The Americas Blog

El Blog de las Americas

The Americas Blog seeks to present a more accurate perspective on economic and political developments in the Western Hemisphere than is often presented in the United States. It will provide information that is often ignored, buried, and sometimes misreported in the major U.S. media.

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Biden has a significant opportunity in his hands to boost global oil production by breaking with Trump’s failed “maximum pressure” campaigns, and ending unilateral — and likely illegal — sanctions against Iran and Venezuela.
Biden has a significant opportunity in his hands to boost global oil production by breaking with Trump’s failed “maximum pressure” campaigns, and ending unilateral — and likely illegal — sanctions against Iran and Venezuela.
Updated June 8, 2022 Reports 6/1/21: Bolivia After the 2019 Coup: Economic Policy  12/9/20: What Criticisms of Bolivia’s 2019 Elections Continue to Get Wrong 5/27/20: The Ends Don’t Justify the Means – Center for Economic and Policy Research 3/10/20: Observing the Observers: The OAS in the 2019 Bolivian Elections 2/27/20: Analysis of the 2019 Bolivia […]
Updated June 8, 2022 Reports 6/1/21: Bolivia After the 2019 Coup: Economic Policy  12/9/20: What Criticisms of Bolivia’s 2019 Elections Continue to Get Wrong 5/27/20: The Ends Don’t Justify the Means – Center for Economic and Policy Research 3/10/20: Observing the Observers: The OAS in the 2019 Bolivian Elections 2/27/20: Analysis of the 2019 Bolivia […]
SDRs are not a magic bullet for climate finance. But as part of a wider framework, they can be a key tool for leveraging the resources needed for global climate justice.
SDRs are not a magic bullet for climate finance. But as part of a wider framework, they can be a key tool for leveraging the resources needed for global climate justice.

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The Fed recently raised the policy interest rate by 50 basis points to 1 percent, and announced that it expects to raise rates by the same amount at the next two Federal Open Market Committee (FOMC) meetings. At the same time, it is also reversing its policy of asset purchases (quantitative easing) which had pushed down long-term rates.

This tightening of policy aims to decelerate inflation, but it carries serious downside risks. As Powell warned — these measures will bring “some pain,”[1] which is a real risk, and not just for the domestic economy.[2] The global economy could also face negative spillovers through various channels.

Middle- and low-income countries are currently especially vulnerable to negative spillovers. With sharp increases in sovereign and private debts due to the pandemic response, these countries face more difficult recoveries, and in the worst cases, even economic crises, from the jump in interest rates.

Just as in the global North, government debt stocks rose in developing economies because of the fallout from the pandemic. The average public debt to GDP ratio in 2021 was 67 percent, up from about 52 prior to the pandemic.[3] The ratio of debt interest payments to government revenue was about 12 percent on average in emerging markets, and projected to rise some in 2022.[4]

The current crisis in Ukraine has also had significant international spillover, including by straining the current accounts of energy and food net importers. A World Bank post from March warned that, even prior to the war, almost 60 percent of low-income countries were in debt distress or at high risk of distress, and that middle-income countries were paying the higher debt service payments for 30 years. With the war and interest rate rises, it warns that the world could be headed for “the largest spate of debt crises in developing economies in a generation.”[5]

Fed Rate Hikes and Historic International Spillovers

Some of the deepest economic crises in developing economies in the last 50 years were the consequence of spillovers from US monetary policy tightening. The most dramatic was the developing world debt crisis triggered by the Volcker shock — the sharp rise in interest rates led by the Fed at the end of the 1970s. Mexico, Poland, South Korea, and Chile were initially the most affected, but the contagion spread to most of the developing world and caused long-term losses in output in some regions. In Latin America this contributed enormously to the “lost decade,” a period when per capita income growth was actually negative for the 1980s, and even for the whole period of 1980–2000 saw the worst economic failure it had seen for a century, with poverty rising for the 20-year period.

In 1994, the Fed began a series of increases in its policy rate, and this sparked another crisis in Mexico, which also threatened to rapidly spread throughout the developing world. Stanley Fischer, the IMF’s then deputy managing director recalled thinking at the time that “western civilization as we knew it [was] coming to an end.”[6] The Fed rate hikes had serious negative socioeconomic effects. Spillovers, dubbed the “Tequila effect,” rippled through developing economies, especially in Latin America.[7] A $50 billion bailout package[8] ultimately contained the crisis, but the recovery in Mexico was protracted. Real wages fell 21.2 percent from 1994 to 1996, and only recovered to their pre-crisis level in 2005.[9]

There was also the 2013 Taper Tantrum, which shows the risk of spillover from changes in non-conventional monetary policy. Unlike in the previous two cases — which were caused by rises in short-term rates, this was due to an anticipated rise in long-term US interest rates, which had been pushed down by quantitative easing. The announcement of quantitative tightening in May 2013 led to exchange rate depreciation, capital outflows, falls in asset prices, and jumps in sovereign bond yields in multiple developing countries.[10] Some of the larger and more open middle-income countries — including Turkey, Brazil, Mexico, and South Africa — felt the biggest impact.

Panel Studies on Fed Policy and Negative Spillovers

There are several panel studies which demonstrate that the relationship between contractionary monetary policy by the Fed and negative economic spillovers is not limited to a few dramatic cases, but is a systematic, long-term, and serious problem that needs to be addressed.

A panel study by Iacovielllo and Navarro[11] of 50 economies from 1965 to 2016 found that a monetary policy shock from the Fed[12] of 100 basis points caused a decline in output of 0.5 percent in advanced economies and 0.8 percent in developing countries after three years. The output spillover is marginally higher for developing countries than it was for the US, where output fell by an average of 0.7 percent. Developing countries that scored higher on a vulnerability index — constructed by combining data on the current account, foreign reserves, inflation, and external debt — experienced more severe GDP contractions.

Another interesting study is by Koepke,[13] who used data from 27 developing countries from 1973 to 2014, and looked at the role of US monetary policy as a determinant of crisis. The data included 154 episodes of currency crises,[14] banking crises,[15] and sovereign defaults. The study tested three different measures of monetary policy: the “stance,” or deviation from an estimate of the neutral rate;[16] “direction” or whether the Fed was engaged in a tightening cycle;[17] and the role of “surprise,” as captured by upward shifts in implied policy rates in futures contracts. These were tested in two models, the first with incidence of crisis as the dependent variable, and the second estimating probability of crisis and also including developing countries’ domestic vulnerabilities as determinants. All three were statistically significant, with positive and economically meaningful[18] coefficients, across most specifications in both of the two models.

