WASHINGTON (AP) — A provision in the recently signed defense spending bill calls for U.S. efforts to reduce Ukraine’s debt burden at the International Monetary Fund, which could strain the world’s lender of last resort on one of its largest loans Situation Borrower.
The NDAA requires U.S. representatives from each global development bank, including the International Monetary Fund, where the U.S. is the largest stakeholder, to use U.S. “voice, vote and influence” to seek to form a group of Voting bloc: Will change each agency’s policy on Ukraine’s debt relief.
Among other things, the United States is tasked with forcing the IMF to review and possibly terminate its surcharge policy on Ukrainian loans. The surcharge is an additional loan fee levied on countries that are heavily indebted to the IMF.
The U.S. has been interested in changing policy as it has allocated tens of billions of dollars for military and humanitarian aid to Ukraine since Russia began its invasion in February. Most recently, Ukraine will receive $44.9 billion in aid from the US as part of a $1.7 trillion government spending bill.
Inevitably, some US grants are used to repay IMF loans.
“I can see why the Senate wants to ease the surcharge on Ukraine,” Peter Garber, an economist who most recently worked at Deutsche Bank’s Global Markets Research division, wrote in an email. “As the main funder of Ukraine’s economic aid, The U.S. doesn’t want to provide funds just to have them go straight into the IMF’s coffers.”
Columbus is when they are squeezed tightest by market access in any other format. “
Other economists say the fees incentivize members with large outstanding balances to make timely loan repayments.
Even with the aid, the troubled Ukrainian economy is expected to shrink by 35%, and the country owes about $360 million in surcharges to the International Monetary Fund alone by 2023, according to the World Bank.
Efforts to persuade the IMF’s 24 directors, elected by member countries or groups of countries, to end the surcharge may not be easy.
Just before Christmas, the directors decided to maintain the surcharge policy. They said in a Dec. 20 statement that most directors were “willing to explore possible options to provide temporary surcharge relief,” but others “noted that the average cost of borrowing from the fund remains well below market rates.”
Leading economists who have studied the effects of the war noted in a December report — “Rebuilding Ukraine: Principles and Policies,” written by the Paris- and London-based Center for Economic Policy Research — that “the interests of some key voting members Probably has nothing to do with making Ukraine economically successful.”
Securing continued funding to Ukraine may become more difficult as the war progresses. Fears are growing of a global recession and concerns that European allies will struggle to meet their financing pledges. In addition, the Republican Party will take control of the House of Representatives next week, and the Republican leader, Rep. Kevin McCarthy, said that the Republican Party will not write a “blank check” for Ukraine.
Mark Weisbrot, co-director of the Center for Free Economic and Policy Research in Washington, said the surcharge issue affects not only Ukraine but other countries facing debt crises. Among them: Pakistan, which has been hit by floods and humanitarian crises, and Argentina, Ecuador and Egypt, which collectively face multibillion-dollar surcharges.
“There is no logic in imposing a surcharge on countries that are already in crisis,” Weisbrodt said. “It is inevitable because the surcharge is structured to hit countries that are already facing financial problems.”
The issue will become more pressing as Ukraine’s debt grows and the war drags on, he said.
“These surcharges should definitely be removed,” said Jeffrey Sachs, an economist and director of Columbia University’s Center for Sustainable Development, adding: “The IMF has weakened its core lender-of-last-resort role.”
Copyright 2022 The Associated Press. all rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.