14 April 2021
2021 Session, Forum on Financing for Development

Short-Term Financing, Creation of Repo Market Crucial to Assist Poor Countries Facing Escalating Debt, Economic Contraction, Speakers Tell Financing for Development Forum

Poor countries are facing severe setbacks on their development paths, encumbered by ballooning debts, high risks of default and limited ability to inject desperately needed liquidity into their markets, economic experts told the Forum on Financing for Development today, as they offered ideas for ensuring a more equitable global recovery from the pandemic during three interactive panels.

Among those underscoring the critical need for short-term financing was Jeffrey Sachs, Director of the Center for Sustainable Development at Columbia University in the United States, who drew a contrast between low-income countries suffering the worst shocks since the Second World War without any borrowing except for what is available through official financing, and countries like the United States, which has injected 23 per cent of its gross domestic product (GDP) into programmes for income replacement, vaccine rollout and hospital support, borrowing at astonishingly low 2 per cent rates on bonds.  “For most of the world, this is completely unimaginable,” he said.

On that point, Vera Songwe, Executive Secretary of the United Nations Economic Commission for Africa (ECA), speaking on a panel devoted to unlocking liquidity, raised the risk of a persistent divergence in the world’s economies.  While welcoming the International Monetary Fund’s (IMF) recent $650 billion allocation of special drawing rights — a reserve asset created in 1969 to supplement countries’ official reserves — she said Africa’s share amounts to only $33.6 billion.  Funds allotted to the Group of 7 (G7) advanced economies, on the other hand, amount to $272 billion.  She proposed the creation of a repo market, which would reduce interest rates for developing nations.

Elena Duggar, Chair of Moody’s Macroeconomic Board — addressing a panel on increasing the contribution of private creditors to the pandemic response — said the depth of the economic contraction brought about by the COVID-19 crisis, coupled with lower commodity prices, has created a severe credit shock.  For most countries, their credit ratings will ultimately hinge on their ability to stabilize their debt trajectories over time.  She predicted a sharp increase in sovereign portfolio debt levels following the pandemic.

Throughout the day’s discussions, delegates spoke to the gale-force headwinds created by these influences.  Many argued that while the Group of 20 (G20) Debt Service Suspension Initiative provided breathing space for eligible countries, more durable solutions are needed to resolve debt crises.

Among them was the representative of Antigua and Barbuda, who said her country can no longer depend on tourism to drive revenue.  She wondered who would want to lend to a country that is highly vulnerable and likely to default, acknowledging a harsh reality faced by many small nations.  Solutions must involve forbearance, in the form of moratoriums or restructuring.  She also proposed debt‑for‑climate swaps or State contingent instruments that recognize vulnerabilities and allow countries to handle shocks as they come.

The Forum will continue at 9 a.m. on Thursday, 15 April, to conclude its work.

Panel II

The Forum began the day with a panel discussion titled “Developing durable solutions to recurrent debt crises”.  Moderated by Jeremy I. Bulow, Professor, Economics at Stanford Business School, it featured presentations by Bwalya Ng'andu, Minister of Finance, Zambia; and Jeffrey Sachs, University Professor and Director, Center for Sustainable Development Columbia University.  Jutta Urpilainen, European Commissioner on International Partnerships, delivered the keynote address, and Kristina Rehbein, Management and Political Coordination, Jubilee Germany, served as lead discussant.

Ms. URPILAINEN, delivering her keynote address, said the COVID-19 crisis is placing huge stress on the public finances and debt sustainability of many countries.  Underscoring that the immediate priority is to finance a recovery that increases resilience and ensures long-term, inclusive prosperity, she said the European Union Global Recovery Initiative aims to create a shift towards social inclusiveness, human development and enhanced sustainability.  The European Union, working with the International Monetary Fund (IMF), has promoted liquidity and debt relief, including through the €40 billion COVID-19 response.  The largest contributor to the IMF Catastrophe Containment and Relief Trust at €183 million, the European Union also has promoted the Paris Club Debt Service Suspension Initiative.  Welcoming the Group of 20 (G20) decision to extend this programme through 2021, and the IMF proposal for a new $650 billion allocation of special drawing rights, she said “these measures must be accompanied by reforms aimed at greater debt transparency and debt management capacity”.