The results are illustrative of the strong impact US monetary policy can have on developing countries. For the second model, which estimated probability, the probability of any country being in crisis over the sample period (1987–2014) was 8.7 percent. In years when the Fed was not tightening policy, this fell to 6.4 percent, “while in a year of Fed tightening, the predicted probability jumps to 17.3 percent.” If tightening occurred when the real Federal Funds Rate (FFR) was 1 percentage point above (below) the neutral rate estimate, then the probability of crisis was increased (reduced) to 32 percent (10.9 percent). If the Fed was tightening, and there was also an upward shift in expected policy rates by one percentage point, the crisis probability rose to 40.8 percent, pointing to the importance of forward guidance in monetary policy and the dangers of surprise tightening.

The second model also identified a substantial decline in the level of crisis risk in developing countries from the beginning of the millennium. The relative risk of crisis occurring was 12.2 percent in 1987–99 and 6.2 percent in 2000–14. The most important contributions to this risk decline — explaining 4.7 of the 6 pp fall — were the reduction in external debt stocks (-3.6 pp), substantially higher reserve coverage (-0.6 pp), strong real GDP growth (-0.3), and current account balance improvements (-0.2 pp). This suggests some risks for Fed policy tightening at the current juncture. It also supports the case for international efforts to reduce vulnerabilities.

Conclusion

The Fed should exercise caution in its rate increases, not only because it could be harmful domestically (and an inappropriate response to inflation spikes that are caused by supply chain disruptions or exogenous shifts in the composition of demand — e.g., both of which are seen as major causes of rising inflation over the past year), but also because there is a robust relationship between US monetary tightening and output contractions and economic crisis in middle- and low-income countries.

In parallel, and if interest rate rises cannot be avoided, urgent action is needed to reduce developing country vulnerabilities. There are a number of reforms that could be made to the international financial architecture in order to reduce systemic risk, and make debt distress easier to manage, but these will take time and political action. A faster solution would be to shore up countries’ international reserves through an SDR allocation by the IMF. This has the advantage that it is tried and tested, and could be implemented almost immediately.

[1] https://www.ft.com/content/ad46e534-166b-4a2f-8841-5e17e109122b?shareType=nongift

[2] Compare Powell’s comments to one of his predecessors who was reported in the Fed’s records as saying in 1947 that, because of the economy’s inflationary pressures, “He thought that there would and should be a mild recession” (Romer and Romer, 1989: 137). Romer and Romer’s 1989 study found that “six of the eight postwar recessions [had] been preceded by decisions by the Federal Reserve to attempt to cause a downturn” (1989: 157).

Romer, Christina D., and David H. Romer. “Does monetary policy matter? A new test in the spirit of Friedman and Schwartz.” NBER macroeconomics annual 4 (1989): 121-170.

[3] Global Financial Stability Report, April 2022 p.41.

[4] Global Financial Stability Report, April 2022, figure 2.2, p.44.

[5] https://blogs.worldbank.org/voices/are-we-ready-coming-spate-debt-crises

[6] Blanchard, Olivier J. and Blanchard, Olivier J., Interview of Stanley Fischer (April 19, 2005). https://ssrn.com/abstract=707821.

[7] https://www.dallasfed.org/assets/documents/research/swe/1995/swe9502c.pdf

[8] Comprised of $20 billion from the US Treasury, $17.8 billion from the IMF, a $1.2 billion swap from the Bank of Canada, and $1 billion from the IBRD and IADB, with a $10 billion line from the G-7 to be issued via the BIS announced but not actually delivered.

See Boughton, J. M. (2012). Tequila Hangover: The Mexican Peso Crisis and Its Aftermath. In Tearing Down Walls. International Monetary Fund. https://www.elibrary.imf.org/view/books/071/11600-9781616350840-en/ch010.xml

[9] https://cepr.net/report/nafta-20-years/

[10] Rai, Vikram, and Lena Suchanek. The effect of the federal reserve’s tapering announcements on emerging markets. No. 2014-50. Bank of Canada working paper, 2014. https://www.econstor.eu/handle/10419/123738

[11] Iacoviello, Matteo, and Gaston Navarro. “Foreign effects of higher US interest rates.” Journal of International Money and Finance 95 (2019): 232-250.

[12] Monetary policy shocks are identified when the Federal Funds Rate is higher than what would be predicted by an estimated feedback rule which controls for current and lagged inflation, logs of US and international output, corporate spreads and the lagged values of the Federal Funds Rate and a quadratic time trend. The advantage of this rule is that it does not include estimation of the so-called R* or estimating the gap with potential output (hypothesized as exogenous rather than endogenous). The results found using this rule were robust to the monetary shocks identified by Romer and Romer, discussed above.

[13] Koepke, Robin, Determinants of Emerging Market Crises: The Role of U.S. Monetary Policy (July 26, 2016). Available at SSRN: https://ssrn.com/abstract=2814544.

[14] Defined as nominal devaluations of >25 percent y-o-y.

[15] The criteria of which being at least three out of a set of six quantitatively defined significant interventions in the banking system.

[16] The neutral rate, or R*, was estimated by using the method developed by Laubach and Williams and tracked by the NY Fed. The R* concept has been subject to critique theoretically (largely by post-Keynesians). For example, see:

Serrano, Franklin, Ricardo Summa, and Vivian Garrido Moreira. “Stagnation and unnaturally low interest rates: a simple critique of the amended New Consensus and the Sraffian supermultiplier alternative.” Review of Keynesian Economics 8, no. 3 (2020): 365-384.

[17] Defined as annual increases in the effective rate greater than 10 basis points.

[18] The second probability model is discussed more below, but for the first model looking at the incidence of crisis, for the specification (4) the baseline incidence of crisis was 1.9%, this was raised by 4.7 percentage points when the ‘stance’ of the Fed was contractionary in the prior year, 12 percentage points when the ‘direction’ was contractionary and 5.3 percentage points when there was ‘surprise’ tightening. However, the standard error for this first model was somewhat high (1.56 in this specification, which –with a sample mean of 2.6– translates into a 95% confidence interval of [-0.5 5.7]), the second model has a lower standard error (between 0.26 and 0.29 depending on the specification, and — with a mean of 0.087 — this translates into a CI of [0.09 0.43]). My calculations for the CI. Other figures from Tables 2 and 4, op. cit. pp.19, 26.

The Fed recently raised the policy interest rate by 50 basis points to 1 percent, and announced that it expects to raise rates by the same amount at the next two Federal Open Market Committee (FOMC) meetings. At the same time, it is also reversing its policy of asset purchases (quantitative easing) which had pushed down long-term rates.

