POLICY Statement

August 23, 2021: ATFL ATFL Statement on SDRs, Government Subsidies, and the World Bank

August 23, 2021

Washington, DC, August 23, 2021 (ATFL) - The American Task Force on Lebanon (ATFL) expresses its concern that there be a transparent assignment and distribution of Lebanon’s SDR asset worth as much as $1.2 billion. This is key to both preventing further price distortion of essential goods and to ensuring that the majority of Lebanese will benefit from the distribution.
SDR is an asset belonging to the member countries of the IMF and its purpose is to provide liquidity to member states as well as supplement members’ official reserves. Since it is neither a loan nor a grant, the IMF cannot impose conditionality on the SDR recipient country.
A windfall in excess of a billion dollars would enable Lebanese politicians to push off any pressure to reform and give them resources by which to influence the votes of the Lebanese polity. In fact, a current bill in the Parliament calls for legalizing the use of the Banque du Liban’s Mandatory Reserves to support the existing subsidized prices program.
ATFL believes this bill is counterproductive and potentially creates more economic instability. Instead, the current subsidized prices program needs to end. It is the cause of the current shortages in fuel, food, and basic goods. The SDR asset must not be assigned to this program which will only lead to prolonged mismanagement of the new funds.
There are other options to be considered.
For instance, the IMF can work with a country, e.g. France, which agrees to exchange the SDR for cash but with specific conditions on the exchange, as opposed to a more compliant country that will exchange the SDR for cash with no conditions.
Another alternative is to appeal to the IMF Board to reassign the funds to an independent Trust Fund, managed by the World Bank. This was done with allocations in support of the Syrian refugees in Lebanon.
This Trust Fund would be operated by the World Bank at little or no overhead since the mechanisms for coordination and distribution are already in place. The Fund would receive the monies and transparently implement a distribution program to assist Lebanese who are suffering debilitating poverty, restricted from accessing their bank accounts, experiencing food shortages and hyperinflation, and unable to procure healthcare and education for their families.
The most direct option to move forward with this arrangement is to pressure the Parliament to finally pass legislation that has already been introduced that would implement the World Bank cash card system to directly assist Lebanese in need with an initial funding of $246M. The legislation has been blocked by Members of Parliament and government officials opposed to World Bank monitoring and a digital system for identifying recipients. If the legislation were to be passed, SDR could then be converted into cash by a friendly country that agrees to deposit the monies directly into the World Bank program, thus avoiding government programs that lack transparency and are easily manipulated to serve particular constituencies.
By providing cash directly to consumers rather than government agencies, the funds for cash cards would target those with the greatest need, rather than subsidize products that are mismanaged or  smuggled outside the country causing shortages in Lebanon. Funding cash cards would bring a degree of stability to consumer transactions; hyperinflation will be restrained; money would flow, thus undercutting exchange rate volatility; jobs for the services sectors, such as small food stores, bakeries, restaurants, and pharmacies, would return as hard cash becomes available for purchases. And, people would not be obliged to feel that they benefited from the munificence of local political leaders. 

What is critical is that the cash card program be implemented before subsidies are removed to not burden those in need by creating a gap in meeting their basic needs.
ATFL calls on the IMF and governments concerned with supporting Lebanon’s economic and social stability to address the SDR challenge without propping up Lebanon’s failed government subsidies program. Instead, the people who are in need should receive cash cards, strengthening their hope as they struggle for a new government that will be responsive to their needs.

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