Ukraine’s debts: US aims to get IMF to reexamine loan fees

Dec 30, 2022, 5:14 PM | Updated: Dec 31, 2022, 7:20 am
FILE - International Monetary Fund Managing Director Kristalina Georgieva speaks during the 2022 an...

FILE - International Monetary Fund Managing Director Kristalina Georgieva speaks during the 2022 annual meeting of the International Monetary Fund and the World Bank Group, Oct. 14, 2022, in Washington. A provision in the recently signed defense budget mandates that the U.S. work to ease Ukraine’s debt burden at the IMF, which could create tensions at the world’s lender-of-last-resort over one of the fund’s biggest borrowers. (AP Photo/Manuel Balce Ceneta, File)

(AP Photo/Manuel Balce Ceneta, File)

WASHINGTON (AP) — A provision in the recently signed defense spending bill mandates that the United States work to ease Ukraine’s debt burden at the International Monetary Fund, which could create tensions at the world’s lender-of-last-resort over one of its biggest borrowers.

The National Defense Authorization Act requires American representatives to each global development bank, including the IMF, where the U.S. is the largest stakeholder, to use ” the voice, vote, and influence ” of the U.S. in seeking to assemble a voting bloc of countries that would change each institution’s debt service relief policy regarding Ukraine.

Among other things, the U.S. is tasked with forcing the IMF to reexamine and potentially end its surcharge policy on Ukrainian loans. Surcharges are added fees on loans imposed on countries that are heavily indebted to the IMF.

The U.S. interest in changing the policy comes as it has distributed tens of billions for Ukrainian military and humanitarian aid since the Russian invasion began in February. Most recently, Ukraine will receive $44.9 billion in aid from the U.S. as part of a $1.7 trillion government-wide spending bill.

Inevitably, some U.S. grant money is spent servicing IMF loans.

“I can see why the Senate would want to relax the surcharge for Ukraine,” Peter Garber, an economist who most recently worked at the global markets research division of Deutsche Bank, wrote in an email. “As the principal bankroller of economic aid for Ukraine, the US would not want to deliver funds only to have them go right to the coffers of the IMF.”

Economists Joseph Stiglitz at Columbia University and Kevin P. Gallagher at Boston University wrote in February about surcharges, saying that “forcing excessive repayments lowers the productive potential of the borrowing country, but also harms creditors” and requires borrowers “to pay more at exactly the moment when they are most squeezed from market access in any other form.”

Other economists say the fees provide an incentive for members with large outstanding balances to repay their loans promptly.

Even with the aid, the beleaguered Ukrainian economy is expected to shrink by 35 percent, according to the World Bank, and the country will owe roughly $360 million in surcharge fees alone to the IMF by 2023.

The effort to wrangle the IMF’s 24 directors, who are elected by member countries or by groups of countries, to end the surcharges may not be so easy.

Just before Christmas, the directors decided to maintain the surcharge policy. They said in a Dec. 20 statement that most directors “were open to exploring possible options for providing temporary surcharge relief,” but others “noted that the average cost of borrowing from the Fund remains significantly below market rates.”

Prominent economists studying the war’s impacts pointed out in a December report — “Rebuilding Ukraine: Principles and Policies,” by the Paris- and London-based Centre for Economic Policy Research — that “some significant voting members may have interests that are not aligned with having Ukraine succeed economically.”

Securing consistent financing to Ukraine could become harder as the war rages on. There are growing fears of a global recession and concerns that European allies are struggling to deliver on their financing promises. In addition, the GOP is set this coming week to take control of the House, with the top Republican, Rep. Kevin McCarthy, saying his party will not write a “blank check” for Ukraine.

Mark Weisbrot, co-director of the liberal Center for Economic and Policy Research in Washington, said the surcharge issue affects not just Ukraine, but also other countries facing debt crises. Among them: Pakistan, hit by flooding and humanitarian crises, as well as Argentina, Ecuador, and Egypt, who together are on the hook for billions in surcharges.

“There is no logic to the IMF imposing surcharges on countries already in crisis,” Weisbrot said, “which inevitably happens because the surcharges are structured to hit countries already facing financial problems.”

He said the issue will become more urgent as Ukraine’s debt grows and the war drags on.

