WASHINGTON (Reuters) – The U.S. Treasury Department on Friday rejected an appeal by 18 Democratic lawmakers who want the International Monetary Fund (IMF) to end its practice of charging mostly middle and lower-income countries significant surcharges on larger loans that are not repaid quickly.
The IMF has estimated that borrowing countries will pay over $4 billion in surcharges on top of interest payments and fees from the start of the pandemic through the end of 2022.
Jonathan Davidson, the Biden administration’s assistant Treasury secretary for legislative affairs, told the lawmakers that the surcharges were meant to address the increased risk to shareholders involved in lending large sums to member countries. They do not apply to the world’s poorest countries, Davidson added and loans made often had rates well below market rates.
“Revenue from surcharges for those countries who do pay them helps build precautionary balances to protect the IMF’s shareholders against potential losses,” Davidson wrote in his reply to a Jan. 10 letter from lawmakers, a copy of which was seen by Reuters.
“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 nonrepayment of its lending,” he said.
Washington’s view is vital since the United States is the largest shareholder in the global lending institution, which is funded by its member states; although Germany, France and Britain have been open to reviewing the surcharge policy.
Representatives Jesus Garcia, Alexandria Ocasio-Cortez and Pramila Jayapal last month led a letter to Treasury Secretary Janet Yellen, urging her to back a review of a policy they said was “unfair and counterproductive,” and robbed countries of resources needed to combat the COVID-19 pandemic.
Argentina, which is expected to spend some $3.3 billion on surcharges from 2018 to 2023, has repeatedly asked for temporary relief from the surcharges given the COVID-19 crisis, but IMF executive board members remain divided over the broader issue.
IMF executive board members reviewed the role of surcharges, now the fund’s largest source of revenue, late last year, without coming to a final decision.
(Reporting by Andrea Shalal; Editing by Aurora Ellis)