This tightening of policy aims to decelerate inflation, but it carries serious downside risks. As Powell warned — these measures will bring “some pain,”[1] which is a real risk, and not just for the domestic economy.[2] The global economy could also face negative spillovers through various channels.

Middle- and low-income countries are currently especially vulnerable to negative spillovers. With sharp increases in sovereign and private debts due to the pandemic response, these countries face more difficult recoveries, and in the worst cases, even economic crises, from the jump in interest rates.

Just as in the global North, government debt stocks rose in developing economies because of the fallout from the pandemic. The average public debt to GDP ratio in 2021 was 67 percent, up from about 52 prior to the pandemic.[3] The ratio of debt interest payments to government revenue was about 12 percent on average in emerging markets, and projected to rise some in 2022.[4]

The current crisis in Ukraine has also had significant international spillover, including by straining the current accounts of energy and food net importers. A World Bank post from March warned that, even prior to the war, almost 60 percent of low-income countries were in debt distress or at high risk of distress, and that middle-income countries were paying the higher debt service payments for 30 years. With the war and interest rate rises, it warns that the world could be headed for “the largest spate of debt crises in developing economies in a generation.”[5]

Fed Rate Hikes and Historic International Spillovers

Some of the deepest economic crises in developing economies in the last 50 years were the consequence of spillovers from US monetary policy tightening. The most dramatic was the developing world debt crisis triggered by the Volcker shock — the sharp rise in interest rates led by the Fed at the end of the 1970s. Mexico, Poland, South Korea, and Chile were initially the most affected, but the contagion spread to most of the developing world and caused long-term losses in output in some regions. In Latin America this contributed enormously to the “lost decade,” a period when per capita income growth was actually negative for the 1980s, and even for the whole period of 1980–2000 saw the worst economic failure it had seen for a century, with poverty rising for the 20-year period.

In 1994, the Fed began a series of increases in its policy rate, and this sparked another crisis in Mexico, which also threatened to rapidly spread throughout the developing world. Stanley Fischer, the IMF’s then deputy managing director recalled thinking at the time that “western civilization as we knew it [was] coming to an end.”[6] The Fed rate hikes had serious negative socioeconomic effects. Spillovers, dubbed the “Tequila effect,” rippled through developing economies, especially in Latin America.[7] A $50 billion bailout package[8] ultimately contained the crisis, but the recovery in Mexico was protracted. Real wages fell 21.2 percent from 1994 to 1996, and only recovered to their pre-crisis level in 2005.[9]

There was also the 2013 Taper Tantrum, which shows the risk of spillover from changes in non-conventional monetary policy. Unlike in the previous two cases — which were caused by rises in short-term rates, this was due to an anticipated rise in long-term US interest rates, which had been pushed down by quantitative easing. The announcement of quantitative tightening in May 2013 led to exchange rate depreciation, capital outflows, falls in asset prices, and jumps in sovereign bond yields in multiple developing countries.[10] Some of the larger and more open middle-income countries — including Turkey, Brazil, Mexico, and South Africa — felt the biggest impact.

Panel Studies on Fed Policy and Negative Spillovers

There are several panel studies which demonstrate that the relationship between contractionary monetary policy by the Fed and negative economic spillovers is not limited to a few dramatic cases, but is a systematic, long-term, and serious problem that needs to be addressed.

A panel study by Iacovielllo and Navarro[11] of 50 economies from 1965 to 2016 found that a monetary policy shock from the Fed[12] of 100 basis points caused a decline in output of 0.5 percent in advanced economies and 0.8 percent in developing countries after three years. The output spillover is marginally higher for developing countries than it was for the US, where output fell by an average of 0.7 percent. Developing countries that scored higher on a vulnerability index — constructed by combining data on the current account, foreign reserves, inflation, and external debt — experienced more severe GDP contractions.

Another interesting study is by Koepke,[13] who used data from 27 developing countries from 1973 to 2014, and looked at the role of US monetary policy as a determinant of crisis. The data included 154 episodes of currency crises,[14] banking crises,[15] and sovereign defaults. The study tested three different measures of monetary policy: the “stance,” or deviation from an estimate of the neutral rate;[16] “direction” or whether the Fed was engaged in a tightening cycle;[17] and the role of “surprise,” as captured by upward shifts in implied policy rates in futures contracts. These were tested in two models, the first with incidence of crisis as the dependent variable, and the second estimating probability of crisis and also including developing countries’ domestic vulnerabilities as determinants. All three were statistically significant, with positive and economically meaningful[18] coefficients, across most specifications in both of the two models.

The results are illustrative of the strong impact US monetary policy can have on developing countries. For the second model, which estimated probability, the probability of any country being in crisis over the sample period (1987–2014) was 8.7 percent. In years when the Fed was not tightening policy, this fell to 6.4 percent, “while in a year of Fed tightening, the predicted probability jumps to 17.3 percent.” If tightening occurred when the real Federal Funds Rate (FFR) was 1 percentage point above (below) the neutral rate estimate, then the probability of crisis was increased (reduced) to 32 percent (10.9 percent). If the Fed was tightening, and there was also an upward shift in expected policy rates by one percentage point, the crisis probability rose to 40.8 percent, pointing to the importance of forward guidance in monetary policy and the dangers of surprise tightening.

The second model also identified a substantial decline in the level of crisis risk in developing countries from the beginning of the millennium. The relative risk of crisis occurring was 12.2 percent in 1987–99 and 6.2 percent in 2000–14. The most important contributions to this risk decline — explaining 4.7 of the 6 pp fall — were the reduction in external debt stocks (-3.6 pp), substantially higher reserve coverage (-0.6 pp), strong real GDP growth (-0.3), and current account balance improvements (-0.2 pp). This suggests some risks for Fed policy tightening at the current juncture. It also supports the case for international efforts to reduce vulnerabilities.

Conclusion

The Fed should exercise caution in its rate increases, not only because it could be harmful domestically (and an inappropriate response to inflation spikes that are caused by supply chain disruptions or exogenous shifts in the composition of demand — e.g., both of which are seen as major causes of rising inflation over the past year), but also because there is a robust relationship between US monetary tightening and output contractions and economic crisis in middle- and low-income countries.

In parallel, and if interest rate rises cannot be avoided, urgent action is needed to reduce developing country vulnerabilities. There are a number of reforms that could be made to the international financial architecture in order to reduce systemic risk, and make debt distress easier to manage, but these will take time and political action. A faster solution would be to shore up countries’ international reserves through an SDR allocation by the IMF. This has the advantage that it is tried and tested, and could be implemented almost immediately.

