SPECIAL REPORT

1 FINANCIAL ECONOMYSPECIAL REPORT > What SPECIAL drawing rights can do and what they cannot deliver> Reforms and the fate of deposits> What was wrong with the 2020 Lazard plan?> A fiscal space to breathe> No way out?> The road that was never taken> Wating for Godot> An Economist s Review of the 2022 2021- January 2022 Executive 2021-2022 SPECIAL EconomyBy Mounir RachedExplaining the rules of the IMFA nalysisWHAT SPECIAL DRAWING RIGHTS CAN DO AND WHAT THEY CANNOT DELIVEROn August 2, 2021, the International Mon-etary Fund (IMF) approved the distribution of a new package of SPECIAL Drawing Rights (SDRs) amounting to SDR 458 billion to all its member countries.

2 Each country willing to participate has been allocated approximately its relative share in the quota system. The local media published the good news, and how the amount allocated to Lebanon, (estimated at SDR 605 million, which are equivalent to approximately USD 860 million), would be spent. Initial media reports neglected to mention previous cumulative distributions in favor of Lebanon, which amounted to SDR 196 million, to bring the total to SDR 801 million (USD billion).Describing the SDRs as a shot in the arm for the world in a time of many crises, IMF managing Lebanon s Prime Minister Najib Mikati (R) meeting with Ernesto Ramirez-Rigo (L), the International Monetary Fund s (IMF) head of mis-sion for Pakistan, Middle East, and Central Asia, and his accompanying delegation at the government palace on December 7, Kristalina Georgieva presented the 2021 allocation with a message that countries could re-duce their reliance on more costly debt.

3 It must be noted, however, that SDR is a form of debt like any other debt when used but at the SDR rate rather than market rate. Countries can use the space provided by the SDR allocation to support their economies and step up their fight against the cri-sis, she said. Additionally, the IMF has been delib-erating on possibilities of channeling more of these precious resources from its stronger members to countries in need with the tools of its Poverty Re-duction and Growth Trust and a new Resilience and Sustainability Trust. The worldwide SDR allocation includes Leba-non at a time of renewed urgency to realize an 15count).

4 One SDR is composed of a basket of five major currencies. At the time of writing this article, the value of one SDR equates the sum of USD , , , and Chinese renmin-bi. The currency shares reflect the quota of each of these countries and the European currency amounts of the SDR are allocated once every five years, or earlier if needed, while en-suring that the basket mirrors the relative impor-tance of the five currencies in the world s financial system. Cross-exchange rates determine the actual weights of the currencies. The value on the other hand is a daily determination according to the market exchange SPECIAL Drawing Rights Department is responsible for distributing SDRs as needed, free of charge, to stimulate international trade, and it is entitled to cancel these rights.

5 The department is independent of the General Resources Department. It was established in 1969 with the aim of provid-ing additional voluntary reserves to member states. Each country receives a share of each distribution as a percentage of its quota in the fund. The total distri-butions of SDRs carried out in several stages amounted to SDR 662 billion, including the last distribution of SDR 458 billion. The distribution is recorded in each country s account at the IMF as both credit and debit entries. So on a net basis, the distribution does not provide additional Friday, the IMF dictates the SDR inter-est rate.

6 It is based on the weighted average of a 3-month debt interest rate in the five countries money markets. Each member must pay interest on the quantities of SDRs it uses, and abide by Ar-ticle 19 of the IMF Agreement, which clarifies the terms and conditions of swapping the SDRs with reserve currencies. The most important clause in Article 19 is the third clause, which requires the country to show the need to use the SDRs to fi-nance the balance of payments, and not for the subsidization of goods, which falls within the scope of the Ministry of SDRs is considered as a potential re-serve and not as an actual foreign currency reserve.

7 As the SDRs are not used in external financing until they are exchanged for reserve currencies in ac-cordance with the country s ability to comply with The worldwide SDR allocation includes Lebanon at a time of renewed urgency to realize an agreement with the IMFagreement with the IMF. However, there is no connection between SDR allocations and IMF negotiations. The SDR department is a separate and independent department and has nothing to do with negotiations with the IMF through its General Resources Department. It has a complex structure that may or may not be conveyed clearly in IMF statements.

8 Whereas any SDR inflow to our country can be good news, it is premature to speculate how the aforementioned sums of the lebanese allocation or any eventually mobilized flows through above trusts will be spent. At this point, it rather is necessary to explain the modus operandi of the IMF and the role of Lebanon as an IMF member, to clarify the picture and the impact of this IMF was established in 1944 by 44 coun-tries. Lebanon joined in 1947. It currently includes 190 member countries. The main objective of its establishment was to create an institution that fos-ters international economic cooperation, develops international trade and growth, and maintains the stability of the global financial system.

9 Accord-ing to the IMF s bylaws, The key functions of the IMF are the surveillance of the international monetary system and the monitoring of members economic and financial policies, the provision of Fund resources to member countries in need, and the delivery of technical assistance and financial services. To achieve this, the fund has been moni-toring from its early days the economic and finan-cial developments and the balance of payments of member countries. It provides the necessary advice to member countries facing economic troubles and shortage of hard currency reserves.

10 It also provides foreign currency reserve financing to central banks that face protracted balance of payments deficits and a severe and critical decline in their reserves that could hamper the respective country s trade in goods and TWO MAIN DEPARTMENTS OF THE IMFThe IMF consists of two main departments: the General Resources Department and the SPECIAL Drawing Rights Department. The fund is managed by a Board of Governors comprising two repre-sentatives from each member state. The Executive Board, consisting of 24 elected executive directors, oversees the management of day-to-day opera-tions.