A thread on #SDR and #Lebanon. The #IMF is about to create, almost out of thin air, $650 billion worth of reserves (#SDRs) and will distribute them to all countries. #Lebanon’s share will be approximately $900 million. 1/7
The mechanics are complicated. But at its essence, the allocation is costless and, unlike a traditional #IMF program, will come with no strings attached. Before year’s end, #Lebanon will receive the money which will show up as an increase in BDL’s foreign reserves. 2/7
Swapping the SDRs into usable $s is not straightforward. But money is fungible. The reserves’ top-up will give #BDL room to use existing foreign assets while keeping the overall (original) level of reserves unchanged. 3/7
Should BDL use the reserves’ top-up? Given that the SDR allocation is effectively manna from heaven, using it to fund a much needed social safety net is quite defensible. The objection that reserves are “depositors’ money” doesn’t apply to the new SDR allocation. 4/7
However, three observations. First, much as one would like it to, the IMF won’t be able to control how the money is spent. Once the SDRs are allocated, they are the Government’s to use (and abuse). Sadly, one knows how that will likely go. 5/7
Second, while using the SDRs for social safety reasons is defensible, it is far better when spent as part of a broader reform program. Otherwise, it’s like giving (much needed) Panadol but leaving the cancer untreated. The patient will feel better but will eventually die. 6/7
Finally, most of the $650b SDRs will go to rich countries who are planning to plow it back to help poor countries. Cash-strapped #Lebanon will likely be eligible. But unlike an SDR allocation, there will be conditionalities. Yet another reason to urgently embark on reforms. 7/7
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