IMF fees closer to elimination on war-torn countries

To revaluate as it disperses to needy countries like war-torn Ukraine the International Monetary Fund is facing pressure on how it imposes fees on loans, as it is one of the fund’s biggest borrowers.

The move comes as close as more countries will need to turn to the IMF, however, as food prices and inflation internationally continue to rise. On countries that are heavily indebted to the IMF surcharges are fees added on loans imposed.

In Aspen, finance ministers of several countries realize that for Russia’s war in Ukraine they have to pay a price, especially with food prices going up, last month Wally Adeyemo, the Deputy Secretary said.

According to Adeyemo’s statement, “They’re going to have to go to the IMF, and thus they’re going to need to find assistance”.

However, through U.S. legislation the IMF fee system could change. An amendment to the National Defense Authorization Act, otherwise known as the defense spending bill, would suspend IMF surcharges while on indebted countries their effectiveness and burden is studied.

By the U.S. House that was passed in July. on its defense bill in September the Senate is expected to vote. In the next few weeks or even on the Senate floor a representative of the Senate Armed Services Committee said that an amendment may be offered.

The U.S. can push for policy decisions and unilaterally veto some board decisions, as the largest IMF shareholder and member of the Fund’s executive board.

As examples, citing worsening financial crises in Sri Lanka and Pakistan, some accuse China of engaging in debt trap diplomacy or having countries fall so deeply in debt that they are beholden to it on international issues.

Its core lender-of-last-resort role with countries in vulnerable positions to pay back debt against the Fund advocates and civil rights organizations lodge the same complaint, who claim that the organization undercuts.

The issue has become more pressing for countries looking to reduce their deficits, with an ever-worsening risk of a global debt crisis and rising interest rates.

Moreover, as they provide an incentive for members with large outstanding balances to repay their loans promptly, some economists and representatives of the fund say that the surcharges amount will be responsible for lending behaviour. 

However, this applies to countries that may otherwise not be able to obtain financing especially from private lenders.

A Berkeley economics professor Maurice Obstfeld and former IMF research department director said as a lender of last resort. On the other hand, the Fund’s ability to lend is important as low and middle income countries face rising interest rates.

In an email to The Associated Press he said that, “Its efforts are better deployed serving member countries’ needs, the Fund’s staff is small as well as in a crisis”. “To serve its membership at the expense of the Fund’s ability in the longer term but Surcharges could be relaxed in the face of intense pressure on borrowing countries.”

“For the IMF to pay surcharge fees that are already deep in debt it is unfair to require countries like Ukraine. These fees increase both poverty and hold back our global economic recovery”, the Illinois Congressman who offered the defense spending amendment, named Jesus Chuy Garcia, told the Associated Press. 

According to IMF data due in large part to Russia’s invasion of Ukraine, its projected real GDP is expected to decline by 35%.

According to Ukrainian central bankers and IMF accounting units valued at around $9.8 billion With no projected end the country, engaged in a war, has an outstanding balance of 7.5 billion SDRs. In surcharges between 2021-23 the latest figures estimate that Ukraine will owe the IMF $360 million.

For various years, Lawmakers, economists and civil rights organizations have called on the IMF to complete its surcharge policy which has loaned billions to low-income countries for decades.

Garcia said “To review the surcharges and support a pause at the IMF I’m very much excited that the house passed my amendment, and I will keep up the fight unless and until the President signs it into law”. 

In aid to Ukraine the U.S. has sent roughly $7.3 billion separately, since late February the war began, including a new $775 million defense aid package announced Friday.

Source:- https://liveblogsus.com/imf-fees-closer-to-elimination-on-war-torn-countries/