Economic perspective and analysis by Emeka Chiakwelu
International Monetary Fund (IMF) will substantially increase its Special Drawing Rights (SDRs) from its lower original reserve to 204 billion which is proportionate to $324 billion. In the last G-20 summit held in
SDR is a form of proxy or representative currency created by IMF. This “quasi currency” can be converted into four established and chosen currencies referred as “basket of currencies” – dollar, euro, pound and yen. Every member-nation of IMF has a holding according to the stake they have in the institution and the holdings are allocated the so-called SDRs.
According to IMF, "The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies. With a general SDR allocation that took effect on August 28 and a special allocation on September 9, 2009, the amount of SDRs increased from SDR 21.4 billion to SDR 204.1 billion (currently equivalent to about $324 billion).”
The African nations can benefit from the readily availability and increment of reserve asset of IMF. But African nations are skeptical about IMF and its role as lender of last resort. African experience in 1980s with IMF left a bad taste in their mouths, when the cash strapped African nations turn to IMF for credit. It became a disaster for Africa and the consequences of Africa’s entanglement with IMF sow the seed for economic depression in today’s
IMF‘s conditional ties for loans were so stringent for these nations to swallow. It was called structural adjustment programs which will supposedly reform the economies. The pathways to IMF’s structural adjustment initiative were paved with hardship and misery. These nations, poor nations of Africa were compelled to cut their spending drastically without putting into consideration the suffering of the masses especially women and children. On the wise counsel of IMF and its Ivy League experts African nations devalued their currencies on the grounds that it will increase export. They failed to see that most African nations are not producing anything but relied on agricultural crops and donors to finance their budgets. With the devaluation the price of crops decline sharply on the international market and
Those African nations that finally got loans and credits could not pay it back. This became the genesis of the famous African foreign debt which has become a manacle on
SDR for Settlement of debts
Instead of the highly indebted African nations using their hard currencies to pay for their foreign debts, I will suggest the use of SDRs to repay the lingering foreign loans.
go to private creditors, while multilateral creditors receive 21% and bilateral creditors 22% of the total. Little of the bilateral debt is owed to the
multilateral agencies and bilateral creditors have forgiven substantial amounts of debt, in order to reduce the poor countries’ debt burden to “sustainable” levels. However,
debtors many still have difficulty servicing their debts. There have been calls for 100% forgiveness of multilateral debt. Many analysts suggest, however, that such forgiveness
could substantially limit the ability of the multilateral agencies to provide future aid.”
“External debt Despite the HIPC Initiative’s objective to reduce
Therefore SDR can become a powerful instrument to wipe out all the African debt. IMF can create more SDRs and issue an allocation specifically for debt payment without triggering global inflation. With total debt settlement African people can use their resources, talents and energy to engage in more resourceful initiatives rather than campaigning endlessly for debt forgiveness.
SDRs can come to the rescue as instrument to payoff African debts. Then funds for servicing and paying debts will be invested in healthcare, education and other areas that need immediate attention in the continent.
Mr. Emeka Chiakwelu is the Principal policy strategist at Afripol Organization. Africa Political and