Message for IMF: India seeks short-term liquidity lines in wake of COVID-19 outbreak

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April 18, 2020 5:26 AM

She said even though the virus has spread less in these economies, developing countries are economically impacted via lower exports, lower commodity prices, and lower tourism revenues (as a share of their respective GDPs).

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.

India has expressed reservation about the efficacy of the International Monetary Fund’s (IMF) allocation of special drawing right (SDR) and sought a “non-stigmatized short-term liquidity line” to inject liquidity into member countries, especially to the emerging nations that have witnessed large portfolio outflows in the wake of the COVID-19 outbreak.

Recently, finance minister Nirmala Sitharaman had called for reviewing and enhancing the IMF tool-kit and further expanding the swap line network. On Thursday, the Fund said it was ready to use its $1 trillion funding capacity to help its members fight the pandemic impact.

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.

In her statement, meant for International Monetary and Financial Committee’s 41st meeting on Thursday, Sitharaman said: “On the general allocation of SDR being envisaged, there are concerns. In the current context of illiquidity and flights to cash, the efficacy of an SDR allocation is not certain, and that in the absence of a global safety net, countries rely on national reserves as the first line of defence against market turmoil and confidence crises.” “Consequently, extraneous demands for these reserves, not related to domestic monetary and financial stability, would be costly, and hence cannot be supported.” Apart from India, the minister was speaking on behalf of countries like Bangladesh, Bhutan and Sri Lanka.

She said even though the virus has spread less in these economies, developing countries are economically impacted via lower exports, lower commodity prices, and lower tourism revenues (as a share of their respective GDPs).

The various channels of support, including emergency financing through rapid deployable facilities, and debt service relief for the poorest and most vulnerable countries through the Catastrophe Containment and Relief Trust would help alleviate distress to a great extent.

The finance minister said multilateral institutions like the IMF are well-equipped to analyse the full effects of the crisis and to co-ordinate and implement an effective global response. “Based on the experience of its member countries, the IMF can develop a spectrum of possible macro-level scenarios and deploy analytical tools to develop solutions to address country-specific solutions. Appropriate policy responses require optimization of available resources, balanced trade-offs and calibrated sequencing of recovery measures,” she said.

So far SDR 204.2 billion (equivalent of about $281 billion) have been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global financial crisis. However, some countries in the past have raised concerns about inadequate SDR allocations to the poor and developing countries. The value of the SDR is based on a basket of five currencies — the US dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling.

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