Dear friends and colleagues,

We are writing to request that you sign on the letter below to G20 finance officials and the IMF calling for principles for the fair re-channeling of Special Drawing Rights (SDRSs) to developing countries. These principles include, for example, avoiding the double-counting of SDRs as ODA, attachment of policy conditionality, accrual of more debt and ensuring access for middle-income countries that have been excluded from the G20’s debt suspension initiative.

On August 23 the IMF allocated USD650 billion in SDRs to support its members’ COVID-19 response and recovery. With SDRs being distributed based on the IMF members’ quotas, developing countries received approximately USD230 billion (USD275 billion if one counts China). Over USD400 billion went to advanced economies, adding to the more than USD170 billion they already held from a previous allocation in 2009 during the global financial crisis.

The G20, G7 and IMF membership asked the IMF to work on mechanisms to re-channel SDRs held by advanced economies to vulnerable countries. What volume of the SDRs can be re-channeled and what benefits accrue to developing countries receiving them will depend, to a large extent, on the features of the mechanisms that are finally put in place.

Global civil society called for mechanisms to redistribute SDRs in the wake of the 2008 global financial crisis, but never before had such proposals been on the agenda of global decision-makers as they are today. This is a critical moment and, depending on how it plays out, it could change basic tenets that condition the availability of resources for development and the global financial architecture today.

Click here to read full letter and add your signature (versions in Spanish and French are also available, one in Arabic will be soon). The letter is open to signatures by civil society organizations and academics.

With best wishes,
Third World Network

Open Letter to G20 Finance Ministers, Central Bank Governors and the IMF: Civil Society Organizations Call for Principles for Fair Channeling of Special Drawing Rights

As the pandemic exacerbates multiple crises in developing countries, Special Drawing Rights (SDRs) are a crucial option to help finance the COVID response and hasten an equitable and inclusive economic recovery. With the SDR distribution being proportional to IMF countries’ quotas, the new allocation of US$650 billion does not ensure sufficient SDRs go to developing countries. This is why many have been calling for an allocation in the order of US$3 trillion (link to the letter: https://bit.ly/3peg8h6). Moreover, advanced economies are in less need of SDRs given their access to a wider array of monetary and financial tools for the response and recovery. Thus, it is essential that the recent allocation be quickly followed by rechanneling a significant portion of advanced economies’ SDRs to developing countries.

We strongly believe that successful and equitable recovery is contingent on transparency and a participatory process inclusive of civil society in all countries. This also applies to international spaces making decisions on SDR channeling mechanisms, including the G20 and the IMF, where civil society has not had, so far, sufficient opportunities to engage on this matter.

We urge you to ensure SDR channeling options align with a basic framework of principles that many academics, experts and civil society colleagues around the world echoed over recent months.

THE CHANNELING OPTIONS SHOULD:

1. Provide debt-free financing, so it does not add to unsustainable debt burdens of developing countries, whose annual external public debt payments are projected to average US$300 billion over 2021 and 2022. Grant-based financing is ideal but, if additional loans are to be offered, then maximum concessionality is critical (zero interest and lengthy repayment terms with extended grace periods).

2. Refrain from tying transfers to policy conditionality (directly or indirectly). Conditionality will lengthen the time it takes to negotiate such financing, could force countries into adopting difficult adjustment or austerity measures; or put the financing beyond reach for countries unable to comply with such conditions.

3. Be accessible to middle-income countries. These countries have persistently been left out of debt relief initiatives and concessional financing, and should not be excluded from yet another financial assistance option when many of them face deep debt distress and challenging pandemic vulnerabilities.

4. Include transparency and accountability safeguards on both providers and recipients of such financing in the spirit of democratic ownership, strengthening independent scrutiny, participation and accountability to citizens.

5. Ensure that SDR contributions are additional to existing ODA and climate finance commitments. Only SDRs channelled to developing countries as grants should count as ODA, or, where appropriate, against the climate finance goal of US$100 billion.

6. Prioritize SDR use that expands international grant funding for combatting the pandemic through budget support for public services and the public sector workforce in health and education, for social protection and other needs. Grants can also target promotion of a fair recovery that supports climate justice, and tackles economic and gender inequality, including the unpaid care burden that women bear, and the COVID-19 pandemic exacerbated.

We also call for agreement on a global repository to report on channeled SDRs. This will help limit fragmentation and be an important measure for accountability of commitments and tracking the overall impact of SDRs, including for ongoing learning.

We are aware that the Poverty Reduction and Growth Trust (PRGT) is being considered as a favoured option for SDRs channeling; however, it is important to note that the PRGT does not reflect the principles of being debt-free, conditionality-free, and accessible to all developing countries. We urge you to consider ways to improve the PRGT option, including channeling via its emergency financing vehicle (Rapid Credit Facility).

We also encourage you to identify SDR channeling mechanisms that support debt cancellation, including through the Catastrophe Containment and Relief Trust, and to consider alternative options which align best with the principles stated above.

To create options to scale up SDR channeling volumes and reach more developing countries we encourage you to seriously discuss alternative options beyond the PRGT and beyond the IMF more broadly. However, other rechanneling vehicles under discussion, such as a Resilience and Sustainability Trust and Multilateral Development Banks, still appear far from embodying these principles.

Finally, neither the initial SDR allocation nor the channeling of SDRs can be a substitute for the urgent implementation of debt relief measures that benefit both low- and middle- income countries, especially to ensure that the additional resources are not directed to repay external private and other creditors.