monetary measures to minimize the disruptions to lives and livelihoods from a fatal pandemic. This included heavy reliance on deficit spending and debt financing to protect populations from the effects of the virus and lost income.
The guiding principle was a mix of whatever-it-takes, all-in and whole-of-government. The analytical foundation was the lesson learned from the 2008 global financial crisis.
The enemy to overcome quickly was similar to the one in 2008, a breakdown in counterparty trust. This time, though, it was not financial and between banks but health related and among humans. One of the inevitable outcomes was unprecedented increases in debt levels around the globe.
As 2020 evolved, however, it became clear that, unlike in 2008, this was not a one-round counterparty crisis. With successive waves of the virus, it became a multiround phenomenon that increasingly exposed differences among countries’ willingness and ability to deploy repeated rounds of massive fiscal and monetary relief.
At one end of the spectrum was the U.S., which, after some political delays in the second half of 2020, has deployed incredible resources. This includes last month’s $1.9 trillion in relief measures — which increased fiscal support to a previously unthinkable 27% of gross domestic product in one year — and a similarly large monetary effort.
At the other end are vulnerable developing countries that face debt problems, are unable to access sustainable private financing, are increasingly reliant on public assistance and, despite new waves of infections and hospitalizations, are ever more hesitant to impose health-related restrictions out of fear that they will undermine already fragile livelihoods.
While the global economy will benefit from the demand spillovers of a fast-growing U.S. economy, that also comes with the risk of the unintended domestic and cross-border implications of a pedal-to-the-metal policy accelerator when the economy is already gaining momentum in the right direction.
Thus, concerns will be raised, and I fear too quickly dismissed this week, about the risks of market overreactions to an inflation overshoot and the financial market instability that would come with that.
The context for the vulnerable developing countries is the opposite. They are facing an uphill 2021 journey with limited ability for effective domestic policy accelerators. Fiscal policy is constrained by limits to both debt and inflationary financing.
Too loose a monetary policy risks destabilizing currencies, with adverse consequences for the standard of living, especially for the poorest. As such, there is genuine fear that a growing number of developing countries could end up in the worst of all worlds: unsatisfactory growth, multiplying debt traps and an increasingly systemic debt problem.
To recover more meaningfully from a Covid shock that has erased, in some cases, a decade’s worth of poverty reduction, these countries need more external help.
Thus the attention of this week’s IMF and World Bank meetings, which begin on Monday, should not just be on a new Special Drawing Right allocation but also on what can be done to enhance pro-growth debt relief, focusing on two areas in particular: extension of the debt service suspension initiative and fair burden sharing under the auspices of the Group of 20’s “Common Framework for Debt Treatments beyond the DSSI” or, more simply, the Common Framework.
This policy paradigm seeks to broaden the participation of creditors in debt relief and goes beyond delaying payments to include potential restructurings. Three countries — Chad, Ethiopia and Zambia — have signaled their interest to pursue the approach with guidance from the IMF’s debt-sustainability analyses.
Under the DSSI, led by the IMF, World Bank and G-20 last year, 39 official creditors have already provided cash-flow relief to almost 50 developing countries that are struggling to meet domestic priorities, including health-related expenditures. This has been supported by a significant pickup in financing from the IMF and the World Bank.
There will be many calls to extend this initiative through the end of this year, if not beyond, something that is likely to gather sufficient support over time. There may also be interest in expanding eligibility for DSSI beyond the current 73 low-income countries.
As important, but much more difficult, will be the discussion on how to better implement the Common Framework, which seeks to address not just developing countries liquidity challenges but also solvency ones, lest a growing debt overhang hamper growth even more.
The main hurdle is fair burden sharing in the debt relief, which involves official creditors, private creditors and their interactions.
When it comes to official creditors, there will be renewed efforts to ensure that the Paris Club approach to relief for the poorest developing countries is emulated better by non-members such as China, which, according to data from Fitch Ratings, accounts for 64% of the bilateral debt of DSSI-eligible countries.
As for private creditors, the thorniest issue is a requirement that they provide similar relief on a timely basis, if not proactively, instead of “free riding” on what the official sector does. This private sector involvement is already specified by the Common Framework, which requires that successful negotiations between all official bilateral creditors and the debtor economy be followed by private creditors providing “comparable treatment.”
The requirement lacks legal enforcement, though, and is much harder to attain outside of what tend to be overly protracted comprehensive debt restructurings under an IMF program.
The official sector will need to decide between leaving an unsatisfactory situation as is or strengthening the traditional “case by case” mindset by boldly adopting more of a “stick” approach to private creditors who, in aggregate and to their longer-term harm, have yet to find the “carrot” enticing enough. This would make it is easier to align the behaviors of creditors and debtors with what is in their collective interest as well as that of the global economy as a whole.
One of the main lessons of Latin America’s “lost decade” in the 1980s is that persistent debt overhangs significantly undermine countries’ growth and investment potential, imposing considerable hardships on the most vulnerable segments of their population.
One of the main lessons of the 1990s Heavily Indebted Poor Countries (HIPC) initiative is that appropriately designed and incentivized debt relief can clear the way for high growth and faster development for those that need it desperately in the developing world.
