In his State of the Union Address, President Joe Biden made a trenchant call to eliminate “junk” fees from businesses including airlines, banks, and credit card companies — “those hidden surcharges,” as Biden put it, that “too many businesses use to make you pay more.”
Biden’s proposed Junk Fee Prevention Act is a valuable step toward addressing an issue that affects many Americans. But while Biden is going after exploitative, hidden fees domestically, there are other exploitative, hidden fees impacting the lives of hundreds of millions of people around the world that the U.S. has the ability to help end immediately.
The International Monetary Fund (IMF) makes loans to developing countries with the ostensible goal of helping to prevent monetary crises and spur economic development. On top of the normal costs of these loans — interest and service charges — the IMF controversially imposes additional fees on its most heavily indebted borrowers, fees that it calls surcharges.
These surcharges siphon valuable resources away from where they’re needed most, such as pandemic and disaster response, climate preparedness, providing adequate nutrition and health care, and development, while punishing countries that are already struggling with major debt burdens. Surcharges collectively cost impacted countries an estimated $1 billion per year, and increase the cost of borrowing from the IMF by 64%. To put this into perspective, Egypt is expected to spend about $1.8 billion on surcharges between 2019 and 2024. That’s three times what it would cost to fully vaccinate everyone in the country.
These numbers are only rough estimates, because, like Biden’s “junk fees,” surcharges are opaque. The IMF does not disclose the cost of the surcharges in the total amount that countries pay.
The IMF’s justification for surcharges is that they are intended to incentivize countries to repay their debts on time. There is little evidence that this is effective, in part because the Fund itself has not assessed the policy in the past seven years. But the logic itself is clearly backwards.
Three of the top five payers of surcharges are Pakistan, Egypt and Ukraine. Less than six months ago, one third of Pakistan was under water — a climate change-induced disaster that caused $10 billion in damages, to say nothing of the tragic loss of life.
Egypt, the world’s second-most heavily surcharged country, was among the top 10 importers of wheat from Ukraine and Russia prior to their war. According to the Middle East Institute, “the Russia-Ukraine war has turned Egypt’s food crisis into an existential threat to the economy.”
Ukraine is, of course, suffering from the unmitigated devastation of that war, from which it will take decades to recover. In a time of profound global shocks — the pandemic, soaring food and energy costs, the global reverberations of the war in Ukraine, and climate change — developing countries do not need to be punished into repaying their debts. They need relief.
There are currently 16 countries paying surcharges, up from nine prior to the pandemic. By the IMF’s own predictions, amid the continuing international crises and a potential global recession, that number will jump to 38 by 2025. The global crisis has become an opportunity for the IMF to profit from the very countries that are struggling most.
Reform and relief
Fortunately, there is growing momentum for reform. Last year, the U.S. House of Representatives, led by Reps. Jim Himes (D-CT) and Chuy García (D-IL), passed legislation directing the U.S. Treasury to support a review of the IMF’s surcharge policy, and to suspend surcharges during the course of the review.
Others have gone further, calling for the multiyear suspension, or downright elimination, of all surcharges. These include leading economists including Nobel laureate Joseph Stiglitz, the Peterson Institute’s Patrick Honohan, and Ukrainian economist Yurii Romaschko, as well as UN Secretary-General António Guterres, dozens of former heads of state, UN special rapporteurs and human rights experts, and more than 150 civil society organizations from around the world.
But despite the growing consensus, change has yet to come. While there are few voices in opposition, institutional momentum at the IMF is strong. Biden, though, has the power to overcome it. The United States has a uniquely influential position at the Fund. If Biden commits the U.S. to supporting the elimination of surcharges, or Congress adds the IMF’s hidden surcharges to its junk fees legislation, change would assuredly follow.
Biden is right to oppose junk fees. But not just those imposed by U.S. businesses. It’s time for his administration to prioritize getting rid of the IMF’s junk fees too.
Michael Galant is a senior research and outreach associate at the Center for Economic and Policy Research in Washington, D.C.