Washington: The International Monetary Fund is facing pressure to reevaluate how it imposes fees on loans it disperses to needy countries like war-torn Ukraine which is one of the fund's biggest borrowers. The move comes as more countries will need to turn to the IMF, as food prices and inflation internationally continues to rise.
Surcharges are added fees on loans imposed on countries that are heavily indebted to the IMF.
Treasury Deputy Secretary Wally Adeyemo said in Aspen last month that finance ministers of several countries realise they have to pay a price for Russia's war in Ukraine, especially with food prices going up.
They're going to have to go to the IMF, they're going to need to find assistance, Adeyemo said. However, the IMF fee system could change through U.S legislation.
An amendment to the National Defense Authorisation Act, otherwise known as the defense spending bill, would suspend IMF surcharges while their effectiveness and burden on indebted countries is studied.
That was passed by the U.S. House in July.
The Senate is expected to vote on its defense bill in September. A representative of the Senate Armed Services Committee said an amendment may be offered in the next few weeks or even on the Senate floor.
As the largest IMF shareholder and member of the Fund's executive board, the U.S. can push for policy decisions and unilaterally veto some board decisions.
Citing worsening financial crises in Sri Lanka and Pakistan as examples, some accuse China of engaging in debt trap diplomacy or having countries falls so deeply in debt to that they are beholden to it on international issues.
Advocates and civil rights organisations lodge the same complaint against the Fund, who claim the organisation undercuts its core lender-of-last-resort role with countries in vulnerable positions to pay back debt. With an ever-worsening risk of a global debt crisis and rising interest rates, the issue has become more pressing for countries looking to reduce their deficits.
However, some economists and representatives of the fund say the surcharges amount to responsible lending behaviour, as they provide an incentive for members with large outstanding balances to repay their loans promptly.
This applies especially for countries that may otherwise may not be able to obtain financing from private lenders.
Maurice Obstfeld, a Berkeley economics professor and former IMF research department director said as a lender of last resort, the Fund's ability to lend is important as low and middle income countries face rising interest rates.