[1] https://www.ft.com/content/ad46e534-166b-4a2f-8841-5e17e109122b?shareType=nongift

[2] Compare Powell’s comments to one of his predecessors who was reported in the Fed’s records as saying in 1947 that, because of the economy’s inflationary pressures, “He thought that there would and should be a mild recession” (Romer and Romer, 1989: 137). Romer and Romer’s 1989 study found that “six of the eight postwar recessions [had] been preceded by decisions by the Federal Reserve to attempt to cause a downturn” (1989: 157).

Romer, Christina D., and David H. Romer. “Does monetary policy matter? A new test in the spirit of Friedman and Schwartz.” NBER macroeconomics annual 4 (1989): 121-170.

[3] Global Financial Stability Report, April 2022 p.41.

[4] Global Financial Stability Report, April 2022, figure 2.2, p.44.

[5] https://blogs.worldbank.org/voices/are-we-ready-coming-spate-debt-crises

[6] Blanchard, Olivier J. and Blanchard, Olivier J., Interview of Stanley Fischer (April 19, 2005). https://ssrn.com/abstract=707821.

[7] https://www.dallasfed.org/assets/documents/research/swe/1995/swe9502c.pdf

[8] Comprised of $20 billion from the US Treasury, $17.8 billion from the IMF, a $1.2 billion swap from the Bank of Canada, and $1 billion from the IBRD and IADB, with a $10 billion line from the G-7 to be issued via the BIS announced but not actually delivered.

See Boughton, J. M. (2012). Tequila Hangover: The Mexican Peso Crisis and Its Aftermath. In Tearing Down Walls. International Monetary Fund. https://www.elibrary.imf.org/view/books/071/11600-9781616350840-en/ch010.xml

[9] https://cepr.net/report/nafta-20-years/

[10] Rai, Vikram, and Lena Suchanek. The effect of the federal reserve’s tapering announcements on emerging markets. No. 2014-50. Bank of Canada working paper, 2014. https://www.econstor.eu/handle/10419/123738

[11] Iacoviello, Matteo, and Gaston Navarro. “Foreign effects of higher US interest rates.” Journal of International Money and Finance 95 (2019): 232-250.

[12] Monetary policy shocks are identified when the Federal Funds Rate is higher than what would be predicted by an estimated feedback rule which controls for current and lagged inflation, logs of US and international output, corporate spreads and the lagged values of the Federal Funds Rate and a quadratic time trend. The advantage of this rule is that it does not include estimation of the so-called R* or estimating the gap with potential output (hypothesized as exogenous rather than endogenous). The results found using this rule were robust to the monetary shocks identified by Romer and Romer, discussed above.

[13] Koepke, Robin, Determinants of Emerging Market Crises: The Role of U.S. Monetary Policy (July 26, 2016). Available at SSRN: https://ssrn.com/abstract=2814544.

[14] Defined as nominal devaluations of >25 percent y-o-y.

[15] The criteria of which being at least three out of a set of six quantitatively defined significant interventions in the banking system.

[16] The neutral rate, or R*, was estimated by using the method developed by Laubach and Williams and tracked by the NY Fed. The R* concept has been subject to critique theoretically (largely by post-Keynesians). For example, see:

Serrano, Franklin, Ricardo Summa, and Vivian Garrido Moreira. “Stagnation and unnaturally low interest rates: a simple critique of the amended New Consensus and the Sraffian supermultiplier alternative.” Review of Keynesian Economics 8, no. 3 (2020): 365-384.

[17] Defined as annual increases in the effective rate greater than 10 basis points.

[18] The second probability model is discussed more below, but for the first model looking at the incidence of crisis, for the specification (4) the baseline incidence of crisis was 1.9%, this was raised by 4.7 percentage points when the ‘stance’ of the Fed was contractionary in the prior year, 12 percentage points when the ‘direction’ was contractionary and 5.3 percentage points when there was ‘surprise’ tightening. However, the standard error for this first model was somewhat high (1.56 in this specification, which –with a sample mean of 2.6– translates into a 95% confidence interval of [-0.5 5.7]), the second model has a lower standard error (between 0.26 and 0.29 depending on the specification, and — with a mean of 0.087 — this translates into a CI of [0.09 0.43]). My calculations for the CI. Other figures from Tables 2 and 4, op. cit. pp.19, 26.

The International Monetary Fund’s (IMF) “surcharges” are additional fees imposed on countries with high levels of IMF debt, on top of regular interest payments and service charges. In punishing the very countries most in need of relief, the IMF’s surcharges are both counterproductive and unfair — and top economists, political leaders, and civil society organizations around the world have called for their elimination.

On April 15, 2022, the Kvinna till Kvinna Foundation, Arab Watch Coalition, Bretton Woods Project, and Center for Economic and Policy Research hosted a panel of experts to examine an under-discussed aspect of these surcharges: their disproportionate burden on women and girls, and adverse impacts on the fulfillment of basic human rights.

Held at the Civil Society Policy Forum of the World Bank Group-IMF Spring Meetings, “Examining the Gendered and Other Impacts of IMF Surcharges” explored the extent to which the IMF’s surcharge policy is consistent with its stated commitment to gender equality and a greener, smarter, and fairer COVID-19 recovery. Session participants included:

  • Jayati Ghosh (moderator), professor of economics, Political Economic Research Institute; University of Massachusetts Amherst, USA
  • Christina Laskaridis, lecturer in economics, Open University, UK
  • Shereen Talaat, co-director MENA, Arab Watch Coalition, MENA
  • Samah Krichah, program officer, Kvinna till Kvinna Foundation, Tunis

In advance of this discussion, Christina Laskaridis prepared a brief article on the same subject, available here.

Video of the event is available here. A full event transcript can be found below.

