SEATTLE, Washington — Senator Richard Durbin, Bernie Sanders, Jack Reed, Benjamin Cardin and Jeff Merkley introduced the bill S.4139: Global Financial Institution Pandemic Response Act of 2020 on July 1, 2020. The bill is a companion measure to H.R. 6581: Robust International Response to Pandemic Aid, introduced in the U.S. House of Representatives on April 21. The legislation comes shortly after the G20 released a press release in support of debt payments suspension for developing countries on April 15. The G20 recognized that financial institutions have already taken measures to combat developing countries’ economic fallout in the wake of COVID-19, but urged the International Monetary Fund, the World Bank and others to do more.
The Global Financial Institution Pandemic Response Act
Each of the bill’s requirements is addressed to the Executive Directors of International Financial Institutions such as the World Bank, the International Bank for Reconstruction and Development and the International Finance Corporation. The bill demands that:
- Debt payments to the institutions should be suspended, and countries enrolled in certain programs with financial goals should not be required to meet these goals on pre-pandemic timelines.
- The institutions should not loan money to or begin financial programs with countries if the loans or programs will reduce funding for healthcare or other required means for the country’s response to COVID-19.
- Executive Directors must increase the approved number of special drawing rights, managed by the International Monetary Fund, ensuring that the funds go directly to combating the effects of COVID-19.
- The International Monetary Fund must issue special drawing rights to governments that need additional funding.
If the Global Financial Institution Pandemic Response Act passes, the Secretary of the Treasury would delegate these measures to each U.S. Executive Director at each institution, calling for them to use the “voice and vote” of the U.S. to enact the changes.
Debt and Special Drawing Rights
Developing countries face increasing annual debts as governments borrow from International Financial Institutions as well as private investment firms. As a result, 77 countries owe $62 billion in principal and interest payments this year alone, according to a graduate economics professor in Geneva. The total debt for these countries is more than $2 trillion. A suspension of debt payments would allow governments to focus on citizens’ health by freeing up funding for medical equipment, medicine and hand-washing stations, among other necessities.
Special drawing rights (SDRs) are international reserve assets controlled by the International Monetary Fund that can be used to supplement participating countries’ reserves. The value of the SDRs in terms of the U.S. dollar changes daily and is based on a basket of five different currencies. A country can exchange SDRs for real currencies from member countries. Since the creation of SDRs in the 1960s, SDR 204.2 billion has been allocated to participating countries, equivalent to $281 billion.
A large-scale issuance of SDRs has not occurred since the global financial crisis, and the economic fallout from the pandemic is projected to be much worse than in 2009. In a letter to the leaders of the World Bank and International Monetary Fund in May, Senator Sanders and Representative Ilhan Omar urged the institutions to consider issuing the trillions of dollars in SDRs needed for developing countries to avoid greater levels of poverty, hunger and disease amid the pandemic. The leaders conclude by stating that simply suspending debt payments will not be enough of a financial break for developing countries to prioritize healthcare. The letter is signed by more than 300 international lawmakers.
How S.4139 Will Help
According to the U.N., an estimated half a billion people will fall into poverty this year. The World Food Programme predicts that the number of individuals facing hunger could double, reaching 265 billion people. Many lawmakers recognize that governments cannot make debt payments while supporting citizens during a pandemic. Despite the IMF’s recent attempts to alleviate debt, such as temporary debt payment suspensions and emergency loan programs for some countries, large sums of money are still owed to private lenders who are less inclined to give struggling countries a break on their payments. There is little to stop these countries from paying off private debts with money that is intended for healthcare and relief spending.
To avoid plunging millions into poverty, a robust plan is needed to virtually eliminate all debt. The Global Financial Institution Pandemic Response Act calls on international institutions to ease debt payment schedules and proposes allocating special drawing rights as a low-cost “financial umbrella” covering impoverished countries’ remaining debts to private lenders. The Global Financial Institution Pandemic Response Act, if passed, would enable developing nations to provide necessary resources for citizens and effectively contribute to the global pandemic response.