Committee for the Abolition of Illegitimate Debt

 What are IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org surcharges?

If a country borrows more than 187.5% of its quota ratio, it will have to pay surcharges to the IMF on credits over this level.

A mechanism created in 1997, IMF surcharges are charges applied to borrowing countries that borrow “too much from the IMF”. To understand how these surcharges work, let’s first look at how the International Monetary Fund operates. The 190 members of the IMF provide the IMF with part of the resources it lends, in the form of a quota. [1] In theory, each country’s contribution is commensurate with its “weight in the world economy”, but actually the United States, its European allies and Japan are blocking any increase in China’s quota. China, which is the world’s second largest economy and will soon overtake the United States, is entitled to only a 6.09% quota, while the United States’ is 16.5%. This inconsistency is easily explained: each country’s voting rights for important IMF decisions is proportional to its contribution. In addition, IMF loans to member states are proportional to their quota, i.e. their contribution to the IMF. To sum up, a rich country of the North with a higher quota than a poor country will have more voting rights and be entitled to higher loans. As already mentioned the US have 16.5% of IMF quota, which gives them a de facto veto power, since the required majority for any significant decision is 85%.

To sum up, a rich country of the North with a higher quota than a poor country will have more voting rights and be entitled to higher loans. As already mentioned the US have 16.5% of IMF quota, which gives them a de facto veto power, since the required majority for any significant decision is 85%.

A low-income country of the South will be entitled to lower loans than a country of the North (in proportion to its contribution) and will have a ridiculously weak impact on votes. Countries of the South are gathered in clusters. For instance a group of 23 countries including Côte d’Ivoire, Benin and DRC is entitled to only 1.62%.

IMF loans are proportional to countries’ contributions to the IMF resources, so to their weight in the world economy. If a country borrows more than 187.5% of its quota  [2], it will have to pay surcharges on loans above this level. There are two types of surcharges:

• Level-based surcharges that depend on the amount of credit outstanding: 200 basis points are applied on the portion of credit outstanding greater than 187.5 percent of quota.
• Time-based surcharges that depend on the length of time credit remains outstanding: they apply on the portion of credit exceeding the threshold of187.5 percent of quota for more than 36 or 51 months depending on the type of borrowing. So time-based surcharges are added to level-based surcharges when a country borrows an amount exceeding 187.5% of its quota or more than tree years or more than four years and three months.

A defaulting country that lacks hard currencies to pay its external debt, to which no lender will lend except at exorbitant rates, can resort to the IMF. If the loan exceeds 187.5% of its quota, it will have to pay a significant surcharge. While already in a difficult position it will be forced into even more debt. It is subjected to the IMF conditionalities, which further reduces its middle- and long-term revenues (reduction of social expenditure, privatisations, etc.), and if it does not manage to reduce its IMF borrowing under 187.5% of its quota within 36 or 51 months, it will have to face more penalties.

It’s only logical that IMF surcharges should explode, as the IMF is back in full force. It has lent to nearly 100 countries since the Covid-19 pandemic

This system puts even more pressure on countries that are already in dire financial straits. Instead of supporting their populations by financing social welfare, education, health care, etc., the country cuts back on spending and pays ever more interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. and penalties. For some countries, the surcharges can even double the cost of borrowing. [3]. In other words, the international institution dominated by the United States, and more generally by Western countries, is going to punish the country (often a former colony) and its population that don’t pay back fast enough. In many ways, this is a neo-colonial mechanism.

In an analysis published by Eurodad [4], Daniel Munevar has calculated that, between 2021 and 2028, for countries affected by IMF surcharges, these represented an average of 61% of their borrowing costs ($8 billion). This means that these surcharges are on average higher than the conventional interest charges levied by the international financial institution. These surcharges hit countries that rely too heavily on the IMF because they are going through a debt crisis.

Similarly, in an article published for the Center for Economic and Policy Research (CEPR), Francisco Amsler and Michael Galant calculated that between April 2023 and January 2025, the IMF is levying more than US$2 billion in surcharges [5].

The surcharges levied by the IMF have been very high since 2021, and particularly since 2023. They will remain so for years to come. This makes perfect sense: since the Covid-19 pandemic, the IMF has come back with a vengeance, lending $300 billion to nearly 100 countries.  [6]. Some of these states have exceeded the famous threshold of 187.5% of their quota. They therefore pay surcharges.