The following are a few key highlights from the discussion:

“I want someone to answer me: aren’t we all in a crisis now? Ukraine is one of the biggest countries that pays surcharges. I don’t know how Ukraine is going to survive this with surcharges. And you know that the MENA region is the most affected region in the world. And they are still asking us to pay surcharges. While we are saying that we are all in a crisis, not less than the pandemic, the IMF is asking us to still pay these unfair charges.” — Shereen Talaat [20:23]

“The reasons behind women’s low labor force participation rates reside in the deficit of decent work in the private sector, low salaries, a lack of national child care systems, the limited availability of safe, reliable and affordable public transportation systems, unsafe environments, and the lack of productive job opportunities that match women’s educational attainment. Austerity measures related to the debt and surcharges… are likely to further impact infrastructure, including transportation and childcare services. Put together these policies undermine women’s most important employer without securing alternative decent working opportunities… the austerity policies supported by the IMF have contributed to a decrease in social spending and increase in poverty, leaving women the most affected.” — Samah Krichah [30:16]

“The overall reduction in public services affects women’s labor time and the provision of unpaid domestic care… That’s crucial in trying to understand how surcharges and further worsening of crises might impact basic gender indicators — childcare cost, sanitation, all of those things. So it’s particularly unconscionable that in the middle of a health crisis and a pandemic, the IMF is trying to fund itself, or target precautionary balances, from these extra hidden costs.” — Christina Laskaridis [37:56]

“And I can recall that Ms. Kristalina Georgieva said at the beginning of the pandemic: ’we are going to stand and help our members by any means.’ I don’t think that collecting and harvesting surcharges from our own resources is ‘help by any means.’” — Shereen Talaat [46:22]

“I think there is this real problem that we are not bringing out the stupidity, if you like, the logical stupidity of having surcharges, because, think of it here as the IMF funding its own operations on the basis of a surcharge, which is imposed because it hasn’t done its own job properly — in other words, because countries are not repaying either on time or are supposedly taking too large a loan. So you are creating an incentive for the IMF to encourage countries to have large loans or not to actually deliver on time… It’s the opposite of what any management should be doing. So the very idea that the fund has to fund its own operations from surcharges is completely misconceived and wrong.” — Jayati Ghosh [01:03:11]

[00:00:02.830] – Jayati Ghosh

Hello, everyone, and welcome to this special session. I think it’s going to be a very important and useful session on the gendered implications of IMF surcharges. This is actually an area that isn’t studied enough. It’s not something that people know about, even people who are working on the implications of IMF programs, because it’s a relatively esoteric topic and not that many countries have been affected so far, although more and more are likely to be affected by it. Well, of course, we’re going to find out how it is unjust and unfair in many different ways, but it has implications that go well beyond the surcharges themselves in terms of impacting the fiscal policies of governments and their ability to meet the basic needs, particularly of women in the society. We have with us a very interesting panel, and I’m so pleased that we’re going to be focusing specifically on one region, because that has a significant, again, a region that is under covered in a lot of the global studies, but it is one in which the impact of this and how it’s playing out is extremely sharply evident.

[00:01:17.210] – Jayati Ghosh

So first of all, to explain to us what exactly the issue is with the IMF surcharges, how they operate, what it means, and what the implications are, we have Christina Laskaridis. She’s a lecturer in economics at the Open University in England. She has a PhD from SOAS of the University of London and has been a research fellow at the center for the History of Political Economy at Duke University. Christina works on sovereign debt, on development, on international organizations, on a range of things, and she has recently done a very important study on the impact of IMF surcharges. We have Shereen Talaat. She’s a founder and co-director of the Arab Watch Regional Coalition. She has nearly two decades of experience working with different local communities around the MENA region, not just as a filmmaker, but also as a campaigner for social justice issues and as an important player in terms of civil society in the region. She has been actively engaged in watching the IFIs and looking at the impact of their activities. And we have Samah Krichah, who is a program officer at The Kvinna till Kvinna Foundation. She is in charge of feminist economic advocacy and the acting consortium coordinator for the Fem Power Program on the BGVG. Samah holds an MSC in women, peace, and security from the London School of Economics and Political Science.

[00:02:43.730] – Jayati Ghosh

You will agree that this is a really impressive group. I’m not going to stand in the way of getting through to you. So let me begin by asking Christina to outline for us the major issues. Please go ahead, Christina.

[00:03:01.650] – Christina Laskaridis

Okay. Thank you. You’re on mute, Jayati.

[00:03:05.870] – Jayati Ghosh

Yes, I’m sorry, I should also have mentioned there is simultaneous translation available into Arabic and from Arabic into English. Please go to the globe on the left bottom of your screen, there’s a little globe icon. If you press that, you will get the language that you can use.

[00:03:24.330] – Shereen Talaat

Allow me to translate this to Arabic first. Jayati.

[00:03:26.940] – Jayati Ghosh

Yes.

[00:03:27.500] – Shereen Talaat
[00:03:44.890] – Jayati Ghosh

Thank you very much, Shereen. And now let me request Christina, please, go ahead.

[00:03:51.910] – Christina Laskaridis

Okay. Thank you, Jayati. Big warm welcome to everybody. It’s a great honor to be part of this distinguished panel. Thank you for the opportunity to be here. I’ll be just introducing laying out a little bit of the scene about the IMF surcharge policy. What was once very little known, but gradually has gained a sort of campaign to eliminate this policy has gained steam with everyone from economic justice organizations, Nobel Prize economists, and members of the Congress increasingly calling for their elimination. So I just want to provide a bit of background. The IMF, as we all know, provides loans and financial assistance to countries with balance of payments problems, subject to a host of economic reforms and other types of conditionality that lead to well-known, devastating impacts. These loans are anyway subject to a range of fees and interest rates. On top of the regular borrowing costs are surcharges, which the IMF levies on its regular lending. And what I mean by regular lending is on its non concessional loans, which typically go to middle income and high income countries. So these surcharges are sort of hidden. They’re very opaque. The IMF doesn’t publish country by country information about them, which is why they’ve been little studied.

[00:05:30.200] – Christina Laskaridis

And they’ve evolved from the Southeast Asian financial crisis in the late 90s in a number of different ways. Currently, there are two types of surcharges imposed on IMF loans, ones that relate to the size of the loan and those that relate to the length of time that the loan has been outstanding. So the bigger the loan, there’s an extra surcharge. The longer that the loan is taken out for, there’s an extra surcharge. This is deeply problematic because typically large loans that are needed for a long time are needed by those countries in deep crises. So you end up paying more, the more you need to borrow from the fund. So this is a punitive costs that we’re going to be talking a lot about sort of different impacts that it has. But just to give a sort of rough sense, and I think this will be talked about in detail further on. The five largest borrowers of the fund currently make up the bulk of the surcharge income, which in and of itself is approximately half the IMF’s operating income. So the five biggest borrowers are contributing almost half of the IMF’s operating income in these hidden extra surcharges.

