Apr 13 2021
WASHINGTON – Sen. John Kennedy (R-La.) today urged U.S. Treasury Secretary Janet Yellen to abandon the department’s plan to allocate $650 billion in special drawing rights (SDR) to foreign countries through the International Monetary Fund (IMF). Currently, Yellen plans to make the allocation without consent from Congress.
“I am concerned that an SDR allocation will not support low-income countries and instead will support dictators, China, and other adversaries, all while burdening the American taxpayer. Xi Jinping, Vladimir Putin, Hassan Rouhani, Bashar al-Assad, Nicolás Maduro, and the Burmese generals are all lined up to get hundreds of millions and, in some cases, billions from the Treasury Department,” wrote Kennedy.
Under the proposed SDR allocation, the world’s leading economies would receive $426 billion—well over half—of the allocation. Rich and middle-income nations would receive $126 billion, while low-income countries would receive only $21 billion—or 3%—of the allocation. China alone would receive more aid than all the low-income countries combined.
“Additionally, I am deeply concerned that this allocation will benefit hostile governments and our adversaries. Under the proposal, Iran, a country heavily sanctioned by the United States for its illicit nuclear activity, would receive $3.5 billion in aid. China would receive $22 billion in aid. Russia will get $18 billion . . . Despite claims that the U.S. can refuse to buy SDRs from dictators, this type of blanket allocation will allow any dictator whose country receives SDRs to exchange them for hard currencies by simply channeling the exchange through a third country,” explained Kennedy.
Not only would the money flow to enemy regimes, the U.S. will have to borrow the money that it would have to lend to these nations.
“In other words, America will have to borrow from Peter at home to pay Paul overseas: American workers and families will be on the hook for making up the difference between the interest rate the United States would have to pay to borrow this money by issuing perpetual bonds,” said Kennedy.
The SDR loans also come with a high risk of the receivers not repaying them. In fact, the countries have no obligation or deadline for paying the loans back. Nothing prevents a foreign government from redeeming SDRs at the U.S.-subsidized rate of 0.05 percent and then turning that cash around to reinvest in the 10-year Treasury bond, which offers payouts around 1.7 percent.
The full text of the letter is available here.
Kennedy’s exchange with Yellen on March 24 is available here.