U.S. Treasury Secretary Janet Yellen has taken the first steps to overthrow Washington’s opposition to increased financial support to low-income countries through the IMF to help mitigate the economic impact of the pandemic.
In a letter to his G20 counterparts on Thursday, Yellen signaled his interim support for a new allocation of Special Drawing Rights (SDRs) – the IMF’s reserve currency that is used to supplement official reserves of member countries.
Joe Biden’s administration pledged to strengthen America’s engagement with multilateral institutions after four years of Trump’s unilateralism, but economically it has not yet translated into major policy changes.
Yellen’s approval, which preceded Italy’s Friday meeting of G20 finance ministers and central bank governors, paves the way for $ 500 billion in additional liquidity to be pumped into the global economy .
However, she stressed that her support was conditional on countries finding “common parameters for greater transparency and accountability” regarding how the reserve currency was deployed.
She also urged the G20 countries to send their own SDR allocations to low-income countries so that the benefits disproportionately flow to the poorest countries.
“An allocation of new Special Drawing Rights (SDRs) to the IMF could improve the liquidity of low-income countries to facilitate their much needed health and economic recovery efforts,” Yellen said. “We are eager to discuss potential modalities for the deployment of SDRs [with other G20 nations]. “
Richard Kozul-Wright, head of globalization and development strategies at the United Nations Conference on Trade and Development, said Yellen’s decision “marks a welcome step forward from the intransigence of the administration. Trump ”.
However, he warned that she was “unduly cautious in recognizing the potential role of SDRs in easing the liquidity constraint on economic recovery in the developing world”.
“The Biden administration was quick to take a bold response to the crisis in its country and should now replicate that boldness on the multilateral stage,” he said. “A new allowance [of SDRs] helped advanced economies cope with the strains of the global financial crisis in 2009 – a larger allocation should be evident today.
The United States has also faced pressure to make further concessions that could accelerate prospects for a multilateral digital tax deal at the OECD, a topic Yellen also touched on in his letter.
“The United States is engaged in multilateral discussions on the two pillars within the inclusive OECD / G20 framework, overcoming existing disagreements and finding workable solutions in a fair and judicious manner,” she said. .
Yellen’s letter came as the U.S. Congress prepared to hold a series of votes on the Biden administration’s $ 1.9 billion fiscal stimulus package, which is expected to culminate in its final legislative passage during the first half of March. Although some economists have expressed concerns that the package is too big and could fuel unwanted inflation, Yellen said other countries should follow suit.
“I urge the G20 countries to continue to take significant fiscal and financial action and to avoid withdrawing support too soon. If there was a time to go big, now is the time, ”she said. “The G20 was born out of the need for international cooperation in the face of a deep and extraordinary economic crisis. We have come together to meet great challenges in the past. We have to do it again.
Kevin Watkins, Managing Director of Save the Children UK, welcomed Yellen’s decision and called on the IMF and the World Bank to ‘do for the poorest countries what central banks and finance ministries have done for them. rich countries: provide the liquidity and fiscal support needed to sustain recovery and prevent reversals in education, health and nutrition ”.