[00:06:45.710] – Christina Laskaridis

So what’s the rationale for them? The main rationale, ostensibly, and according to the fund, there’s multiple reasons that the fund argues these are necessary. The first is to disincentivize the large and prolonged use of fund credit, so to make it less appealing for countries to borrow from the fund. The other is to encourage early repayment. So the idea that by charging extra fees on top of existing fees, countries will be motivated to repay those loans early. A third reason that the IMF imposes the surcharge is to manage its own credit risk. So the idea that when there’s a high lending cycle, the IMF imposes more surcharges to sort of gather some protection of its own and to build up precautionary balances while it does. So let’s look at these rationales one by one. In almost all cases, when countries are in crisis and they borrow from the fund, they’ve been priced out the markets and they usually have nowhere else to go. So there is an insufficient financial safety net for countries in need due to the hierarchical structure of the international financial and monetary system. So by going to the fund, countries unwillingly have to give over a lot of sovereignty over their policies, instituting oftentimes a pro cyclical contractionary austerity program.

[00:08:15.000] – Christina Laskaridis

A country doesn’t need surcharges to be disincentivized from borrowing from the fund. So the reform plan itself domestic political and gross socioeconomic costs and inequalities are usually bad enough. So this argument doesn’t really hold water. The second argument, which is about prolonging, sort of disincentivizing prolonged use and encouraging early repayment. There are very few instances where countries have repaid early, only eight since 2009, and a lot of those most of the times the rationale for early repayment is not for surcharges. It’s because of the political stigma that’s attached to IMF borrowing and the desire to be rid of being under the tutelage of the fund and under an IMF program. The other thing is that the IMF doesn’t depend on early repayment in order to provide its own loans. The firepower, which the IMF boast is close to a trillion, doesn’t depend on this. It depends on the quota — so the paid in capital that countries pay to the fund, as well as new arrangements to borrow and bilateral borrowing arrangements. Despite the very large lending firepower that the IMF has wanted to popularize and sort of proudly popularized, it’s only used a very small portion, despite the size of the crisis of the pandemic.

[00:09:39.210] – Christina Laskaridis

So countries should be rewarded for repaying early and not be penalized with surcharges for paying according to schedule. The third argument is about the funds credit risk. So the idea that by making many loans, the IMF’s credit risk is at risk. What this really fails to recognize is the IMF’s role in the global financial monetary system and the role that it plays when countries face their repayment difficulties. Given the tight noose around its borrowers and in the context of what is a very faulty dysfunctional sovereign architecture, IMF loans are always repaid, which is why it’s considered a senior preferred creditor. So the idea that the IMF faces sort of a great credit risk again ignores what’s really happening. And the final point is the idea of the IMF relying on surcharges as an income generator. So the idea that it needs to charge these hidden extra fees to accumulate precautionary balances it’s, what it’s saying is that it’s relying on those in deep, deep crisis to fund itself, which is deeply, unethical and also against the IMF’s mission. Its regular charges can very well cover its own expenses. And it doesn’t need these surcharges to operate.

[00:11:10.030]

So I think the final thing that I just want to say just about the kind of structure of surcharges in the role for the fund is that it would be very unlikely that these surcharges would be in place if the governance issue at the heart of the fund was sort of more obviously addressed. Middle income countries are the countries that are paying the bulk of surcharges, and they’re misrepresented disproportionately at the fund’s governance structure. We can talk about this more as we go on with this panel, but I think I’ll close it there for what surcharges are and what the rationales for them have been. And we can go on to their impacts more generally, but also on women and girls. Thank you very much.

[00:11:56.410] – Jayati Ghosh

Thank you so much, Christina, also for being so clear and brief. And so now let’s move on to Shereen, who is going to tell us about some of the implications of this in the Arab region.

[00:12:10.270] – Shereen Talaat

Thank you, Jayati. Thank you, Christina. And thank you to all the audience here. Again, I want to translate into Arabic. [inaudible 00:12:15] [in arabic] I’m Egyptian, live in Morocco, my organization operates in Jordan and the MENA region. So I live in between the brackets of surcharges, which is very unfair and very unjust and unfair is our reality in the MENA region. The problem is that not only those surcharge are unfair, not only the MENA region for all the borrowers that they surcharge, but also they raise inequality between countries and violates the international law of human rights. The surcharges allow the IMF to play the role of the global lender, especially in the time of crisis. But you will find that it’s an admission that the middle income countries, borrowing countries are paying the big part and share of surcharges and have been left out of measures of mitigating debt disaster or actually the fact of financing the IMF operations to help low income countries. So imagine that Egypt are paying surcharges to help Yemen and Djibouti, Tunisia, that is in the middle of a big crisis. We all know about the case in Tunisia are paying for the IMF to help other low-income countries.

[00:14:25.700] – Shereen Talaat

And the problem is that us as a middle-income countries, by paying the surcharges and that put us under a lot of pressure, can lead us to be also low-income countries. Paying those extra fees directly affects the potential growth and reduce the public investment in social sectors such as education and health and development. That means the countries will spend a lot from their resources and pay surcharges, not to reduce inequalities and poverty. And that was very clear during the Covid time and access to education and public health sector during the pandemic. They covered access to public health sector and education for vulnerable groups, which also includes the gap and raised inequality. So it’s actually here the surcharges and this policy, the IMF was investing in raising the gap and raising inequalities. Paying surcharges by diverting hard currency from countries when they most need it weakens the capacity of those countries to face crisis and put development and equal policies in place.

[00:15:54.750] – Shereen Talaat

You will find according to the International Covenant on economic Social and Cultural rights, Article two, states must generate adequately allocate and make use of maximum and of their available resources to move as effectively as possible towards achievement of full realization of human rights. International financial institutions should ensure that the terms of their transactions do not undermine the borrower state’s ability to respect and protect and fulfill its human rights obligation. And I know that the IMF doesn’t speak the human rights language, but speaking the language that the IMF understands actually surcharges is going against the sustainability of debt. Yesterday I was speaking with my colleague Amy about the same topic. And as you all know, we all take loans from different banks to be able to move onwards with our lives. But she actually draw my attention to the very important thing that the IMF with the surcharges are acting against its own entity by acting like commercial banks, commercial banks who are to take a very big amount of interest from the most in need. This is what is surcharges. In the case of Tunisia, for example, nowadays because there is a new loan that was discussed that is in the guideline. Of course, because of the situation, this loan will be for a long time, more than 35 months and it will be a huge amount. So the main [textures] of charges will be there for Tunisia to pay, and we call this rescue.

