U.S. opposition to opening new avenues of funding for Iran and China is preventing the International Monetary Fund from deploying a powerful tool to help countries fight the economic impact of the coronavirus, according to two sources familiar with the matter.
A massive IMF liquidity injection through issuance of new Special Drawing Rights, something akin to a central bank "printing" new money, has the backing of many finance ministers, prominent economists, and non-profit groups.
It could provide hundreds of billions of dollars in urgently needed foreign exchange reserves for all of the IMF's 189 member countries, and finance officials are debating the issue during this week's virtual IMF and World Bank Spring Meetings.
But sources said the United States, the IMF's dominant shareholder, actively opposed the new fundraising.
The Trump administration does not want Iran and China to have access to billions of dollars in new resources with no conditions, two of the sources familiar with the IMF's deliberations said, asking not to be identified given the sensitivity of the issue.
They added that the IMF's move would give even wealthy countries new assets that are not necessarily needed. Even embattled Venezuela would get an allocation, although the IMF has blocked Caracas' access to its SDRs while international recognition of its government remains unclear.
"International financial institutions are important platforms for international cooperation, not political tools for a minority of countries to manipulate," said a statement from China's foreign ministry sent to Reuters.
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India also opposes a new SDR allocation, the two sources said, but New Delhi's reasons have not been made known. A spokesman for India's Finance Ministry did not respond to a request for comment.
MONEY FOR NOTHING?
SDRs, based on dollars, euro, yen, sterling and yuan, are the IMF's official unit of exchange. Member countries hold them at the Fund in proportion to their shareholdings.
The IMF last approved a $250-billion new allocation of SDRs in 2009, boosting liquidity for cash-strapped countries during the last financial crisis.
Doing so again now could provide more flexibility to the 102 countries that have already sought IMF emergency loans and grants, and allow aid to flow to high-debt countries that can't qualify for new IMF loans, such as Argentina and Zimbabwe.
An SDR expansion has attracted some celebrity advocates, such as investor George Soros and U2 lead singer Bono's ONE anti-poverty organization, along with trade unions and faith-based groups.
IMF Managing Director Kristalina Georgieva floated the idea of a $500 billion SDR issuance in March to G20 finance officials. But the group said in a statement after a videoconference on Wednesday there was "no consensus on the issue."
Georgieva, who also has acknowledged U.S. resistance, told a news conference on Wednesday: "What we are concentrating on, is to act decisively with what we have, and where there is full consensus among members. We recognize that there are other options to be explored, and we will continue to do so," she said.
Among these efforts is persuading wealthier countries to donate or lend their existing, unused SDRs to IMF lending facilities for poor countries. The Fund is trying to triple the resources in its Poverty Reduction and Growth Trust to $18 billion, she said.
Some say $500 billion is too little. Former U.S. Treasury secretary Larry Summers and former British Prime Minister Gordon Brown, who both pushed for the 2009 SDR allocation, called on Wednesday for a $1 trillion-plus SDR issuance.
"If ever there was a moment for an expansion of the international money known as Special Drawing Rights, it is now," they wrote in an op-ed in the Washington Post Wednesday.
On Tuesday, the IMF said the recession sparked by the virus would be far deeper than the Great Recession of 2008 and 2009, shrinking the global economy by 3.0% in 2020.
The Trump administration's opposition comes at a time when U.S. tension with China is running high over the causes of the virus and a long-running trade war. U.S.-Iran tension nearly boiled over into armed conflict in January.
The U.S. Treasury Department has pressed the IMF instead to focus on quickly deploying its $1 trillion in existing resources, including expanding emergency loans and grants to more than 100 countries that have sought aid.
A U.S. Treasury spokeswoman declined to comment specifically on the SDR allocations, but said the agency supported a variety of efforts at the IMF to provide rapid, targeted assistance to countries in need.
"We support accelerating IMF procedures, higher access from the IMF's emergency lending facilities, and support from donors for the IMF's assistance to low income countries, including grants to help these countries make debt payments to the IMF," the spokeswoman said in an emailed statement.
French Finance Minister Bruno Le Maire argued in favor of a new SDR allocation of about $500 billion, saying in a statement to the IMF's steering committee it would provide an extra $16 billion to low-income nations that could be "decisive" in battling the virus.
Columbia University professor Joseph Stiglitz, a former World Bank chief economist, said new SDRs would not cost U.S. taxpayers anything.
"And if we can help emerging markets and developing countries, it will rebound to us in terms of health and in terms of the economic recovery," he said.
IMF officials, while acknowledging that a deal for a new SDR allocation is unlikely this week, are taking a patient approach, hoping to eventually persuade U.S. Treasury officials of the merits of the move.
"Nothing is off the table," IMF chief economist Gita Gopinath told Reuters on Tuesday.