Fund Blocks Afghanistan And Venezuela From Benefitting From Special Drawing Right
August 20, 2021–The International Monetary Fund is set to make available $650 billion in drawing rights on August 23 to nearly all of its 190 members.
Creating Cash through Special Drawing Rights
It’s a historic distribution by the fund, made to mitigate the impact of the global pandemic. The IMF executive board approved the emergency decision in July.
IMF members will be able to exchange the Special Drawing Right for hard currency with central banks of countries. They could also keep it as part of their reserves.
The allocation is neither a donation nor a loan. The IMF says it is “cost free.”
In effect, it expands liquidity in the global financial system and creates cash for governments. According to the IMF, the drawing right “supplements countries’ reserves, using the collective strength of the Fund’s membership to make all 190 member countries a little stronger.”
No Drawing Rights for Afghanistan
One country, however, will not be gaining access to the drawing right. That’s Afghanistan.
On Wednesday, the fund announced that it is blocking that country’s access to the resources. According to reporting by Reuters, that amounts to about $440 million.
The reason, according to an IMF spokesperson, is due to the lack of clarity of the governance of the country. That announcement came three days after the Taliban took over Afghanistan.
“As is always the case, the IMF is guided by the views of the international community,” the spokesperson said in an email. “There is currently a lack of clarity within the international community regarding recognition of a government in Afghanistan, as a consequence of which the country cannot access SDRs or other IMF resources.”
Other Governments Expected to Receive SDRs
IMF membership includes countries with dictatorial governments. Some observers have pushed the fund to cut off governments like Belarus, which operates under a government that many countries don’t recognize.
According to Bloomberg News, the IMF also cut off Venezuela from its share of drawing rights. Belarus, however, is slated for up to $1 billion in special drawing rights.
Adding It Up
Of the possible $650 billion in the total drawing rights, $274 billion is slated for emerging and developing countries. According to the IMF, that would mean a 10 percent boost to their international reserves. Meanwhile, about $21 billion is allocated to low-income countries would receive about $21 billion.
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