Loans from the International Monetary Fund (IMF) have been widely criticized for saddling poor, desperate cash-strapped countries with debt, while requiring a host of damaging reforms as a condition, from the gutting of public health systems to the imposition of austerity measures.
But on top of the debt principal itself, and the interest rates countries must pay on that principal, there is a lesser-known — yet deeply pernicious — cost that is tacked on for those countries most in need: surcharges.
Surcharges are extra fees that are imposed on borrowing countries on top of all the other costs, ostensibly to incentivize countries to pay back their debts more quickly, and to protect the finances of the IMF. But according to a new report from the Center for Economic and Policy Research (CEPR), a left-leaning think tank, these fees are predatory and punishing, imposing devastating costs on countries that — by definition — are most desperate for funds.
The IMF began implementing surcharges in 1997 in response to the Asian Financial Crisis. Introduced with the creation of the Supplemental Reserve Facility (SRF), surcharges are supposed to incentivize countries to pay off their debts by heaping charges on them them for taking a long time to do so (more than four years), or borrowing over a certain amount (greater than 187.5 percent of their quota, which is the money countries pay to be part of the IMF). In other words, countries face surcharges for taking a long time to pay back loans, or for borrowing large sums — both indications that those countries are desperately in need of funds.
But since the late 1990s, surcharges have become standard across the institution. Beginning in 2009, surcharges have been applied to countries borrowing from the General Resources Account (GRA), the main account of the IMF. Andrés Arauz, economist at CEPR and co-author of the report, tells In These Times, “About 16 countries are currently paying surcharges on the basis of the size of their borrowing from the Fund.”
Yet, the report finds, there is no evidence that the surcharges accomplish the IMF’s stated goal of encouraging countries to pay off the IMF debt and return to private markets. After all, if countries had the ability to borrow from private markets, they wouldn’t be at the IMF in the first place.
Furthermore, there are already a number of other punishing “incentives” for rapid repayment. “IMF programs often come with onerous conditionality, requiring governments to enact unpopular reforms or to limit public spending, and so encouraging governments to seek exit as soon as they are able,” the report states.
Most importantly, some countries simply don’t have the money. “Of the few countries that have made early repayments, most of the repayers since 2009 are high-income European countries that have support from European Union institutions,” a report summary notes.
Instead, surcharges simply add to the crushing debts of borrowing countries, paradoxically imposing the most harm on the countries that have the greatest need. It’s the moral equivalent of a loan shark who increases the interest payments for people who have trouble paying and have no place else to go.
Due to a lack of transparency, the exact surcharges are unknown. But CEPR estimates that for the five largest current borrowers from the fund — Argentina, Ecuador, Egypt, Pakistan and Ukraine — surcharges comprise 45 percent of all non-principal debt service (interest, for example, would be another form of non-principal debt service). This comes to a stunning $2.7 billion in 2022 alone just from the combined surcharges for these five countries.
To understand the stakes, it’s worth taking a closer look at the most debt-saddled countries of the group. “Argentina will end up spending U.S. $3.3 billion in surcharges over the course of six years (2018 – 2023),” the report states. “This is nine times the amount it would have to spend to fully vaccinate every Argentine against Covid-19.”
The figures for Egypt are similarly stark. “Egypt will have spent U.S. $1.8 billion on surcharges between 2019 and 2024. This is three times the U.S. $602 million it would cost to fully vaccinate all Egyptians.”
The IMF says that the surcharges are necessary to help it build up its equity capital, a position its spokesperson Gerry Rice doubled down on in a March 2021 press briefing when asked about the case of Argentina. “[Surcharges] enable us to help our low-income members in particular, by strengthening our financial capacity,” he told reporters.
But CEPR says this claim is absurd: The surcharges represent a small and insignificant amount relative to other sources of the IMF’s funding. “Looking at the $1 trillion firepower figure cited by the IMF’s managing director amid the pandemic as an indication of the true availability of funds for lending, the IMF does not depend on revenue from surcharges,” the report states.
Yet surcharges are not trivial for the countries saddled with them. “Surcharges are hurting countries most in need,” Mark Weisbrot, an economist, co-director of CEPR, and co-author of the report, tells In These Times. “They are regressive. Those countries are going to have to cut some spending or imports that they really need. And you’re taking that from countries that are much more likely to be needing it much more desperately if they’re heavily in debt. It’s unfair, and it doesn’t serve any useful purpose.”
The existence of surcharges is particularly remarkable because of the incredible harm that foreign debt has caused around the world. According to the global advocacy organization Jubilee Debt Campaign, as of 2019, 64 lower-income countries were spending more for payments on external debts than on healthcare. This absurd global arrangement, in which countries that were harmed by colonialism now must borrow from an institution led by their former colonizers, is made all the more bleak when you consider that the IMF can simply impose surcharges on top of these staggering debts.
That these surcharges persist during a pandemic, when spending on public health is desperately needed, is unconscionable. As the CEPR report puts it, “surcharges are inappropriate and unjustifiable, particularly during a pandemic combined with a very uneven recovery from a pandemic-driven world recession.”
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Sarah Lazare is the editor of Workday Magazine and a contributing editor for In These Times. She tweets at @sarahlazare.