[00:18:09.190] – Shereen Talaat

The problem is that is putting Tunisia more in depth of the debt burden and this goes too much against the sustainability of debt. We know that without having different measures, without eliminating this policy, Tunisia cannot pay this amount of money. For example, now Egypt and Tunisia. Egypt is expected to spend around 1.8 billion on surcharges between 2019 and 2024, which is three times the US the six or 2 million. I cannot even pronounce the number. It’s very big. It is the cost to fully vaccinate all the Egyptians. For Tunisia, surcharges added to roughly a third of their entire health sector fiscal effort during the pandemic. Tunisia has to pay more than $44 million in surcharges between 2021 and 2026. Surcharges increase IMF borrowing costs by 26.9%. And Tunisia is negotiating a new program now potentially application of surcharge and additional debt. A part of being aligned with their own policy and their own statement and we can hear the IMF, especially after the pandemic speaking about post-recovery policies to recharge actually not only goes against the post-recovery policies and we all hear the IMF saying that they need broader effort to fight economically Covid countries need to navigate the monetary cycle. Countries need to shift their focus to fiscal sustainability. But still, countries need to pay surcharges, especially the most in debt countries, the most in need countries for rescue.

[00:20:37.190] – Shereen Talaat

And I want someone to answer me, aren’t we all in a crisis now? Ukraine also is one of the biggest countries that pay surcharges. I don’t know how Ukraine is going to survive this with the surcharges. And you know that the MENA region is the most affected region from the world also. And they are still asking us to pay surcharges. While we are saying that we are all in a crisis, not less than the pandemic, the IMF is asking us to still pay these unfair charges. And I want to refer a campaign was launched last week, 160 organizations around the world from different regions sent a statement to the board of directors and ask to eliminate immediately the surcharges. And you can see the statement here in the chat. If you want to check with the language, you can join the effort, too. I will stop here and wait for the other round. Thank you, Jayati.

[00:21:55.910] – Jayati Ghosh

Thank you so much, Shereen. That was also extremely important and pertinent. And so now Samah is going to draw out some of the gender implications of these broader macro processes. We know that no policies, fiscal or otherwise, are gender neutral. And, of course, how this plays out, the fact that governments have to pay surcharges impacts, again, the patterns of spending and their ability to meet citizens rights. So, Samah, please.

[00:22:23.630] – Samah Krichah

Yeah. Thank you very much. I’m really glad and honored to be in this panel today. And I would like to thank Christina and Shereen for their amazing presentations. And many of the points that I will be talking about will be based on Shereen’s points that she raised about Tunisia. And my presentation will start by briefly presenting Kvinna till Kvinna and the work that we have been doing regarding international financial institutions, including the IMF. And then I will draw an overview of the current situations now in Tunisia and talk a bit about why women pay the price of austerity measures and tax surcharges, et cetera. And if time allows, I will give some recommendations. So the Kvinna till Kvinna Foundation promotes women’s rights in conflict affected countries and in the Middle East especially. We support 150 women’s rights organizations across the world. In Tunisia, we partnered with eight women’s rights organizations and social justice organizations. It is at the core of Kvinna till Kvinna to provide long term support to the feminist movement in order for them to be able to work for sustainable change in gender norms and practices and for women’s rights.

[00:23:44.930] – Samah Krichah

In 2019, we published a report called Maintaining a Role for Women’s Rights Organizations in International Development Finance and one of the findings or the comments that we came up with was that the IMF and other international financial institutions have increasingly recognized that gender equality is a precondition to sustainability, sustaining peace and poverty reduction. IFIs in general have Additionally increased efforts to close the gender gap through development lending, investment projects and research through a range of gender equality strategies. Simultaneously, IFI’s formally implements the ownership principle as set up in the Paris Declaration on Aid Effectiveness, emphasizing the critical role of, example, Parliaments and civil society organizations in ensuring ownership of and feeding into development processes. In order to ensure the latter, IFI’s have each set up dedicated CSO and citizen engagement strategies through which they engage in information sharing, policy dialog, consultations and institutional partnerships. These processes remain ineffective and we will get back to that later. The same report

[00:25:00.050] – Jayati Ghosh

Could you be a bit slower Samah because it’s very fast for the interpreters.

[00:25:06.470] – Samah Krichah

Okay. In the same report, we have identified that in the MENA region, the lack of gender perspective in IMF loans and programs, as well as the lack of influence on the policies from women’s rights organizations is one important factor to hinder the work for more gender equal societies in general, and that in order to bridge that gap, more effort on both sides, especially from the IMF, to reach actors on the ground and seek reliable information on the impact of its policies on the daily life of women is needed, and we will get back to this later. A brief history of the IMF policies and impact in Tunisia and many of these informations come from an amazing Oxfam report called The Gendered Impact of IMF Policies in MENA. We realized that in the last decade, Tunisia has two IMF loan deals, one in 2013 with 1.7 billion and one in 2016 with 2.8 billion and these two loans have done little to fix the country’s public finance. The Coronavirus pandemic almost smashed the Tunisian economy with a deep recession that sent 80,000 small and medium sized firms into bankruptcy or out of the country since 2020. Over the same period, unemployment rate has surged from 15.1% to 18.4%. Knowing that the unemployment rate for women reached 24.1%, inflation rates destroyed people’s buying power. Official inflation rate is around 6.53% while perceived inflation rate is around 25% and reaches 35% for certain products. In addition Tunisia’s GDP has dropped by 1/5th since 2011 and the public debt is at an unprecedented level, over 100% of gross domestic products.

[00:27:18.450] – Samah Krichah

People in Tunisia in general think that the inflation comes from the government, while it comes mainly from IMF conditions and austerity and public mismanagement of the successive governments in Tunisia even before the revolution of 2011. For example, now [inaudible 00:27:38] and other society organizations. [inaudible 00:27:41] is a watchdog organization in Tunisia launched the campaign entitled that Stop the Debt Trap, which aims at explaining in simpler terms the impacts of such policies on the daily lives of people. Tunisia also has witnessed in the past several uprisings related to inflation rates and increases in the price of basic products. The most famous one of them is the bread riot in December 82 and January 84. This riot led to the death of around 100 people, but also to the price of bread back to what it was. What it meant by this is that any further increase in the cost of living of Tunisian people will lead to further unrest that can lead us to the unknown.

[00:28:30.250] – Samah Krichah

The latest negotiations for Tunisia deal is likely to demand an end to subsidies on energy, with some funds instead distributed directly to the poorest families as cash. This constitutes a problem in itself since in Tunisian law, men are still the heads of the family and in consequence they are the ones that will receive the funds like it was the case with small support funds distributed during the Covid pandemic. This does not guarantee in any way that the money will go towards paying the expenses of the wife and children. Further cuts on subsidies and structure austerity measures will very much influence the Tunisian society and in particular the opportunities for women. For example, the IMF, which has a record of demanding painful cuts to public spending, is likely to condition a loan on slashing the state’s wage bill, which is one of the highest in the world relative to the size of the economy. However, when women tend towards employment in the public sector for relatively [inaudible 00:29:36] conditions in comparison with the private sector and informal sector, the public sector is undergoing major downsizing as a result of cuts to spending also promoted by the IMF. Such reforms should be sought in ways that do not undermine the likelihood of most people working in this sector, especially women.

