Dear President Biden and Secretary Yellen,
The U.S. economy has created more than 12 million jobs since President Biden took office, thanks to the sound policies and leadership of your administration. But there is general agreement that the risk of recession is substantial.
The Federal Reserve has raised interest rates dramatically, and the impact of those increases is ongoing. This policy is intended to cause an increase in unemployment and appears to have contributed to the current instability in the banking system.
These conditions in the U.S. could worsen the already expected decline in growth and employment around the world. The International Monetary Fund (IMF)’s April World Economic Outlook concludes that “Risks to the outlook are heavily skewed to the downside, with the chances of a hard landing having risen sharply.” The IMF estimates that 56% of low-income countries are in or at high risk of falling into debt distress.
Downturn and recession around the world would eliminate many export-related jobs in the United States and reduce growth and employment here. From January 2020 to May 2021, the U.S. economy lost an estimated 2.2 million export-related jobs due to the fall in global demand for U.S. exports, as this demand fell during the pandemic and recessions in many countries. While some of these jobs have since been recovered, the current global downturn could reverse this recovery, potentially threatening the livelihoods of millions of U.S. workers.
Unfortunately, if more action is necessary to counteract economic slowdown and recession, a divided Congress is unlikely to be able to provide a new round of effective economic policies. But your administration can take effective action on its own by supporting a new issuance of Special Drawing Rights (SDR) at the IMF.
SDRs have zero cost to the U.S. federal budget or taxpayers. A new SDR issuance would create more than $200 billion worth of international reserves for developing countries, helping to stabilize global economies and U.S. export markets and therefore preserve and create U.S. jobs that would otherwise be lost to a global recession.
During the pandemic in August 2021, the U.S. supported the IMF’s issuance of $650 billion worth of SDRs. This measure was by far the single most important action taken to support the economies of developing countries in the face of combined global health, debt, economic, and climate crises. The amount of assistance received by developing countries from this SDR issuance was more than all of the development aid from high-income countries to developing countries over the span of a year. In the first year after the allocation, over 100 low- and middle-income countries used their SDRs in some form, including to stabilize currencies and avert balance of payments crises, to repay debts to the IMF, and to purchase critical imports such as food, vaccines, and personal protective equipment, including from the United States. Based on the Bank for International Settlements’ research on the relationship between mortality and global recession, the 2021 issuance very likely saved hundreds of thousands of lives.
Notably, this issuance did not benefit U.S. adversaries. Countries that are subject to financial sanctions or whose governments are not recognized by the IMF — including Afghanistan, Belarus, Iran, Myanmar, Russia, Sudan, Syria, and Venezuela — have not been able to use a single SDR from the 2021 issuance. Cuba and North Korea are not IMF members and are therefore ineligible for SDRs. And China has over $3 trillion in foreign reserves and therefore could not use SDRs under current IMF rules.
Leading your administration now to support a new issuance of at least $650 billion in SDRs is a simple, cost-free, and effective way of supporting the economic recovery of the U.S., while saving many lives in developing countries and mitigating the effects of a global recession. So long
Association of Concerned Africa Scholars (USA)