She went on to note that the European Union has spent €3 billion to create fiscal space for health and social protection, emphasizing at the same time that domestic revenue mobilization must go hand in hand with better use of financial resources, notably to fight illicit financial flows and corruption.  Long-term recovery requires sustainable public and private investments.  Under the Global Europe financing package, the bloc will provide funding through blended and budgetary guarantees.  At the same time, these efforts must be complemented by country-driven reforms to create enabling environments for businesses, she said, both local and international.  The European Commission is working to direct investments towards sustainable activities.  Expressing support for international efforts to harmonize methodologies and definitions of green investments, she said special attention must focus on women and youth.  Fiscal reforms meanwhile should create more opportunities for education and stronger social protection, while other efforts must tackle the issue of deepening inequalities.

Mr. NG’ANDU said COVID-19 has affected businesses, which, in turn, has affected Government revenues, while expenditures have risen in efforts to contain the pandemic.  Welcoming the Common Framework for debt treatment beyond the Debt Service Suspension Initiative, he noted that Zambia applied for debt treatment under the Framework in February and is currently discussing the potential for extension with IMF, although the restructuring parameters have yet to be devised.  He expressed hope for a well-guided and coordinated process, stressing that the Debt Service Suspension Initiative has provided much-needed breathing space at time when liquidity conditions would have made it difficult for Zambia to meet all its debt service obligations.  It has allowed the country to support sectors and vulnerable people who have been devastated by the pandemic.  Through a medium-term refinancing facility totalling 10 billion Zambian kwacha, the Government has directly helped households, as well as bolstered support for health, education and social protections.  However, debt postponement is not a sustainable solution for highly indebted countries like Zambia, he said, expressing fervent hope to agree on a medium-term framework that will anchor the formal debt reservicing parameters.

Mr. SACHS said rich countries are borrowing massively to respond to the COVID-19 shock, while poor countries have no borrowing capacity, and therefore, are running budget balances.  Between March 2020 and April 2021, the United States borrowed an incremental $5 trillion, in addition to what was already an annual $1 trillion budget deficit — constituting 5 per cent of gross domestic product (GDP).  The borrowing of $5 trillion added another 23 per cent of GDP on top of that figure, meaning that the United States will be running deficits in 2020 and 2021 of 16 per cent of GDP each year.  “This is extraordinary,” he stressed.  Funds will be used for income replacement, emergency response and funding for hospitals, front‑line workers and vaccine campaigns.  It is also remarkable that the country is borrowing at extraordinarily low 2 per cent rates on bonds.  “For most of the world, this is completely unimaginable,” he said, stressing that many countries are suffering the worst shocks since the Second World War without any borrowing except for what is available in official financing.  Commending IMF for providing $100 billion in official financing for 2 billion people in 100 low- and middle-income countries, he said the financing conditions of poor countries are worsening, as the pandemic is running longer than expected, with no end in sight until the close of 2022.

He went on to stress that low-income countries will continue to see upheavals in tourism, trade remittances and other critical income streams, raising important questions around net resource transfers, or in other words:  getting liquidity to Governments in the short-term so they can have vaccines, protect health workers and undertake the most urgent response.  “This is so overwhelmingly in the global interest it is hard to emphasize enough that there is no safety in this world to what is happening anywhere,” he said, particularly as virus variants emerge.  He described the idea that rich countries can do the usual of ignoring the plight of the poor as morally wrong and “practically reckless”, instead calling for massive increases in public finance for the delivery of services and crisis response.

Stressing that the number‑one priority is short-term financing, he said the recycling of $100 billion of the $650 billion special drawing rights received by high-income countries is a minimum for what is needed.  He also advocated forbearance on debt collections at a much more ambitious level that what has been put in place and long-term development financing that is meaningful for the vast numbers of people in need.  He called for a 10-fold increase in official funding from multilateral development banks, stressing that borrowing rates for rich countries are near zero, while they are between 5 and 10 per cent for poor countries, reflecting default risk.  At these levels, the rates guarantee default because no poor country can reliably service exorbitantly high debt.  Debt must be restructured at lower rates.  He called private sector claims that it takes “haircuts” — lower-than-market-value placed on assets when they’re being used as collateral for a loan ‑ when rates are below 10 per cent “shocking” as returns on safe assets garner 1 to 2 per cent interest.  In sum, he called for urgent attention to the fiscal space of poor countries, in part through a massive recapitalization of multilateral development banks.