 Which countries are affected by these surcharges?

While “only” 7 countries were paying surcharges to the IMF in 2019, 16 nations are now affected by this penalty

While “only” 7 countries were paying IMF surcharges in 2019, 16 nations are now affected by this penalty: Argentina, Ukraine, Egypt, Ecuador, Pakistan, Albania, Armenia, Jordan, Angola, Costa Rica, Barbados, Georgia, Gabon, Tunisia, Seychelles and Mongolia. For these 16 countries, by 2030, the cumulative cost of borrowing (not including the sums lent and repaid at the end, known as “principal”) could rise from US$36.6 billion to US$43.9 billion. Of this US$43.9 billion, US$12.2 billion would correspond to surcharges. [7].

Table 1 : Accumulated Charges and Interest Payments and Estimates of Surcharges in 2023–2033, in USD millions

In this table based on calculations by Francisco Amsler and Michael Galant [8], we note that the five countries most affected by IMF surcharges are Argentina, Ukraine, Egypt, Ecuador and Pakistan.

From now until 2025, Argentina will pay an average of more than one billion US dollars a year in surcharges, equivalent to half the Argentine health budget in 2022.

From now until 2025, Argentina will pay an average of more than one billion US dollars a year in surcharges, equivalent to half the Argentine health budget in 2022.
Argentina, which borrowed a staggering US$44 billion from the IMF in 2018, is expected to pay around US$7.1 billion in surtaxes between 2023 and 2033 (equivalent to Togo’s annual GDP GDP
Gross Domestic Product Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another. ). [9]) This is absolutely massive, and corresponds to 36.2% of the total cost of borrowing over this period from the IMF (interest, late payment penalties, surcharges, etc. - again, the cost of borrowing does not include the amount borrowed up front and repaid at the end of the loan). Between now and 2025, Argentina will pay an average of over one billion US dollars a year in surcharges (equivalent to half the Argentine health budget in 2022 [10]).

Ukraine, at war since Russia’s aggression two years ago, has also been hit hard by IMF surcharges. Between 2023 and 2033, Ukraine will have to pay US$3.8 billion in surcharges (the equivalent of Ukraine’s annual defence budget just before the start of the war) [11] or Andorra’s annual GDP [12]). The IMF has no mercy for countries at war.

No compassion either for the countries and populations hardest hit by climate change, even though they are not responsible for it. The Pakistani population, victims of terrible floods in the summer of 2022 - accelerating the country’s debt crisis - is also witnessing part of its taxes going into the surcharges imposed by the IMF. These surcharges represent 43.2% of Pakistan’s borrowing costs between 2023 and 2033, and almost twice the annual education budget of the Pakistani government [13]).

The conclusion is very obvious: the IMF is increasingly sinking countries that have the misfortune of borrowing excessively from it because they are suffering a debt crisis due to armed conflict, climatic disasters, or other causes for which they are not responsible.

 Which countries are likely to pay IMF surcharges in the coming months or years?

Table 2 : Countries at High or Moderate Risk of Paying Surcharges in the Future (countries with outstanding GRA credit to quota ratio above 100%)

According to Francisco Amsler and Michael Galant’s calculations [14], several countries are at great risk of paying IMF surcharges in the coming months. This is the case for Sri Lanka, whose IMF borrowings represent 180% of its quota, and which is going through an unprecedented debt crisis coupled with an intervention by the International Monetary Fund that is hitting the population very hard. This is also the case for Senegal, Benin, Moldavia, Northern Macedonia and Morocco, which hosted the latest annual meetings of the IMF and World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

. As explained above, it’s only logical that more and more countries should be hit by IMF surcharges, as the institution has been lending heavily since the Covid-19 pandemic.

The trend can only deepen since countries of the Global South are going through a severe debt crisis resulting from a succession of external shocks: the Covid-19 pandemic, the increase in cereal prices as a result of Russia’s invasion of Ukraine and made worse by speculation, the rise in interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. by the US Federal Reserve FED
Federal Reserve Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

FED – decentralized central bank : http://www.federalreserve.gov/ (FED), the European Central and the Bank of England.

The author is grateful to Christine Pagnoulle, Sylvie Cartaillac and Éric Toussaint for their comments.