Unique: Italy’s G20 presidency is pushing for debt reduction, new IMF drawing rights
© Reuters. FILE PHOTO: Children stand in line during a nationwide lockdown to limit the spread of coronavirus disease (COVID-19) in the Blue Downs community, near Cape Town
By Giuseppe Fonte and Gavin Jones
ROM (Reuters) – Italy, this year’s president of the Group of 20 Rich and Emerging Nations, will urge its members to extend debt relief to poor countries struggling with the coronavirus pandemic, a top G20 official said Finance teams in Rome told Reuters.
Italy was also confident that Biden’s presidency would usher in a more cooperative United States stance on international financial cooperation, particularly in areas like climate change and helping the poorest nations.
“We have to give tax space to the low-income countries in great difficulty,” said Gelsomina Vigliotti, Director General for International Financial Relations at the Italian Ministry of Finance, explaining the country’s priorities for his presidency in an interview.
Vigliotti said Italy, which took the helm of the G20 in December, would press to extend the Debt Service Suspension Initiative (DSSI), which freezes bilateral debt service payments for more than 40 countries, until the end of the year.
Restrictions on fighting the pandemic have hit poor countries particularly hard, threatening to drive millions into extreme poverty. Many countries that faced deleveraging before the crisis have had to restructure their loans or face defaults.
The DSSI, funded by the International Monetary Fund and the World Bank and agreed by the G20, was introduced in May last year and is currently expiring in June this year.
“Debt will certainly be a very important issue for the Italian Presidency,” said Vigliotti.
In order to further help poor countries, Italy will also call on the G20 to support the reissue of $ 500 billion of the IMF’s own currency known as Special Drawing Rights (SDR), the Italian G20 official said, labeling it as “absolute priority”.
The previous US administration of Donald Trump had blocked the idea of a new SDR issue resembling a central bank that prints money, stating that it would give more resources to richer countries as their allocation is proportionate to theirs IMF involvement would be available.
Vigliotti rejected this argument, saying that rich countries that do not need their allocated SDRs can return them to the IMF facility, which in turn can lend poor people.
“The aim is to ensure that a new allocation of SDRs is made available to the countries most in need,” she said, adding that there is “general consensus” within the G20 on the issue.
“We expect the new (Joe) Biden administration to take a different stance on this,” she said.
Separately, a French G20 official told Reuters that Paris has been encouraged by signs that Biden will not block new SDRs like Trump did.
In general, the change in government in the US has already had “tangible” effects on G20 affairs, Vigliotti said with a more constructive and multilateral approach to climate change and sustainable financial investments.
Italy’s G20 presidency got off to a rocky start with the collapse of the government in Rome when a junior partner withdrew from the ruling coalition. Vigliotti downplayed the domestic political turmoil, saying it would not change the country’s G20 program already agreed with his partners.
Promoting a fairer and more sustainable international tax system will be another priority of the Italian Presidency, she said.
Rome hopes to reach a comprehensive agreement on taxation of the digital economy and global minimum taxes for businesses by June, based on the preparatory work of the Organization for Economic Co-operation and Development.
“Failure to reach an agreement will have negative consequences and weaken confidence in the ability to find multilateral solutions,” she warned.