The representative of Antigua and Barbuda said her country is among the most tourism-dependent countries in the world.  Low diversity in its economic base, coupled with an underperforming tourism industry, has led to high underemployment. Creating fiscal space has been difficult at a time when spending on health has been so urgently needed.  To help small island developing States, she cautioned against a one-size-fits-all solution and emphasized the critical importance of fiscal space.  Given the constraints on generating income, Antigua and Barbuda must take on additional debt.  “Who wants to lend to a country that is highly vulnerable and likely to default?”, she asked.  Countries like hers need lenders to provide forbearance; decisions on whether this should be in the form of moratoriums or restructuring depends on the country itself.  They also need long‑term solutions, possibly in the form of debt-for-climate swaps or State contingent instruments that recognize vulnerabilities and allow countries to handle shocks as they come.  Driving that point home, she said her country is feeling the effects from an active volcano in Saint Vincent and the Grenadines, 300 miles away.  “This is the nature of things on a small island,” with few options for debt workouts, she said.

In the ensuing dialogue, Ms. REHBEIN, lead discussant, while welcoming agreement on the need to tackle debt vulnerabilities, nonetheless pointed out that policy responses have not lived up to the goal of long-term prosperity for all.  There has been barely any debt cancellation.  The Debt Service Suspension Initiative meanwhile covered only 2 per cent of debt payments in 2020.  While the private sector has been criticized for not participating in the Initiative, it is clear that “this just will not happen”.  One year on, the Initiative has been twice extended, but the time has not been used to force the private sector to participate.  “Sticks, not carrots” must be used to ensure private sector involvement, while debt treatment should be offered to all countries that need it.  She lamented that incremental steps, such as the proposed global forum on global debt, have not been included in the forum’s draft outcome.

The representative of Guyana, speaking for the Caribbean Community (CARICOM), said countries with high import dependence, a narrow import and export base, and high COVID-19-induced debt, such as her own, risk becoming “COVID-19 long haulers”. New measures must be developed to address the debt of small island developing States and middle-income countries.  She called for expanding the eligibility criteria for concessional financing, new allocation of special drawing rights coupled with a reallocation of excess rights, the provision of support through a financing mechanism — such as the proposed Caribbean Resilience Fund — and extension of the Debt Service Suspension Initiative, notably to vulnerable small island developing States and middle-income countries requesting forbearance.

The representative Antigua and Barbuda, speaking for the Alliance of Small Island States (AOSIS), said every solution for sustainable debt should consider the unique vulnerabilities of small island developing States, some of which are on the brink of collapse.  Expressing support for a multidimensional vulnerability index, he drew attention to the AOSIS debt statement, issued in 2020, which includes extension of the Debt Service Suspension Initiative beyond 2021, the issuance of no less than $650 billion in new special drawing rights; use of debt moratoriums and debt forbearance for those requesting them; and the inclusion of credit rating agencies in such efforts.

The representative of the United States said her country supported the decision to extend the Debt Service Suspension Initiative and move towards the Common Framework for debt treatment, which incorporates best practices, includes private sector lenders and secures greater transparency.  She strongly urged all creditors to implement the Common Framework, pointing to her country’s track record of providing debt relief through the Heavily Indebted Poor Countries Debt Initiative, under which 37 of 39 eligible countries have entered into debt treatment to date.

The representative of Indonesia said developing countries facing recession are never able to meet the essential needs of their people.  While the Debt Service Suspension Initiative has allowed limited relief, she said durable solutions could include maintaining a healthy debt-to-GDP ratio, maintaining macroeconomic stability, expanding the investment base and enacting innovative financing schemes, in particular, public-private partnerships.

The representative of Bangladesh advocated more support for debt relief, debt swaps and debt cancellation, stressing that in many least developed countries, the external debt burden has risen exponentially and the amount of debt service obligations are now more than what these countries need in order to provide social protection measures.  Underscoring their need for greater access to concessional financing, he called for meeting official development assistance (ODA) commitments and a simplified reallocation of unused special drawing rights.

