Building Back a Better Financial Safety Net
The year 2021 is year two into the most important decade of the century where drastic reductions in carbon dioxide emissions and inequalities in a manner that raises standards of living is paramount to the survival of the world’s people and planet earth itself. Yet, 2020 saw the biggest economic downturn since the Great Depression, and pushed upwards of 124 million people into extreme poverty. 2020 was also the hottest year on record, triggering forest fires, hurricanes, droughts, and other extreme events that accentuated the economic shock the COVID-19 pandemic brought to the world economy.
In this context, many emerging market and developing countries started the decade desperate for liquidity and in fear of default. Even more will face a debt overhang that could take more than a decade to come out from under. This is to be the decade where the world realizes the Sustainable Development Goals and raises the ambitions of the Paris Climate agreement, not one that is characterized by human suffering and economic instability.
The COVID-19 pandemic and associated economic crisis put great stress on the so-called Global Financial Safety Net (GFSN). The GFSN is comprised of Central Bank swap lines from key currency issuing nations, the International Monetary Fund (IMF), regional financing arrangements (RFAs), along with other central bank bilateral swap lines, individual countries’ foreign reserve holdings and capital flow management measures, and a loose ad-hoc system for sovereign debt restructuring.
Resulting from a number of formal and informal workshops conducted throughout 2020 and 2021, a new report from the Boston University Global Development Policy Center spells out the following proposals that should be high on the agenda of the IMF, G20, RFAs and in national capitals as the world community works to combat COVID-19, protect the vulnerable, and mount a green and inclusive recovery:
Specific to the IMF and the RFAs, the common recommendations the report made were the need to:
- Issue more IMF Special Drawing Rights (SDRs) and expand the use of them through the IMF;
- Establish a multilateral swap facility at the IMF;
- Increase quota-based resources at the IMF with associated governance reforms;
- Increase the resources and geographic coverage, and coordination of Regional Financial Arrangements;
- Initiate debt restructuring and relief initiatives that work toward a broader sovereign debt restructuring regime;
- Reform the emergency financing such that they are counter-cyclical;
- Coordinate on capital flow management measures.
Edited by Kevin P. Gallagher, Director of the GDP Center, and Haihong Gao of the Institute of World Economics and Politics, Chinese Academy of Social Sciences, the report features contributions from:
- Kevin P. Gallagher, Professor of Global Development Policy, Boston University; Director, Boston University Global Development Policy Center.
- Haihong Gao, Professor; Director; Research Center for International Finance, Institute of World Economics and Politics, Chinese Academy of Social Sciences (CASS).
- Liqing Zhang, Professor and Director, Center for International Finance Studies, Central University of Finance and Economics
- Wen Qi, Ph.D. student, School of Finance, Central University of Finance and Economics.
- José Antonio Ocampo, Professor at the School of International and Public Affairs, Columbia University; Chair of the United Nations Committee for Development Policy; Formerly United Nations Under-Secretary-General for Economic and Social Affairs, Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), and Minister of Finance of Colombia and Member of the Board of Banco de la República.
- Edwin M. Truman, Nonresident Senior Fellow, Peterson Institute for International Economics.
- Rakesh Mohan, President and Distinguished Fellow, Centre for Social and Economic Progress (Formerly Brookings India); Former Deputy Governor, Reserve Bank of India; Former Executive Director Representing Bangladesh, Bhutan, India, India and Sri Lanka at the International Monetary Fund.
- Isabel Ortiz, Director, Global Social Justice Program, Initiative for Policy Dialogue, Columbia University; Former Director, International Labour Organization and UNICEF.
- Matthew Cummins, Economist; Formerly United Nations Development Programme, UNICEF and the World Bank.
- Aizong Xiong, Institute of World Economics and Politics, Chinese Academy of Social Sciences.
- Mengwei Yu, PhD student, School of Finance, Central University of Finance and Economics, China.
- Xiaofen Tan, Professor, School of Finance, Central University of Finance and Economics, China.
- Ulrich Volz, Reader in Economics, SOAS University of London; Founding Director, SOAS Centre for Sustainable Finance; Senior Research Fellow, German Development Institute; Honorary Professor of Economics, University of Leipzig.