The United States Treasury Department on February 11 rejected an appeal by 18 Democratic legislators who are pushing for the International Monetary Fund (IMF) to cut off its practice of charging mainly middle and lower-income nations considerable surcharges on bigger loans that are not repaid hastily.
The IMF has said that borrowing nations will pay more than $4 billion in surcharges on top of the interest payments and fees from the beginning of the pandemic up to the end of 2022.
The Biden administration’s assistant Treasury secretary for legislative affairs, Jonathan Davidson, told the legislators that the surcharges were meant to help in addressing the growing risk to shareholders involved in the lending of these huge sums to the member countries. Davidson insisted that they do not apply to the world’s poorest nations and the loans made mostly had rates well below the normal market rates.
Davidson wrote in his reply to a January 10 letter from lawmakers:
“Revenue from surcharges for those countries who do pay those helps build precautionary balances to protect the IMF’s shareholders against potential losses. In Treasury’s view, surcharges need to be considered in the context of the overall balance sheet of the IMF, most importantly its ability to absorb potential losses from non-repayment of its lending.”
Washington’s opinion is crucial because the US is the biggest shareholder in the global lending institution that is wholly funded by its member states, even though France, Germany, and Britain have been open to the review of the current surcharge policy.
The representatives Alexandria Ocasio-Cortez, Jesus Garcia, and Pramila Jayapal led a letter to Treasury Secretary Janet Yellen in January, requesting her to back a review of a policy they believe is “unfair and counterproductive,” and robbed nations of resources required to fight the COVID-19 pandemic.
Argentina is expected to spend some $3.3 billion on surcharges from 2018 to 2023. The country has constantly asked for temporary relief from the surcharges given the pandemic crisis, but IMF executive board members are still divided over the wider issue.
The International Monetary Fund executive board members reviewed the role of surcharges, currently the fund’s biggest source of revenue, late 2021, without getting to a final decision.