The representative of Guatemala, speaking for the Like-Minded Group of Country Supporters of Middle-Income Countries, expressed concern over the ability of middle-income countries to find sustainable solutions to private and public debt issues, given their limited access to credit.  He called for establishing a liquidity and sustainability facility, extending the Debt Service Suspension Initiative beyond 2021 and reallocating special drawing rights, where appropriate.

An observer for the Holy See called for non-politicized, consensus-based solutions to end poverty, emphasizing that the principles of solidarity, social justice and joint political will must all align.  This calls for debt reduction and debt forgiveness, he said, expressing hope that developed countries and institutions will consider such measures anew and at a greater scale than in the past.

The speaker for the CSO Financing for Development Group said civil society has repeatedly decried the exclusion of middle-income countries from debt relief offers, the narrow assumptions made in the framing of debt solutions and flat out refusal to do more.  Stressing that lenders must do “much, much more for many more countries”, she pressed the United Nations to step up its leadership in finding solutions and called for multilateral debt workout mechanisms to address both unsustainable and illegitimate debts.

A speaker for Reality of Aid, Africa, taking up the issue of ODA, pointed out that only 32 cents of $100 is directed towards development.  “This needs to be addressed,” he said, emphasizing that countries must be at the centre of any exit routes from the debt problem.

A speaker for the NGO Committee on Financing for Development recommended the holding of a multi-stakeholder dialogue to establish new rules on debt servicing, noting that civil society needs access to debt data.  Credit rating agencies must be reformed, she said, adding that a financial transaction tax could channel more financing to development banks.

Panel III

The Forum then held a panel discussion titled “Strengthening private creditor and credit rating agencies contribution to pandemic response and recovery.”  Moderated by Mark Plant, Chief Operating Officer, Co-Director of Development Finance and Senior Policy Fellow, Center for Global Development Europe, it featured presentations by Elena Duggar, Chair of Moody’s Macroeconomic Board; Alicia Barcena, Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC); and Clay Lowery, Executive Vice‑President of the Institute of International Finance.  The lead discussants were Jason Braganza, Executive Director of the African Forum and Network on Debt and Development; and Moritz Kraemer, Chief Economic Advisor of Acreditus.

Mr. PLANT, opening the discussion, recalled that, in 2015, the international community placed great hope in the role that the private sector could play in financing the Sustainable Development Goals, as tapping the large pool of private capital in international markets seemed to be the only way to fill the financing gap.  Now, in the middle of the COVID-19 crisis, some view the private sector as an opposing force, and such sector’s tepid reception of the Debt Service Suspension Initiative has led some countries to forego that initiative in order to not lose access to private-sector markets.  He detailed a vicious circle, in which a country doesn’t pay its debt, the credit rating agencies – who must apply their rules consistently – downgrade such countries’ ratings, which private creditors then avoid and, to mitigate this outcome, countries then opt out of debt-release schemes and are still unable to repay their debts.  He said that, while no bad intent is present in such actions, the result is an inflexible system that cannot react appropriately to global crises like the COVID-19 pandemic.

Ms. DUGGAR emphasized that credit ratings speak only to credit risk and the capacity to repay debt, and that this narrow function is not the same as market access.  The depth of the economic contraction brought about by the COVID-19 crisis, coupled with lower commodity prices, has created a severe credit shock; as a result, credit rating agencies have changed certain countries’ ratings to reflect such agencies’ ordinal measure of the credit risk present in these countries.  While predicting a sharp increase in sovereign portfolio debt levels following the pandemic, she stressed that the analysis employed by credit rating agencies focuses on lasting changes, and for most countries, their ratings will ultimately hinge on their ability to stabilize their debt trajectories over time.  She added that credit ratings are far more stable than other measures of credit, and that such ratings have served as a moderating force through this crisis.

