Republican Louisiana Sen. John Kennedy urged President Joe Biden’s administration against proceeding with a plan to allocate $650 billion to foreign countries, many of which are hostile to the U.S.
The plan is essentially a multibillion-dollar transfer from taxpayers to the Chinese, Russian and Iranian governments, all of which are hostile to the U.S., Kennedy warned Treasury Secretary Janet Yellen in a letter Tuesday. The Treasury Department plans to allocate the funds through the International Monetary Fund (IMF) in the form of special drawing rights (SDR) loans without congressional approval.
“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,” Kennedy wrote in the letter. “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.”
The Treasury Department said earlier this month that it would allocate $650 billion of SDR loans to IMF member countries to help support the global coronavirus pandemic economic recovery, according to a press release. SDRs are the IMF’s federal reserve currency that member nations can draw upon and exchange for U.S., European, Chinese, Japanese or British currency.
The plan is intended to assist poorer nations struggling to recover from the pandemic, but Kennedy said just 3% of the funds will be given to low-income countries.
In addition, while the recipient nation will have to pay an interest rate of 0.05% on the SDR loan if they exchange it for cash, there is nothing preventing them from investing the cash in a 10-year U.S. Treasury bond, which has a payout of 1.7%, Kennedy said in the letter. There is also a high risk of recipients not repaying the loans since there is no obligation or deadline for repayment.
The Biden administration’s plan would ultimately result in China receiving $22 billion, Russia receiving $18 billion and Iran receiving $3.5 billion, Kennedy said. He noted that if the U.S. refuses to exchange an SDR given to a hostile foreign power for cash, that government could simply use an intermediary nation.
“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,” Kennedy said.
On March 24, Kennedy questioned Yellen on the issue in a spirited exchange during a Senate Banking Committee hearing. Yellen confirmed that SDRs will cost the federal government, but said it would be a “wash” because of the interest received on the loans.