THE « SDRs » of the Paris summit or the French paradox of debt aid. (comment)

French president Emmanuel Macron in April 2020 called for a massive cancellation of African debt, while the covid-19 pandemic plunged the world economy into a deep crisis, faced with an autopsy of a disaster on the continent whose economies are already fragile.

Obviously, the process was going in the right direction, but canceling a debt does not happen in a snap. This type of procedures takes time.

There was a precedent, the HIPC initiative "Heavily Indebted Poor Countries", 25 years later, we are back to the starting point.

In 1996, the IMF and the world bank launched the initiative in favor of heavily indebted poor countries (HIPC) in order to alleviate the debt of certain African countries, which has become unsustainable. This measure was supplemented in June 2005 by the The multilateral Debt Relief Initiative (MDRI), which consisted in the cancellation of the debt of the countries concerned to three institutions, the IMF, the International Development Association (IDA) of the world bank and the African Development Fund (ADF).

« When they were decided, these actions would have been undoubtedly a one-time remedy and make the debt problem disappear in the countries concerned » here we are almost back to the starting point.

From the moratorium on African debt at the end of the G20 of April 15, 2020 to the SDR (special drawing right) of the macronie at the paris summit in May 2021 with certain african leaders.

« African debts keep coming back »

The question of the moratorium

Most african economies depend on the outside. Two thirds of exports are raw materials or semi-finished products. But international demand is collapsing and prices with it, already warned the Senegalese economist Demba Moussa Dembélé, director of the African alternative forum.

The G20 was not up to the point. Rather than a simple suspension of repayments, economists and civil sociey actors demanded a complete cancellation of debts. The moratorium does not allow either to trigger a virtuous circle or to put a stop to the process of chronic indebtedness of African countries, explained Christian Abouta, evaluator of public policiesin Benin, and for the congolese economist Noël Magloire Ndoba, it was a cosmetic maneuver, the real problem is that of the debt as such, it must be canceled outright, especially since we know that these debts are at the origin vicious.

The issue of SDR (Special Drawing Rights)

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. So far SDR 204.2 billion (equivalent to about US$293 billion) have been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global financial crisis. The value of the SDR is based on a basket of five currencies—the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling.

« Why would western countries create money and Africans not ?» While we know that is a lever on which we can play to help countries in difficulty.

It had beed used extensively, and with great success during the 2008-2009 crisis.

The USA that are very hostile to multilateralism could prevent the issuance of new SDRs. But one coiuld imagine that the IMF would use the SDRs that already has to exclusively help Africa.

The role of the SDR

SDR allocations can play a role in providing liquidity and supplementing member countries’ official reserves, as was the case amid the global financial crisis.

The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies.

SDR Allocations

The Articles of Agreement, determine that under certain conditions the IMF may allocate SDRs to members participating in the SDR Department (currently all members of the IMF). In particular, a general allocation of SDRs must be consistent with the objective of meeting the long-term global need to supplement existing reserve assets and receive broad support from the IMF’s membership.

From the above, the approach of French president Emmanuel Macron should appear indecent towards his peers, not only African but also those from the East to the West and those from the North to the South.

Indeed, once agreed, the allocation is distributed to member countries in proportion to their quota shares at the IMF. France is obviously not a distributor of SDR allocations.

In view of the current situation, a special one-off allowance should be used. A special one-time allocation in 2009 enabled countries that joined the IMF after 1981 (i.e., after previous allocations) to participate in the SDR system on an equitable basis.

« In a spirit of solidarity in the face of the health crisis, the allocation of SDR must/ should be distributed in equal proportion and not in proportion to IMF quota»

In exceptional circumstances, there is no point in applying the traditional rules.

In exceptional situation, exceptional measures. we must invent new morally acceptable procedures. So we have to innovate.

The paradox of debt aid

If the principle of issuing SDRs of 650 billion dollars, 34 of which will be allocated to Africa, is acquired, its amount is demed insufficient, according to the French presidency, which suggests not only a sale of IMF gold to supply zero-interest loans to African countries but to them, also claims to lend SDRs held by rich countries at zero rate so that they get $100 billion to $600 billion to run their economies.

Interest of SDRs

SDRs are a monetary instrument: countries that benefit from them can exchange them for currencies

Thus a country which receives 100 SDRs can apply to the ECB (European Central Bank), the FED (the Federal Reserve) or the Bank of England and request the conversion of the SDRs into euros, dollars or pounds sterling, and the central banks cannot say no to them.

It is a means that was used during the subprime mortgage crisis to provide liquidity to the whole planet

The SDRs and the African States

The SDRs would make it possible to bail out African States without even having to go into debt since it is not a loan that must be repaid. In addition, this would improve the foreign exchange situation and would make it possible to finance imports, particularly in health and food.

The focus is worth its weight in gold.

« It is not indebtedness, but it is in a way a monetary creation...»

This is the criticism that is traditionally adressed to the SDRs, but the crisis situation requires us to accept it.

« Besides, why the ECB (European Central Bank) or the FED (the Federal Reserve) can create money to support their economies and not africans »


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