Jeffrey Sachs, an economist and director of the Center for Sustainable Development at Columbia University, said “these surcharges should certainly be eliminated,” adding: “The IMF undercuts its core lender-of-last-resort role.”

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

This undated photo provided by the Grants Pass Police Department shows Benjamin Obadiah Foster. Fos...
Rio Yamat and Andrew Selsky, Associated Press

Oregon kidnap suspect previously released the day he arrived at prison

A man at the center of an intense police search in Oregon after a violent kidnapping last week was released from custody in October 2021 by Nevada prison officials on the same day he was transferred to the state's custody to serve a kidnapping sentence, authorities said Monday.
12 hours ago
FILE - Military personnel watch as Air Force One, with President Donald Trump aboard, prepares to d...
Associated Press

Boeing bids farewell to an icon, delivers last 747 jumbo jet

SEATTLE (AP) — Boeing bids farewell to an icon on Tuesday: It’s delivering its final 747 jumbo jet. Since its first flight in 1969, the giant yet graceful 747 has served as a cargo plane, a commercial aircraft capable of carrying nearly 500 passengers, a transport for NASA’s space shuttles, and the Air Force One […]
12 hours ago
seattle police...
Associated Press

Name of Seattle officer in crash that killed woman released

Police have released the name of a Seattle police officer who was responding to a medical call when his patrol SUV hit and killed a 23-year-old Jaahnavi Kandula last week in a city crosswalk.
12 hours ago
FILE - Florida Gov. Ron DeSantis gestures during a news conference, Thursday, Jan. 26, 2023, in Mia...
Associated Press

DeSantis moves to ban critical race theory in state colleges

TALLAHASSEE, Fla. (AP) — Florida Gov. Ron DeSantis on Tuesday announced plans to block state colleges from having programs on diversity, equity and inclusion, and critical race theory. The Republican governor debuted the proposal as part of a larger, higher education legislative package that is expected to be taken up by the GOP-controlled statehouse when […]
1 day ago
Associated Press

Arkansas House panel advances school gendered bathroom bill

LITTLE ROCK, Ark. (AP) — Transgender people at Arkansas public schools would not be able to use the restrooms matching their gender identity under a bill advanced by a state House committee on Tuesday. The House Education Committee endorsed the legislation, which would apply to multi-person restrooms and locker rooms at public schools and charter […]
1 day ago
Associated Press

Penguin Random House US CEO Madeline McIntosh to step down

NEW YORK (AP) — One of Penguin Random House’s top executives, U.S. CEO Madeline McIntosh, is stepping down. Her decision comes just weeks after the resignation of the global CEO, Markus Dohle, and the retirement of Random House Publishing Group head Gina Centrello. The departures all follow last fall’s ruling by a federal judge to […]
1 day ago

Sponsored Articles

safety from crime...

As crime increases, our safety measures must too

It's easy to be accused of fearmongering regarding crime, but Seattle residents might have good reason to be concerned for their safety.
Comcast Ready for Business Fund...
Ilona Lohrey | President and CEO, GSBA

GSBA is closing the disparity gap with Ready for Business Fund

GSBA, Comcast, and other partners are working to address disparities in access to financial resources with the Ready for Business fund.
SHIBA WA...

Medicare open enrollment is here and SHIBA can help!

The SHIBA program – part of the Office of the Insurance Commissioner – is ready to help with your Medicare open enrollment decisions.
Lake Washington Windows...

Choosing Best Windows for Your Home

Lake Washington Windows and Doors is a local window dealer offering the exclusive Leak Armor installation.
Anacortes Christmas Tree...

Come one, come all! Food, Drink, and Coastal Christmas – Anacortes has it all!

Come celebrate Anacortes’ 11th annual Bier on the Pier! Bier on the Pier takes place on October 7th and 8th and features local ciders, food trucks and live music - not to mention the beautiful views of the Guemes Channel and backdrop of downtown Anacortes.
Swedish Cyberknife Treatment...

The revolutionary treatment of Swedish CyberKnife provides better quality of life for majority of patients

There are a wide variety of treatments options available for men with prostate cancer. One of the most technologically advanced treatment options in the Pacific Northwest is Stereotactic Body Radiation Therapy using the CyberKnife platform at Swedish Medical Center.
Ukraine’s debts: US aims to get IMF to reexamine loan fees