Contributed by Jim Hayes
To suggest that worry about where the global economy is heading is serious is something of an understatement. Underlying the mood is the decision of the International Monetary Fund (IMF) to release $650 billion to help member nations in trouble.
Officially, this is about a response to the impact of Covid-19. The pandemic hit a a time of economic downturn, and there is no way to separate the two.
The money comes in the form called special drawing rights (SDR). They work this way. Each member nation contributes to a fund over time, from which it can make an application for withdrawal in tough times. The new allocation is a recognition that tough times have come to many of them.
A similar allocation came during the so-called Great financial Crisis of 2008, where only $250 billion was provided. This goes to show how the severity of the new situation.
The purpose of special drawing rights allocations is to shore up a faltering global economy.
IMF Managing Director Kristalina Georgieva calls it “a shot in the arm for the world.”
“The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy.”
Photo by Samuel Corum/Getty: IMF Managing Director Kristalina Georgieva
The times justify a centralised form of assistance to nations in need. The problem is that it has taken a year for nations to agree to do anything, which says a lot about the low level of international cooperation. The main reason for the delay was the intransigence of the United States under Donald Trump. The arrival of the Joe Biden administration has meant a change in policy.
Assistance from the IMF, which is a creature of the cold war, has often come with political strings in the hands of the most powerful nations.
The IMF has been responsible for forcing extreme neoliberal economic policies on governments. By ding this, it has been an instrument of bad economic consequences, leading to political crisis. The beneficiaries have been wealthy nations profiting from financial contracts.
Aid has been conditional on accepting the political agenda of the dominant nations.
Rich nations can withdraw more. The share is based on how much they contribute to the fund. It means that around 70 percent of the SDR money will go to the 20 largest economies. A mere $21 billion will be left for poor countries. This is not enough, to dent the problem they face. These are calculations by the U.S. Treasury Department.
Global inequality will be further entrenched, unless the richest nations forego their allocation.
At their recent meeting, the G-7 agreed to support allowing poor countries $100 billion to go to poor countries. The call to support this has gone to the G-20.
This is still not enough.
The plan is intended to be administered through the establishment of an IMF Poverty Reduction and Growth Trust, which could come into existence by the end of this year.
A faltering global economy means that poverty and inequality are on the rise. It means that
International cooperation is necessary to stabilise the global economy and to overcome poverty and inequality, which the present economic climate is making worse. On top of this, there is the impact of Covid-19.
A new global intentional economic order is called for. One Based on respect among nations and values equality. This means machinery to allocate help based need, without strings attached, and without the advantage going to the wealthiest nations.
Failure to take this step may contribute to a collapse of the global economy. The reason? Not taking steps necessary to build cooperation and apply measures that will make all the difference.