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To support the global economy, G7 should call for IMF to remove harmful surcharges

23 June 2022 | Letters


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Developing economies are currently facing what the United Nations has described as a “perfect storm.” The ongoing COVID-19 pandemic, a looming global debt crisis, and now, rising food, fertilizer, and energy prices as a result of the war in Ukraine threaten to “throw up to 1.7 billion people — over one-fifth of humanity — into poverty, destitution and hunger on a scale not seen in decades,” according to UN Secretary-General António Guterres.

Beginning on June 26, the leaders of the G7 countries will meet in Germany to discuss, in part, what to do about these dire global challenges. We, the undersigned organizations, urge the G7 to take action to support debt-distressed economies by calling for the International Monetary Fund (IMF) to immediately end its harmful surcharge policy.

Surcharges — opaque, punitive fees levied on countries with high levels of outstanding IMF debt, on top of regular fees and service charges — have been widely denounced by leading economists and lawmakers as “counterproductive and unfair.” By adding to the debt burdens of economies already struggling with balance of payments problems, these surcharges, in the words of Nobel laureate economist Joseph Stiglitz, go “exactly against what [the IMF is] supposed to be doing.”

More and more countries are having to pay surcharges primarily because of external economic shocks for which they bear no responsibility. Since the pandemic began, the number of countries paying surcharges has risen from nine to 16. By the IMF’s projections, that number is predicted to jump to 38 in the next three years. This is an unacceptable burden to impose on debt-distressed economies at any time, but all the more so when their economic challenges are driven by exogenous forces. A recent report by the UN Global Crisis Response Group on Food, Energy and Finance — which just weeks prior had received a declaration of support from the G7 finance ministers — recommends that “IMF interest rate surcharges should be suspended for at least two years.

In advance of this year’s IMF and World Bank spring meetings, over 180 civil society organizations from more than 65 countries — including those heavily impacted by surcharges such as Argentina, Ecuador, Egypt, Pakistan, and Ukraine — called on the IMF to “carry out an immediate review of surcharge policy, ensure transparency around past and future surcharge payments, and align the institution with its mandate by supporting the complete elimination of surcharges.” The IMF has so far refused to respond to this request.

Surcharges siphon valuable resources that could otherwise be spent responding to the COVID-19 pandemic, strengthening food security, or investing in economic recovery. Between 2019 and 2024, for example, Egypt will pay in surcharges more than three times the cost of a full course of vaccinations for the entire country. From 2021 to 2023, while struggling to survive the Russian invasion, Ukraine will be expected to pay over $400 million in surcharges — about a quarter of its entire health-sector fiscal effort during the pandemic. As with other forms of debt and fiscal constraints, the costs of these diverted resources will be felt most acutely by women and other vulnerable groups.

In a moment of spiking food, fertilizers and energy prices, diverting vital resources to the IMF while they could be used to secure people’s survival is a clear infringement on human rights. In fact, UN Independent Expert on foreign debt and human rights Juan Pablo Bohoslavsky considers IMF surcharges to be in violation of international human rights and other international law.

The IMF typically justifies its surcharge policy as a disincentive toward reliance on IMF loans, and a necessary source of income for the Fund’s precautionary balances. Neither argument has merit. As a result of the IMF’s harmful loan conditions, and the domestic political costs associated with them, countries only turn to the IMF as a last resort, and are required by the IMF’s preferred creditor status to prioritize its repayment. Furthermore, surcharges have not, in fact, incentivized the top five borrowers to repay early. Rather, surcharges have compounded to these countries’ rolled over debt to the IMF. Relying on those facing balance of payments crises to finance the IMF’s operations, meanwhile, runs directly counter to the purpose of the Fund, and the IMF’s own projections indicate that, if surcharge payments were halted, its precautionary balances would still grow well above the floor set by the Fund. Even if surcharges are fully removed, the Fund’s projected yearly net earnings will remain positive.

The IMF’s surcharge policy serves no purpose but to place an onerous burden on some of the very economies least equipped to pay. They become a punishment in times of dire need. They undermine the ability of developing countries to respond to COVID-19, hunger, energy shortages, climate change, and even, in the case of Ukraine, war. Economists, lawmakers, UN experts, and civil society organizations from around the world have called for their elimination, but the IMF board has turned the other way.

As the G7 leaders meet to discuss how to confront the perfect storm of multiple global crises, they should call on the IMF to immediately suspend surcharges, and conduct a thorough review of the policy, with an eye to its elimination.

Signers:

  • Al Hayat Center, Jordan Arab Watch Coalition
  • Asociación Civil por la Igualdad y la Justicia (ACIJ)
  • Argentina Association
  • Talassemtane pour environnement et développement (ATED) Chefchaouen Maroc
  • Association Tunisienne de Gouvernance Locale “ATGL“ Tunisia
  • Association jeune pour jeune Maroc
  • Bank Information Center
  • Bretton Woods Project
  • Campaign of Campaigns
  • Cátedra Abierta Plan Fénix, Argentina
  • Caribbean Policy Development Centre, Barbados
  • Center for Economic and Policy Research (CEPR)
  • Centre for Economic Strategy, Ukraine
  • Centre for Financial Accountability, India
  • Centro de Estudios Legales y Sociales (CELS), Argentina
  • Debt Justice Norway, Norway
  • Equidad de Género: Ciudadanía, Trabajo y Familia, Mexico
  • Erlassjahr.de – Entwicklung braucht Entschuldung (Jubilee Germany), Germany
  • Espace de Solidarité et de Coopération de l’Oriental, Maroc
  • European Network on Debt and Development (Eurodad)
  • Friends of the Earth US
  • Fundación SES, Argentina
  • GoAct Tunisia
  • Grupo de Estudios en Finanzas Internacionales (GEFI) / Universidad Nacional de Rosario (UNR), Argentina
  • Institute of Analysis and Advocacy (IAA), Ukraine
  • International Accountability Project
  • International Development Economics Associates (IDEAS)
  • LGBT Centre, Mongolia Oyu Tolgoi Watch, Mongolia
  • Phenix Center for Economic Studies, Jordan
  • Rasid Center, Jordan
  • Red Latinoamericana por Justicia Económica y Social (LATINDADD)
  • Rivers without Boundaries Coalition, Mongolia
  • Talassemtane pour environnement et développement, Maroc
  • Third World Network
  • Twerwaneho Listeners’ Club – (TLC), Uganda
  • Wedyan Association For Society Development, Yemen
  • Yemeni Observatory Association for social and economic rights, Yemen