In a global economy characterized by extreme forms of inequality, the pandemic has widened the gap. The wealthiest countries in North America and Europe are poised for a robust recovery, having used their wealth to save their economies and secure vast stocks of Covid vaccines. Poor countries face the continuing ravages of the largely unprotected coronavirus and with their resources strained by growing debts.
Now fears that the world may emerge from the pandemic more unequal than ever has sparked a substantial effort to close the gap: Under a proposal nearing completion, the International Monetary Fund would issue $ 650 billion in reserve fund, essentially creating money that troubled countries could use to buy vaccines, finance health care and pay off debt.
Such a measure would offer “potentially the largest allocation of capital since the end of World War II,” United Nations Development Program administrator Achim Steiner said at a press briefing this week.
But international development experts say that simply creating new reserves would be of limited benefit to poor countries unless rich countries voluntarily transfer some of their holdings to them – a route IMF officials seek to set. in place.
The IMF’s executive board is expected to take the proposal forward at a meeting on Friday, before passing it on for final approval to its board of governors, which includes representatives from the fund’s 190 member countries. Officials hope he will get final passage by August.
A notoriously impenetrable institution ruled by unique conventions and an unwavering respect for technocratic jargon, the International Monetary Fund’s approach does not involve money but special drawing rights – reserve funds that the institution credits to it. the accounts of its member countries. Governments can exchange these SDRs for ordinary currency, to be spent as needed.
Under the rules governing the IMF, member countries contribute to the institution’s coffers, their obligations being determined in large part by the size of their economies, and their voting rights proportional to what they pay. The new reserves would be distributed according to this ranking, meaning that the biggest economic powers like the United States would get the biggest slice.
In the absence of a mechanism for rich countries to redirect part of their assets, 58 high-income countries would capture $ 438 billion in new reserves – more than two-thirds of the total – according to an analysis released Thursday by the United Nations Program. United Nations for Development.
In contrast, a group of 82 countries assessed as “highly vulnerable to debt” – among them, two dozen of the world’s poorest countries – would receive only $ 54.5 billion, or about 8% of the total. This represents only 5% of their total external debt.
Fund officials are developing a plan whereby the richer member countries would transfer part of their reserves to the poorest countries to allow expansion of debt reduction and poverty reduction programs.
“We are working to amplify the impact of the new allocation,” IMF Managing Director Kristalina Georgieva said in a statement. speech at the African Development Bank Wednesday.
She said the fund’s plan would be based on “encouraging the voluntary channeling of some of the SDRs”, with the aim of bringing in “$ 100 billion to the poorest and most vulnerable countries.”
The United States is prepared to make around a fifth of its allocation, worth around $ 20 billion, said a Treasury official who spoke on condition of anonymity. The Biden administration is seeking to persuade other members of the Group of 7 to take similar action.
Poor countries that take out loans from the fund could use the money to expand health care systems or tackle climate change in conjunction with existing IMF programs. The trust fund is expected to be a topic of discussion at the meeting of the Group of 20 finance ministers in Italy next month.
In Washington, the universality of the proposed allocation has drawn opposition from Republicans, who say it would inflate the finances of American adversaries like China, Russia and Iran while doing little to help poor countries .
Louisiana Republican Senator John Kennedy this month introduced a bill that would prevent Special Drawing Rights allocations from going to “perpetrators of genocide and state sponsors of terrorism” without congressional approval.
The Trump administration opposed the proposal on similar grounds, while the Biden administration adopted the idea as a way to help developing countries at no cost to taxpayers.
Debt is at the center of concerns for low-income countries, as many have entered the pandemic already under heavy burdens.
In 2019, 25 countries, mostly in Africa and South Asia, were spending more on debt payments to major financial institutions in rich countries than on education, health care and community support programs. poor, according to a UNICEF report study.
Zambia has seen its external debt payments drop from less than 2% of its total government revenue in 2011 to almost 34% this year, according to The data tabulated by the Jubilee Debt Campaign, an international advocacy group that advocates for debt cancellation. Pakistan’s external debt payments fell from less than 10 percent of government revenue to 35 percent over the same period.
The pandemic has dramatically worsened the situation, destroying revenues while increasing demand for government services.
As the spread of Covid halted construction in the Persian Gulf and blocked cruise ships around the world, migrant workers from Bangladesh to the Philippines sent home reduced wages, robbing their communities of a vital artery of finance . Malnutrition worsened as workers from India to Kenya lost income in the face of closed markets and abandoned streets.
In short, just as millions of people have fallen ill with Covid, requiring increased medical care, and just as livelihoods have been damaged, governments in the developing world have sent increasing sums to creditors in financial centers like New York, London, Frankfurt and Shanghai.
Members of the Group of 20 last year announced a debt relief initiative that encourages creditors to allow borrowing countries to skip certain payments. But this plan was only a short-term reprieve. And private creditors refused to participate.
Overall, the initiative has resulted in approximately $ 5 billion in debt relief, according to the world Bank. In contrast, developing countries must collectively repay $ 330 billion over the next five years alone, recent study finds. study by the European Network on Debt and Development.
For poor countries, the most immediate need is for Covid vaccines. Although nearly one in four people worldwide have received at least one dose of a Covid-19 vaccine, the figure in low-income countries is less than 1%, according to the Our world in data project at the University of Oxford.
Many of the vaccines that have reached developing countries have been produced by Chinese manufacturers whose products have shown disappointing results.
While the governments of rich countries have used their finances and manufacturing capacity to capture the vast majority of Covid vaccine stocks, they have also pledged to support Covax, a multilateral partnership led by the World Health Organization designed to distribute doses fairly.
But Covax has struggled to secure its supply in a market dominated by pharmaceutical giants maximizing their profits. The body only shipped 88 million doses, according to data compiled by UNICEF.
Pfizer has pledged to contribute up to 40 million doses to Covax, which is less than 2% of its global production target. The company said it expects sales of its Covid vaccines to reach $ 26 billion this year.
Earlier this month, at a summit in England, leaders of the Group of 7 Nations pledged to donate 870 million doses vaccine to developing countries, mainly through Covax. But only half of those doses were due to arrive by the end of the year.
This has left a jarring divide intact – children as young as 12 are receiving vaccines in the world’s richest country, the United States, while most of humanity does without them, including even some workers. primary care in poor countries.
An injection of IMF reserves would not change the market incentives that have directed vaccines to the world’s wealthiest people, but it could strengthen the purchasing power of governments now forced to prioritize debt repayment.
“How many more waves do we need before we realize there is no end to this pandemic, before the world gets vaccinated?” said Mr. Steiner, the administrator of the United Nations Development Program. “We’re in the middle of this nightmare right now and we can actually act faster. “