Mr. LOWERY said that the Debt Service Suspension Initiative is a unique mechanism from a financial perspective as it was created as a prophylactic measure for a number of countries simultaneously to provide liquidity support, as opposed to most debt workouts that are based on an economic analysis of specific countries.  The countries eligible for the initiative can be divided into roughly three categories:  countries with no access to private markets; countries already troubled with credit rating problems prior to the onset of the pandemic; and countries that do have market access.  This last group’s interaction with the Debt Service Suspension Initiative has created a new problem, in which said countries obtain a small amount of liquidity support, but, over time, lose market access.  The G20 Common Framework, which differs significantly from the Debt Service Suspension Initiative, attempts to address this issue, he said.

Mr. BRAGANZA pointed out the disconnect between numerous paeans to global solidarity expressed during the Forum and the realities of a world in crisis that lacks unity.  Vaccine nationalism undermines access to vital medicine and existing debt-relief measures are largely inadequate in addressing the problems faced by many countries.  Further, the exclusion of private creditors from such measures continues to hinder reform of the global debt architecture and is evidence of the continued privatization of development.  The participation of private creditors in the Debt Service Suspension Initiative and the G20 Common Framework — which is currently lacking — would provide significant savings and fiscal space to developing countries.  He also observed that credit rating agencies have aggressively downgraded the ratings of those countries that pursue the fiscal space afforded by these debt-relief mechanisms, particularly in sub-Saharan Africa.  He urged the international community to consider ways to bring everyone to the table to seriously discuss sustainable ways to address global debt architecture if it truly wants to “build back better” following this crisis.

Mr. KRAEMER, noting some States’ reluctance to pursue debt relief due to a fear of downgraded credit ratings, stressed that Governments should not be afraid of debt restructuring.  In a low-interest-rate environment — like the one that exists today — any resultant exclusion from market access will be very brief as the present default is not seen as a precursor for future default due to the extraordinary circumstances of the COVID-19 crisis.  He said that, in effect, Governments are “afraid of what has already happened” and cautioned that, the longer Governments wait, the deeper the crisis and the longer the recovery will be.  Turning to credit rating agencies, he pointed to the unequal treatment of advanced and emerging economies since the pandemic began, in which there were no net downgrades for the former while over one third of the latter saw ratings fall, especially in sub-Saharan Africa and Latin America.  He said that this is unrepresentative of a reality in which all countries were “hit by a shock outside of anything in living memory” and stressed that credit rating agencies must not employ a double standard.  “There is life after restructuring,” he added.

Ms. BARCENA, stressing that financial stability is a global public good, said that debt renegotiation has been problematic for the private sector due to an absence of equilibrium between public and private interests.  A debt framework with transparent rules should be implemented to level the playing field between these two sectors.  She also called for “debt justice”, noting that 19 countries in Latin America have had their credit ratings downgraded even though some of these countries — like Chile — have solid fundamentals.  She offered several measures to improve the current debt crisis, including:  facilitating effective communication between Governments and the private sector to manage expectations and share data; establishing deadlines for debt restructuring to provide greater certainty; and using collective action clauses in debt negotiation.  She added that the backing of international financial institutions is essential for countries struggling with debt issues, as this can provide confidence to the private sector.

In the ensuing dialogue, the representative of Indonesia pointed out the dilemma faced by developing countries in the wake of the COVID-19 pandemic:  either honour obligations to repay growing debt, or spend to provide social services to the citizenry like welfare, health and education.  She also noted that several countries requesting treatment under the Debt Service Suspension Initiative have had their credit ratings downgraded, as their desire to restructure their debt “was paradoxically interpreted as a step towards default”.

The representative of the United States said that, while the Debt Service Suspension Initiative continues to provide emergency liquidity relief, a more tailored approach is needed for those countries requiring additional assistance.  To this end, the G20 and the Paris Club developed the Common Framework, which will allow low-income countries to utilize a more transparent and efficient framework to seek debt treatment.  He urged all creditors to implement the Common Framework fully and transparently, and called on private‑sector financial institutions to provide debt relief when and where possible.

The representative of Guatemala, speaking for the Like-Minded Countries Supporters of Middle-Income Countries, called for an increase in the liquidity available to middle-income countries, an extension of the Debt Service Suspension Initiative beyond 2021 and a reallocation of special drawing rights when appropriate.  Noting the funding gap for the Access to COVID-19 Tools Accelerator (ACT-Accelerator) and COVAX mechanisms, he called on multilateral financial organizations to support middle-income countries in meeting their vaccine requirements.

