SDRs should be used for the people in Lebanon, and not to ensure the permanence of the ruling class.
Policy makers around the world have been pinning hopes on the International Monetary Fund (IMF)’s Special Drawing Rights (SDR) to recover from the economic recession following the COVID-19 pandemic. In Lebanon, the IMF is dedicating an amount of about 860 million US dollars from the fund, which is the country's share of the special drawing rights of the member states, to be received in the upcoming two months.
Created by the IMF in 1969, the SDR is a reserve asset that can be traded between countries in exchange for liquidity, or cash. They are an international type of monetary reserve currency created and maintained by the IMF as a supplement to the existing standard money reserves of member countries. The value of the SDR is calculated as a weighted basket of five major currencies (the US dollar, the euro, the Japanese yen, the British pound, and the Chinese yuan that joined this combination of currencies in 2016) at a certain point in time and varies accordingly. One SDR is currently worth about USD 1.42.
Each time the IMF decides to issue a new allocation of SDRs, the organization is basically acting as an international central bank. The IMF distributes these reserve assets to its 190 member countries in proportion to their IMF share and relative economic standing in the world economy. So richer countries get more SDRs, while poorer countries receive fewer.
SDRs function like a swap credit line. Countries can then buy or sell SDRs depending on their needs, and are allocated to member countries through their fiscal agents – typically, national central banks. SDRs are not debt free, as pretended: whenever a country withdraws from its SDRs, it needs to pay an interest rate for their net use. Additionally, although described as an “unconditional” form of aid, they can imply conditions on recipient countries1, not linked to domestic economic policies but that can include concessional austerity measures and using the SDRs for specific agendas, such as vaccine production and private sector debt relief, which are currently being deliberated for the prospective SDR issuance of next August2.
In Lebanon, this source of liquidity is welcomed by policy makers and some experts in the country which is in the midst of a multilayered crisis, and a “deliberate depression”. However, given the rentier nature of the Lebanese economy that is witnessing the collapse of its predominant sector, the banking sector, an uncontrolled devaluation of its currency, and the government’s inaction in facing the worsening socio-economic situation, these so-called “unconditional” funds can be used in short-term, arbitrary, and piecemeal economic measures3 and would constitute a breather for the current regime. This would, in turn, maintain the status quo and the perrenity of the current ruling class that has historically contributed to the captation of public resources, all the while postponing the necessity for in-depth social, political, and economic reforms.
Globally critical voices are questioning the uncertainty around the use of these SDRs to mobilise additional and enough financial means so as to mitigate the economic crisis generated by the pandemic. In Lebanon, these are combined with more domestic and national concerns.
We hence call on:
- The Government of Lebanon (GoL) to clearly earmark the SDRs allocations;
- The GoL to co-create a specific participatory mechanism, including independent experts and civil society actors, to oversee and monitor the transparency in the expenditures of the allocations on the SDRs;
- Civil society actors to join forces and act as a watchdog to monitor this process and ensure that SDRs are used for the people in Lebanon, and not towards the permanence of the ruling class.
Arab NGO Network for Development