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IMF hands out more money.

Byline: news@cpifinancial.net (Staff Writer)

The Executive Board of the International Monetary Fund (IMF) has backed an allocation of Special Drawing Rights (SDRs) equivalent to $250 billion to provide liquidity to the global economic system by supplementing the fund's 186 member countries' foreign exchange reserves. The equivalent of nearly $100 billion of the new allocation will go to emerging markets and developing countries, of which low-income countries will receive over $18 billion. The proposal will now be submitted to the IMF's Board of Governors for final approval.

The SDR allocation was requested as part of a $1.1 trillion plan agreed at the G-20 summit in London in April and endorsed by the International Monetary and Financial Committee (IMFC) to tackle the global financial and economic crisis by restoring credit, growth and jobs in the world economy. If approved by the Board of Governors with an 85 percent majority of the total voting power in a vote scheduled to close on August 7, the SDR allocation will be in effect on August 28.

"The allocation is a prime example of a cooperative monetary response to the global financial crisis," the IMF Managing Director Dominique Strauss-Kahn said.

The SDR allocation will be made to IMF members that are participants in the Special Drawing Rights Department (currently all members) in proportion to their existing quotas in the fund, which are based broadly on their relative size in the global economy. The operation will increase each country's allocation of SDRs by approximately 74 per cent of its quota, and fund members' total allocation to an amount equivalent to about $283 billion, from about $33 billion (SDR 21.4 billion).

SDRs allocated to members will count toward their reserve assets, acting as a low cost liquidity buffer for low-income countries and emerging markets and reducing the need for excessive self-insurance.

Some members may choose to sell part or all of their allocation to other members in exchange for hard currency--for example, to meet balance of payments needs--while other members may choose to buy more SDRs as a means of reallocating their reserves. In supporting the allocation proposal, the Executive Board stressed that it should not weaken the pursuit of prudent macroeconomic policies, and should not substitute for a fund-supported program or postpone needed policy adjustments.

2009 CPI Financial. All rights reserved.

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Publication:CPI Financial
Date:Jul 22, 2009
Words:396
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