Several speakers representing civil society organizations then addressed the session.

A speaker for the Global Policy Forum said that the problems the international community now faces regarding involving private capital in crisis management were predictable.  Turning to the Debt Service Suspension Initiative, he said that the Initiative currently only pertains to bilateral, concessional and relatively cheap debt and excludes comparatively expensive debt.  As such, this Initiative is insufficient to address the debt problems faced by many countries.  Similarly, the Common Framework is flawed as it places all burdens involving private creditors on individual countries, most of which are in a weak position due to ongoing debt crises.  He urged the international community to ensure fairness in this area, and called for a multilateral legal framework for debt restructuring along with a global institutional authority to handle debt issues.

A speaker for the Third World Network pointed out that the threat of credit rating downgrades, increased borrowing costs and lack of market access dissuaded many countries from participating in the Debt Service Suspension Initiative.  Three agencies control more than 94 per cent of credit ratings and these ratings are procyclical and biased against Government intervention.  Further, credit rating agencies are shielded from liability under laws protecting freedom of speech, despite the fact that such speech creates volatility in financial markets.  She called for increased regulation and reduced reliance on credit rating agencies in times of crisis, and for such institutions to avoid being evaluators of and players on the market simultaneously.

Mr. SACHS then questioned if the current debt problem stems from the fact that courts in the United States have aggressively turned away from international comity and sovereign immunity — doctrines that used to protect sovereign borrowers.  He suggested that federal courts in the United States be led back to the idea that they should refrain from interfering in beneficial collective international action.

Lastly, a speaker for the NGO Committee on Financing for Development said that achieving Sustainable Development Goal 5 on gender equality is the most effective way to achieve the entirety of said Goals due to its cross-cutting nature.  He also called for increased financial support for the most vulnerable States to facilitate the provision of education, green jobs and nature-based solutions to climate change.

Panel IV

The Forum then held its final panel for the day, titled “Unlocking liquidity to support sustainable development, especially for the most vulnerable countries”.  Moderated by Adnan Mazarei, Peterson Institute for International Economics, featured presentations by Otton Solis, Director for Costa Rica to the Central American Bank for Economic Integration, and Economic Adviser to the President of Costa Rica; Vera Songwe, Executive Secretary, United Nations Economic Commission for Africa (ECA); and Ceyla Pazarbasioglu, Director of the Strategy Policy and Review Department, International Monetary Fund.  Patricia Miranda, Advocacy Coordinator, Red Latinoamericana por Justicia Económica y Social, served as lead discussant.

A representative of Barbados said that, while multilateral development banks have contingent credit facilities available for small States such as his own, the disruption to economic activity has been significant, around 20 per cent.  Barbados has marked out a two-year period for suspending debt payment so it can redirect resources to other needs.  Stressing that the country’s ability to finance its way out of the pandemic will be critical to its future success, he called for agreement on how to convert COVID-19 debt into longer-term instruments and more flexibility in the instruments made available to middle-income countries. The international finance architecture must be more sensitive to the circumstances of small countries, he emphasized.

Mr. SOLIS, on the international community’s willingness to contribute to collective solutions, pointed out that high-income countries reacted to the pandemic with countercyclical restructuring and largesse.  Most poor countries, however, face a sharply different story of pandemic-induced recession.  To avoid “the axe of rating agencies”, they are being forced to enact pro-cycle recessionary adjustments.  They need massive concessionary and long-term loans.  To garner support for such proposals, the outrageousness of the pro-cyclical path that many countries have been forced into must be made clear.  “There is a moral issue here,” he stressed, the consequences of which will be more organized crime money‑laundering — and to be sure — immigration from the global South to North.  In a globalized world, “pandemics cut smoothly through borders”, he said, noting that political leaders in advanced economies understand that the exit route out of the pandemic involves a big concessionary response — and that poor countries lack the resources for such an endeavour.