Let’s hope that all creditors can quickly internalize both lessons. Absent that, the world risks multiplying debt traps and an increasingly systemic Covid debt overhang that would impose further hardships on already vulnerable and suffering populations while also accentuating the unevenness of the Covid recovery.
The Reference Shelf
* An IMF fact sheet on SDRs.
* The Center for Global Development asks, “How Might an SDR Allocation Be Better Tailored to Support Low-Income Countries?”
* Isabelle Mateos y Lago, a managing director at BlackRock, wrote this paper on “Managing global liquidity through COVID-19 and beyond.”
* The SDR plan “would be a clumsy and ill-targeted way” to help countries in financial distress, a former director of the IMF Institute and former deputy director of the IMF’s European Department wrote in Barron’s.
IMF Says Fed Surprises Can Trigger Emerging-Market Outflows
The International Monetary Fund warned that a potential surprise tightening by the U.S. Federal Reserve could spur an increase in interest rates and capital outflows from emerging markets, underlining the need for clear central bank communication.
Rising market interest rates in the U.S. so far have been driven by positive news on economic prospects and Covid-19 vaccines, which tends to boost portfolio inflows and lower spreads on U.S. dollar-denominated debt for most emerging markets, the IMF said Monday in an analytical chapter of its World Economic Outlook.
The Fed has said it will maintain near-zero interest rates until the U.S. economy hits maximum employment and inflation is on track to exceed 2% for some time. But if central banks in advanced economies were to suddenly signal greater concern for inflation risks, the world could see a surprise tightening of financial conditions similar to the 2013 “taper tantrum,” IMF economists Philipp Engler, Roberto Piazza and Galen Sher wrote.
“Monetary policy surprises,” as measured by the increase in interest rates on days of regularly scheduled Fed decisions, found that for each 1 percentage-point rise in U.S. interest rates, long-term rates climb by a third of a point in the average emerging market, the authors said in an accompanying blog post. The increase is two-thirds of a point in emerging markets with lower, speculative-grade credit ratings, the IMF said.
To avoid triggering a deterioration in investor sentiment about emerging markets, advanced economy central banks can give clear, transparent communications about future monetary policy under different scenarios, the IMF said. The fund cited the Fed’s guidance about preconditions for a rate increase as an example. The IMF said that further Fed guidance on possible future scenarios would be useful.
The IMF, which on Tuesday will release the principal forecasting section of the World Economic Outlook, last week cautioned that the global economy is at risk of being scarred by the pandemic and called on policy makers to limit the pain. The fund and the World Bank begin their week-long virtual spring meetings on Monday.
IMF Funding Needed ($650Bil.) To Support Developing Countries Vaccinate Populations
A plan to end the Covid-19 pandemic by speeding up immunizations could be financed through a record asset allocation via the International Monetary Fund, according to the Rockefeller Foundation.
The IMF should approve and swiftly distribute $650 billion in additional reserve assets to help developing economies vaccinate as much as 70% of their populations by the end of next year, the Rockefeller Foundation said in a report Monday.
Delaying immunizations raises the likelihood new variants will emerge that could cause “rolling outbreaks resulting in further economic shutdowns,” according to the 22-page report, whose contributors include former U.K. Prime Minister Gordon Brown and Jeffrey Sachs, a professor of economics at Columbia University in New York.
“Vaccine-resistant variants that mutate in one under-vaccinated country can quickly spread to one that’s been immunized,” said Rajiv J. Shah, president of the New York-based foundation, in the report. “Current vaccination plans and the funding behind them are simply not enough to protect us all.”
The report details ways to leverage a large issuance and reallocation of IMF special drawing rights — an international reserve asset created in 1969 — which can be exchanged for freely-usable currencies. The report calls for wealthier countries to commit to voluntarily reallocating at least $100 billion of their unneeded drawing rights to provide further support to the developing world.
If approved, the new allocation would add a substantial, direct liquidity boost to countries without swelling debt burdens, IMF Managing Director Kristalina Georgieva said last month. A formal proposal is slated to be presented to the IMF board in June.
Financing from the World Bank, the IMF and regional development banks, including mobilized private capital, needs to increase by $400 billion to $500 billion a year as the world recovers from the pandemic to help assure a broad and sustainable rebound in emerging and developing countries, according to the report.
If the virus is allowed to spread in countries with low vaccination rates, it’s likelier to mutate and generate variants that could bypass protection from inoculations, the report said. As a result, even countries with high vaccination rates would be vulnerable.
The world is 4-to-6 times more likely to get a new variant from an under-vaccinated country that isn’t a member of the Organization for Economic Cooperation and Development than from a fully protected OECD country, it said.
For every $1 spent on supplying poorer countries with vaccines, high-income countries would get back about $4.80, Rand Corp. said in a research brief last year.
Any plan should incorporate strategies to mitigate the risk of future pandemics by addressing ongoing microbial threats, including antimicrobial resistance, said Olga Jonas, a senior fellow at the Harvard Global Health Institute, in an email.
“What is really needed is an urgent plan for robust core veterinary and human public-health systems in all low- and middle-income countries,” said Jonas, who worked for more than three decades at the World Bank, including as an economist specializing in pandemics.
Without such systems, any recovery will disappear when another outbreak isn’t controlled and becomes the next pandemic, she said. “The likelihood that it happens next year or in five years has not decreased because we already had a pandemic,” Jonas said. “There will be another one.”
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