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Related ���������ֳ� Content: How Latin American Sovereigns Are Using Their IMFSDRs: SDRs Boost Reserves and Add to Funding Options, but Have Limited Impact on Ratings

���������ֳ�-London/New York-04 October 2021: IMF Special Drawing Rights (SDRs) have added to Latin American sovereigns’ reserves, but in most cases will not greatly transform their policy options or macroeconomic prospects, ���������ֳ� says in a new report. SDRs could be most relevant for sovereigns with constrained external liquidity positions and financing options reflected in their low ratings.

The IMF’s allocation of SDRs in August saw USD44 billion allocated to ���������ֳ�-rated Latin American sovereigns. In broad terms, they are being used for three purposes: ‘saved’ as reserves, ‘spent’ on new policy measures, or used to pay debt, although these uses can be difficult to discern. Some countries have announced specific plans requiring drawdown of SDRs or equivalent non-SDR reserve assets, but SDRs could affect policy preferences that lead to their use even if this is not made explicit.

As an additional reserve buffer, the SDRs are a modest benefit to most Latin American sovereigns given already favourable external positions, but they have fortified precautionary buffers ahead of expected Fed tapering and commodity-price volatility risks. When reserves are low or deteriorated during the pandemic (namely in Argentina, Bolivia and El Salvador), they are a welcome boost. However, the lack of IMF conditionality means the recipients determine their use, possibly to fund unsustainable fiscal deficits or exchange-rate regimes and thus delay needed adjustments.



For example, Argentina is using its SDR allocation to make payments to the IMF, potentially delaying talks on a new program that entails policy commitments that the authorities are reluctant to make close to elections. Ecuador, Colombia and Paraguay have made their SDRs usable for fiscal purposes. Suriname’s allocation is the largest among the region’s ���������ֳ�-rated sovereigns as a proportion both of reserves and GDP, and could be the most meaningful for the near-term macroeconomic outlook.

‘How Latin American Sovereigns Are Using Their IMF SDRs’ is available via the link above.

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