(Bloomberg) -- A group of progressive Democratic senators including Elizabeth Warren and Bernie Sanders called for the International Monetary Fund to create more than $2 trillion in additional reserves to help developing nations cope with the Covid-19 pandemic.
Warren, a member of the Senate Finance Committee, along with Sanders and committee chairman Ron Wyden, wrote to Majority Leader Chuck Schumer, asking him to support the issuance of 1.5 trillion in IMF reserve assets known as special drawing rights, according to a letter seen by Bloomberg News. That's equivalent to $2.1 trillion.
The issuance would be on top of a record $650 billion in reserves created by the IMF last August after President Joe Biden's administration backed the proposal, which had been blocked by predecessor Donald Trump.
The Treasury Department last April said that it didn't support an additional drawing rights allocation beyond the $650 billion that was then proposed, and would only back future creation if circumstances justified it.
The Democrat-controlled House passed the authorization for the second, $2.1 trillion reserves creation in July as part of legislation for funding the State Department and other foreign operations. The senators on Monday urged Schumer to give his support during spending conversations that are likely to take place in the coming weeks to work out differences between bills in the two chambers.
The reserves would “hasten the end of the pandemic, strengthen the global recovery, create American export-related jobs, and showcase the continued power of a U.S.-led multilateral solution to resolving the world's greatest humanitarian, economic and public-health challenges,” the senators wrote.
Read more: Special Drawing Rights, the IMF's Imperfect Tool
The proposal likely will face opposition from Republicans who vehemently opposed last year's issuance. By IMF rules, issued reserves go to all members without conditions and based on their fund quota, which is roughly proportionate to their share of the global economy. That meant some rich countries that didn't need the reserves received them, as did U.S. adversaries like China, Russia and Iran.
Last year's reserves creation didn't require a vote from U.S. Congress because the nation's allocation didn't exceed its current quota, or share, of the fund.
While the U.S. -- as the IMF's largest shareholder -- has a big voice on decisions like reserves issuance, it's unclear whether other countries would support more than tripling the reserves created last year, as the senators are proposing. Such a move would require support from 85% of the voting share among the institution's 190 member economies and a determination that there's a long-term need for more global liquidity even after the biggest reserves creation in history.
“Given that the fund just wrapped up an allocation, winning approval at the fund for another likely would be difficult, and some European shareholders would probably be against it,” said Mark Sobel, a former U.S. representative to the fund's executive board and longtime Treasury Department official now at the Official Monetary and Financial Institutions Forum.
IMF Managing Director Kristalina Georgieva, who advocated for last year's reserves issuance, hasn't spoken about a need for any additional special drawing rights. Gita Gopinath, the fund's No. 2 official, last week told reporters that the pandemic is entering a new phase, where lending will be more focused on the IMF's traditional loans that come with conditions.
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