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Despite Argentina, the IMF will not eliminate surcharges

Despite Argentina, the IMF will not eliminate surcharges

Despite Argentina’s insistent request, the IMF it won’t eliminate credit overcharges, a constant call to ease the burden of debt.

The Fund charges a rate of 200 basis points, or 2 percentage points, on outstanding loans above 187.5% of a country’s quota, growing to 300 basis points if a loan remains above that percentage after three years. If the Fund agreed to remove them, Argentina could stop paying hundreds of millions of dollars a year, but so far there has been no change.

Argentina -first with Martín Guzmán and then with Sergio Massa- It has been demanding that these surcharges that raise debt payments on large loans be lowered or eliminated.

Not only the Government asks for this measure in the body, but also in international forums such as the G24 and G20.

However, when the issue was formally discussed at a December 2021 session, the executive board was opposed to making any changes.

massa kristalina

“Several directors saw no need to revise the surcharge policies or change their design at this stage, given the Fund’s overall low total cost of lending, noting the critical role of surcharge income in ensuring adequate risk accumulation“the IMF said at the time.

Meanwhile, the executive board of the Washington-based organization agreed to increase the annual and cumulative funding limits by at least 12 months to “better assist Fund members at a particularly challenging and uncertain economic time.”

This applies to stand-by agreements and Extended Service (SAF) programs offered by the Fund. These loans have a limit on the amount lent of 145% per year of a member country’s quota (what each nation contributes to the Fund) and 435% throughout the program period. The board’s decision raised that limit to 200% and 600% respectively.

Countries can continue to borrow above those limits “in exceptional circumstances” as long as certain criteria are met.

As reported by the Fund, the changes are aimed especially at emerging markets and developing countries facing “increased financial pressures and vulnerabilities”to prevent them from falling within the framework of exceptional credits, for amounts higher than these limits.

Precisely, Argentina obtained an “exceptional access” credit in 2018, because it received a loan of some US$ 57,000 million in 2018, which was equivalent to about 11 times its quota.

Although this increase will be maintained for the next 12 months, the Fund indicated that its staff may propose an extension to the board of directors before the end of that period. It is not the first increase in the financing ceiling decided by the IMF.

During the pandemic, between mid-2020 and the end of 2021, the annual limit was temporarily raised from 145% to 245% of each country’s quotas.

Despite these changes, the agency continues to maintain the same framework on surcharges.

Source: Ambito

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