T + T – Normal size
The International Monetary Fund is working on a range of options to ease the additional debt burden it imposes on countries looking to emerge from financial distress, as it seeks to address criticism that its current system is overly punitive.
The IMF’s executive board met this week to consider three potential changes to the so-called surcharge regime, according to people familiar with the plan who asked not to be identified discussing private information. The changes could be implemented jointly or separately, and no final decisions have been made, the people said.
Additional charges are imposed on countries that use more than their allocated share of IMF resources, or that take longer to repay loans under IMF programs.
The first mitigation option is to raise the threshold at which the surcharge is imposed on borrowers. The second is to reduce the size of the surcharge, and the third is to lower the rate the fund charges on lending, the people said.
The IMF declined to comment, repeating previous statements that the issue was under consideration.
The United States, the fund’s largest shareholder, has signaled a willingness to consider easing. The fund said in April that a number of directors were open to reviewing the policy, though any change would require a 70 percent vote. The discussions on fee cuts come ahead of the annual meetings of the International Monetary Fund and World Bank in the week of Oct. 21.
The surcharges have become a major target for progressives, from Democrats in the U.S. Congress to Brazil’s President Luiz Inácio Lula da Silva, who is hosting the G20 this year. They argue that interest rates, which have risen sharply in recent years and now exceed 8% on some loans, are too burdensome for countries that turn to the fund in financial crises.
The fund charges an interest rate of 200 basis points, or 2%, on loans exceeding 187.5% of a country’s “quota” of IMF financing. The rate rises to 300 basis points if a loan above that threshold lasts more than three years, according to the IMF website. One proposal under consideration is to raise that limit to 300% of quota.
Another idea is to cut the rate applied to loans from the Fund’s General Resources Account from 100 to 75 basis points for loans overdue for more than three years, or 51 months for loans under the Extended Fund Facility. A third option would be to cut the Fund’s policy rate of about 500 basis points.