Ms. PAZARBASIOGLU, on how international financial institutions can address the lack of liquidity, said the prospect of divergent recoveries and deep scars was a recurrent theme in the World Bank’s spring meetings.  In 2021, advanced economies deployed the equivalent of 22 per cent of their GDP for pandemic response, compared to 2 per cent in low-income countries.  She pointed to a recent IMF report which found that the financing needs of low-income countries are $200 billion, and $250 billion for investment spending to accelerate their convergence with advanced economies.  She called for more domestic revenue mobilization, concessional financing, options for dealing with debt stress and private sector financing.  IMF has provided support to 52 low-income countries totalling $13.4 billion — equal to its total lending from 2010.  In one year, IMF provided same amount of lending to low-income countries as over the last decade.  The Fund also provided $740 million to the poorest countries through the Catastrophe and Containment and Relief Trust.  It is also working on the voluntary channelling of special drawing rights, a parallel process to the allocation.  “We’re looking at all options,” she stressed, including efforts that also depend on the countries involved.

Ms. SONGWE said that ECA was among the first to call for the use of special drawing rights in March 2020, in the amount of $500 billion.  While there has since been a huge injection of liquidity into advanced economies, this is not true for low- and middle-income countries.  Recalling the lesson learned from the 2008 financial crisis that liquidity injections help to mitigate the economic damage, she said the United States has returned 24 per cent of its GDP into its economy, totalling upwards of $15 trillion.  In developing economies, the equivalent figure is $5 billion.  In a crisis of this magnitude, these countries cannot be content with $5 billion.  Explaining that special drawing rights are an instrument that allows IMF to print money, she said countries can use these rights to bolster their foreign exchange reserves to buy imports — or to “buy down” the costs of market entry and access.

In discussions about divergence, it is important to recognize the risk of a persistent divergence in access to liquidity, she said.  For example, she cited differences in the ease of going to market between Chile and Greece, the latter of which also has access to the European Central Bank.  She proposed using part of the special drawing rights as a cushion.  A repo market could also be created, which would make developing country issuances more liquid and reduce interest rates.  She concluded by noting that, of the $650 billion in special drawing rights released, Africa’s share totals $33.6 billion, whereas the G7’s share is $272 billion for a group of countries in which none really needs them.

Ms. MIRANDA, lead discussant, said a special drawing right allocation will help finance the needs of developing countries, as well as middle-income countries that have been left out of debt treatment and for whom these rights are the only resources available.  Against that backdrop, she said $650 billion is insufficient and drew attention to a letter sent by civil society to the G20 and IMF calling  for a $3 trillion issuance, pointing out that the United Nations Conference on Trade and Development (UNCTAD) called for $2.5 trillion for developing countries in 2020.  Noting that an allocation could allow for a larger fiscal deficit, a decision that would depend on individual country circumstances, she said developing countries would be able to define the right mechanism to cover their urgent needs.

In the ensuing dialogue, the representative of Indonesia recounted how the COVID-19 crisis required the Government to reshape national development priorities and consider new means of achieving these goals.  Among other measures, the Government has sought to maximize synergy with central banks to address liquidity issues and implement a necessary policy of fiscal expansion.  She said that allowing these banks to buy Government bonds brought closer coordination between fiscal and monetary policies and provided the financing for State budget needs.  She also stressed the importance of creating sustainable financial road maps in order to give clarity to those financial institutions and publicly listed companies supporting sustainable development.

The representative of the United States called for enhanced transparency and accountability for special drawing rights to ensure that they are used to restore economic stability.  She urged the international community to use this unique opportunity to facilitate structural transformation towards more inclusive, sustainable economies, adding that such efforts will be unsuccessful “if we end up just where we were before.”

Several speakers representing civil society organizations then addressed the session.

A speaker for the European Network on Debt and Development pointed out that developing countries needed significant assistance with financing before the onset of the COVID-19 pandemic, and that the costs to achieve the Sustainable Development Goals have only increased as a result of this crisis.  She said that — while the agreed allocation of $650 billion in special drawing rights is welcome and useful — only an allocation of $3 trillion will be enough to address the scale of the problem.

A speaker for Jubilee USA Network concurred with this assessment, stating that developing countries will require $3 trillion in special drawing rights to secure recovery and stabilize their economies.  He added that emerging mechanisms designed to allow recycling of special drawing rights should not exclude any country based on its income, but, rather, should focus on vulnerability and need.

For information media. Not an official record.