WASHINGTON (Reuters) - The staff of the International Monetary Fund has recommended an expansion of the Fund’s emergency reserves by $650 billion, given higher financing needs of its members in the wake of the global pandemic, sources briefed on the issue said on Tuesday.
The IMF’s executive board will discuss the recommendation for a new allocation of $650 billion of the IMF’s Special Drawing Rights later on Tuesday, the sources said.
It would be the first expansion of the IMF’s reserves since a $250 billion allocation approved in 2009, during the global financial crisis.
If approved, the additional reserves - which can be turned into hard currencies by members or shared with needier countries - should be available later this year.
An assessment of global reserve needs, completed every five years, showed a clear need for additional SDRs as countries continue to grapple with the coronavirus pandemic, the sources said. No details of the assessment were immediately available.
The IMF had no immediate comment. IMF Managing Director Kristalina Georgieva began pushing for a new SDR allocation about a year ago, but met strong resistance from the United States, the largest shareholder in the global lender, under former President Donald Trump.
The staff recommendation came after both the Group of Seven advanced economies and the larger Group of 20 major economies backed the move in recent weeks.
Global finance officials backed the expansion after new U.S. Treasury Secretary Janet Yellen offered her qualified support while also demanding greater transparency about how the SDRs would be used and traded.
Yellen, asked about a possible $650 billion SDR allocation during congressional testimony on Tuesday, said an expansion was in the U.S. national interest because it would help some of the neediest countries avoid contractionary policies that might impede a global recovery.
The staff recommendation paves the way for the U.S. Treasury to notify Congress about the expected IMF allocation.
No formal vote is required, but the plans have already drawn criticism from congressional Republicans, who say the move would fail to provide a significant amount of new funds to countries most in need, while handing free reserves to China, Russia, Iran and other countries seen as U.S. adversaries.
Pat Toomey, the top Republican on the Senate Banking Committee, Jim Risch, his counterpart on the Senate Foreign Relations Committee, and two other Republican senators urged Yellen in a letter on Tuesday to withdraw her support for a new SDR issuance without congressional approval.
“The proposed allocation of SDRs would be inappropriate, ineffective, and a wasteful use of taxpayer dollars that would end up benefiting repressive regimes and state-sponsors of terrorism,” the senators wrote.
Eric LeCompte, a UN adviser and executive director of Jubilee USA Network, a non-profit that advocates for debt relief, said a new allocation would provide needed relief to developing countries struggling to deal with the pandemic and its economic fallout.
“This is incredible progress because now the clock starts,” he said.
An SDR allocation would likely come just in time to help heavily indebted Argentina avoid defaulting on required payments to the IMF.
Reporting by Andrea Shalal; Editing by Dan Grebler
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