« Ideas Bank Idea title   Issuing Special Drawing Rights (SDR) ID   8 Theme(s)   International Finance Proposal summary     Developed countries would donate their Special Drawing Rights (SDRs) to a trust fund that would be used for development assistance and the provision of public goods on a global scale. This would combine two forms of assistance: i) Developing countries receive an addition to their foreign currency reserves. ii) Developed countries donate their allotments for the provision of public goods such as health and education on a global scale. It is estimated that this proposal could raise US$ 4 billion per year.   Implementing institutions IMF; Parliaments   Origin Soros, 2001   Related ideas International Financing Facility   Further info. sources - text Draft Communiqué of the Monterrey Conference (UN 2002) Soros, George: On Globalization (Public Affairs, LLT 2002) Soros, George: Special Drawing Rights for the Provision of Public Goods on a Global Scale (Remarks at the Roundtable on "New Proposals on Financing for Development" -Institute for International Economics, February 2002)   Further info. sources - URLs - Special Drawing Rights for the Provision of Public Goods on a Global Scale   Policy Brief   Problem statement While current spending on international assistance is inadequate to meet the UN's Millennium Development Goals (MDGs), each year countries around the world set aside monetary reserves as insurance against contingencies such as a collapse of export prices. Around US$ 1.6 trillion lies dormant - resources that could be used to finance global public goods.   Analysis SDRs were created by the IMF in 1969 as an international reserve asset to supplement members' existing reserve assets. They are valued on the basis of a basket of key national currencies and serve as the unit of account of the IMF. SDRs are issued to member states by the IMF according to a quota and can be converted into hard currency. The primary motive for creating SDRs was to promote international financial stability by providing a permanent increase in the world stock of reserves and hence preventing shortages of international liquidity from occurring. However, the collapse of the Bretton Woods system and the shift to floating exchange rates lessened the need for SDRs. The current interest in SDRs result from proposals by George Soros and Joseph Stiglitz to use SDR allocations for financing for development. The present proposal could be implemented in two stages: first, a special SDR issue, previously authorized by the IMF in 1997, would be released. The 1997 decision was approved by 72% of the member countries; it requires ratification by the US Congress to reach the required 85% supermajority. The special issue amounts to around US$ 27 billion, of which approximately US$18 billion would be donated. This would be a one-time donation and falls far short of the US$ 50 billion annually that the UN Zedillo Report on Financing for Development thought necessary to meet the MDGs, but has the advantage that it could be implemented almost immediately. The second stage is to have annual issues of SDRs. SDR donations would be made to pre-approved programs only. These could include trust funds for the provision of public goods as well as matching existing loans or enhancing public/private partnerships for development. In the first stage, the list of eligible programs would be confined to three or four specific priority areas such as public health, education, bridging the ¿digital divide¿ and reforming judicial systems. Government sponsored poverty reduction programs would be excluded; they would remain the prerogative of the IFIs. The range of eligible programs may be expanded if the proposal to have annual issues of SDR was put into effect. In this instance proposals would be invited not only from governments and multilaterals but also from NGOs and public-private partnerships. The SDR scheme would remove some of the problems with international assistance, especially conditionalities attached to aid. An independent board of eminent persons, appointed on the basis of publicly stated professional qualifications, would ensure that the needs of the recipients take precedence over the interests of donors. The board would establish a list of programs eligible for SDR donations and recommend those that should take priority, but would have no authority over how the funds would be disbursed. The donors would determine which programs are selected from the menu prepared by the board. Projects would be audited and evaluated by a separate body. The SDR donations scheme would not replace existing bilateral or multilateral assistance, but add to it. As it takes the form of grants, not loans, it does not need to go through government channels. Programs could be implemented through local government channels and NGOs and through public-private partnerships.   Significance of Policy Proposal Developing countries would add their SDR allocations to their monetary reserves; developed countries would donate them for international assistance.   Critique There is no reliable means of calculating the liquidity requirements of the global economy; no way of assessing whether these needs can be met by the capital markets; or how these SDRs could contribute to inflationary pressures. SDR allocations would also reduce the power of the IMF to encourage developing countries to adopt particular policies. They could be expected to attempt to block their issue. In addition, new regular SDR allocations would contravene current IMF principles and procedures.   Time Line and further development of proposal It currently requires the approval of the US Congress in order to implement the special SDR issue already authorized by the IMF in 1997. If the trial is successful, the scheme could be expanded. Whether this should take the form of annual issues of SDRs would be decided at a later stage.   Keywords   Development Aid (view other ideas related to Development Aid...) Millennium Development Goals (view other ideas related to Millennium Development Goals...) Public Goods (view other ideas related to Public Goods...)   Please send any comments or suggestions to Zydre Pember			Ideas Bank   WCSDG home   Ideas Bank home   search   list all alphabetically   list all by theme   printer-friendly version

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