INTERNATIONAL ECONOMIC LAW I

Module I
6. The International Monetary Fund

Prof. Annamaria Viterbo

6 – IMF Response to the COVID-19 Crisis

 The IMF Response to COVID-19

A three-pronged strategy:
1. financial assistance under various lending
facilities (90 countries)
2. debt relief through the Catastrophe
Containment and Relief Trust (31 countries)
3. a new issuance of SDRs
6 – IMF Response to the COVID-19 Crisis

1. IMF Lending facilities most used during the

pandemic
• The Rapid Financing Instrument (RFI)
• The Rapid Credit Facility (RCF) for low-income
countries
• They both provide rapid assistance to countries
with urgent balance of payments need, including
from commodity price shocks, natural disasters,
and domestic fragilities
6 – IMF Response to the COVID-19 Crisis

 The RFI and RCF

• one-off outright disbursement
• low or zero interest-rate
• to be repaid in 10 years
• access limits 100% of quota per year; 150% on
a cumulative basis
• no fully-fledged IMF supported program
(transitory shock)
• BUT technical assistance, sometimes prior
actions and ex-post conditionality
6 – IMF Response to the COVID-19 Crisis

2. The Catastrophe Containment and Relief Trust

• established in 2015, amended in 2020

• for LICs hit by catastrophic natural disasters or
public health disasters
• previously used by 3 Ebola-afflicted countries
(Guinea, Liberia and Sierra Leone)
• provides debt relief on debt service payments to
the same IMF, freeing resources to meet
exceptional BoP needs
6 – IMF Response to the COVID-19 Crisis

 The CCRT Two Windows:

• The Catastrophe Containment window (for

epidemics/pandemics)
• The Post-Catastrophe Relief window (for natural
disasters affecting at least 1/3 population and ¼
productive capacity)
• a trust fund provides up-front grants to pay the
debt service owed to the IMF falling due within a 2
year-period or, in worst cases, debt stock relief
• how to secure sufficient resources?
6 – IMF Response to the COVID-19 Crisis

 IMF and the COVID-19 Crisis: An assessment

• COVID-19 Financial Assistance:

https://www.imf.org/en/Topics/imf-and-covid19/COVID-
Lending-Tracker

• The IMF COVID-19 Recovery Index by the BU

Global Development Policy Center and
UNCTAD:
https://www.bu.edu/gdp/imf-covid-19-recovery-index/
6 – The 2021 Allocation of SDRs

3. Special Drawing Rights

• introduced with the 1969 First Amendment

• an additional reserve asset
• no legal tender value
• can be used only by the monetary authorities of
States and prescribed holders
• SDRs cannot be held by private entities or
individuals
• the IMF unit of account
6 – The 2021 Allocation of SDRs

 The SDRs Value

• originally linked to gold

• from the end of the par value system, defined by
a basket of currencies: the US Dollar, the
Japanese Yen, the UK Pound Sterling, the Euro
and (since 2016) the Chinese Renminbi
• each currency in the SDR basket is weighted,
depending on its relative strength
6 – The 2021 Allocation of SDRs

 The SDRs Allocations

• Only the IMF can issue SDRs

• They are distributed ‘equally’ among members
(on the basis of…)
• 2 general allocations in 1970-1972 and in
1979-1981
• In 2009, an equity allocation to 38 members
(for which the Fourth Amendment was
necessary) + a general allocation
6 – The 2021 Allocation of SDRs

 SDR Transactions

• SDRs can be converted in international reserve

currencies in 2 ways:
• on the voluntary market
• through the ‘designation mechanism’
• SDR transactions do not involve conditionality
• they do not have the nature of a loan, thus
there is no increase in the country public debt
6 – The 2021 Allocation of SDRs
6 – The 2021 Allocation of SDRs

 The New 2021 SDR Allocation

• 2 August 2021 the Board of Governors approved

a new extraordinary allocation of SDRs
• equivalent to 650 billion USD (the largest in
history)
• LICs would receive about 21 billion USD = to
around 6% of their GDP, BUT rich countries?
6 – The 2021 Allocation of SDRs

 The New Resilience and Sustainability Trust

• 13 April 2022 the ExB approved the RST to
enhance economic resilience and sustainability in
LICs and in vulnerable MICs and small states
• Access based on the country’s reform strength,
debt sustainability and capacity to repay
• Aimed at supporting high-quality policy reforms
that reduce macro-critical risks associated with
long-term structural challenges
• Additional conditionality (the borrowing country
must be under a concurrent IMF program)