[00:29:56.590] – Samah Krichah

The IMF also calls for an increase in women’s labor force in Tunisia, but it has missed the opportunity to promote policies to address a severe lack of decent work conditions. In general, women in paid work face double inequality since they are often found in the lowest paid jobs with the least job security. The reasons behind women’s low labor force participation dates reside in the deficit of decent work in the private sector, low salaries, a lack of national child care systems, the limited availability of safe, reliable and affordable public transportation systems unsafe environments, and the lack of productive job opportunities that match women’s educational attainment. Austerity measures related to the debt and surcharges, as Shereen explained, also are likely to further impact infrastructure, including transportation and childcare services. Put together these policies undermine women’s most important employer without securing alternative decent working opportunities. In the past as well, the austerity policies supported by the IMF have contributed to a decrease in social spending and increase in poverty, leaving women the most affected. For example, in Tunisia between 2011 and 2019, the share of funding for education in the public decreased from 26.6% to 17.7% and the share of health expenditures declined from 6.6% in 2011 to 5% in 2019. This again was before Covid.

[00:31:37.520] – Samah Krichah

IMF has rarely supported an increase in corporate and income taxes, but has consistently supported the increase in indirect taxes VAT or removal of VAT exemptions on basic cuts. These measures increase both economic and gender inequality. These cuts in public spending are likely to be compensated for by an increase in women’s unpaid care work, reducing their time for paid work, leisure and rest. And knowing that according to a 2022 Oxfam report, women spent 8 hours of care work daily versus 45 minutes for men per week. In addition, the heavy focus on privatization programs leaves little room for implementation of human rights standards and in some cases, sets back the attainment of gender goals. Gender and women’s rights are not explicitly included in the text of IMF country frameworks, and if they are, there is no explicit gender targets. IMF gender strategies have evolved over the years, but the level of gender mainstreaming remains limited in practice due to the lack of capacity in country offices and the capacity to reach the right persons and organizations on the ground who are not the usual suspects. The IMF has a CSO team, but for its investment, CSO consultation is not mandatory and the IMF fails to incorporate a specific gender safeguard explicitly to guard against and proactively address negative gender impacts, and safeguards do not apply to policy based operations.

[00:33:27.930] – Jayati Ghosh

Samah, are you nearly done? Because then we can go out to the second round.

[00:33:31.890] – Samah Krichah

Yes, we can go to the second round if you.

[00:33:34.830] – Jayati Ghosh

No, I don’t want to stop you. Please finish what you were planning to say.

[00:33:42.090] – Samah Krichah

No, I can talk about the rest in the second round.

[00:33:45.490] – Jayati Ghosh

Okay. Thank you so much, because I think we’ve already got a wealth of material. I also want to encourage all the participants to please put your questions into the chat box, or if you would rather ask the question directly, which would be nice for us as well. Please do just mention Stack in the chat and we’ll call on you. So thank you so much. I think we have now a broad overview, and I’m going to just ask a couple of questions to each of you just very briefly to try and bring all of this together. So, Christina, I think one of the very important points that you’ve raised is about the fact that these are deeply procyclical. And this is something that Shareen also brought up, that this goes against the IMF mandate of coming in with countercyclical lending. I’d like you to talk specifically about how this is something that adds to pro-cyclicality in countries where the length of loans is large, not for reasons of their own doing. In particular, I’m thinking now of country outside the MENA region, but, you know, Argentina, because the nature of the IMF conditionalities is rather weird. They impose conditions on governments to spend less and so on, but they don’t do anything to restrict capital flight. So the famous or rather infamous loan to the Macri government in Argentina, the largest loan in IMF history, did not put in any specifications to prevent capital flight. And Argentina lost the entire amount that it had borrowed in capital flight, such that the next government was forced to go back to the IMF and to pay surcharges on the loan that could not be paid. So perhaps you would like to comment a little bit more on that.

[00:35:41.410] – Christina Laskaridis

That’s great. Thank you, Jayati, for your questions. And thanks to the previous speakers as well, for really laying the scene and the context in the different regions. I think one of the main points that’s already come out in the conversation and in the previous presentations, but it’s worth highlighting in terms of the procyclicality, is that debt crises obviously constrain developmental prospects and undermine the capacity of countries to fulfill realization of human rights, to ensure adequate sort of access to basic services. That happen anyways. So when the IMF is imposing surcharges on top of other fees and the loan itself, it’s extracting more from the country, reducing the ability of that country to pay furthermore. By further funneling out further hard currency funds, you’re actually reducing the ability of that country to repay. That has exactly the opposite effect of what the IMF loan is supposed to be doing because you’re further reducing growth, you’re further reducing available resources for investment, and you enter this sort of downward spiral of a recession, depression, contraction, which is the usual effect of a contractionary program. That really ties into the point you were making about capital flight as well.

[00:37:20.030] – Christina Laskaridis

So just going on to that, this point really ties into the gendered impact. All of the macroeconomic policies that the IMF implements are not gender neutral and surcharges is no exception. And one of the things that I wanted to link back to is it’s not just in the conditionalities that the IMF imposes that may, for instance, affect sectors which are more heavily gendered, say a certain type of public sector job, it’s that the overall reduction in public services affects women’s labor time and the provision of unpaid domestic care. So in any sector where you weaken public provision of goods or you’re in an environment where basic services such as access to clean water, transportation, anything that is the sort of host of reforms that the IMF will target, will affect unpaid female household labor. That’s crucial in trying to understand how surcharges and further worsening of crisis might impact basic gender sort of indicators, childcare cost, sanitation, all of those things. So it’s particularly unconscionable that in the middle of a health crisis and a pandemic, the IMF is trying to fund itself or target precautionary balances from these extra hidden costs. I just want to turn back to the governance issue, which has already been talked about a bit earlier.

[00:39:16.310] – Christina Laskaridis

Both of the previous speakers really made the point very forcibly about how countries in crisis are being asked to pay for the IMF’s operations. Middle income countries are grossly underrepresented on the fund’s board. So they are significant in size of world economy, but that is not represented in the governance structure of the fund. That’s something that not only civil society organizations, but the G77, the G24 have been calling for a long, long time to seek adequate quota reform at the fund. That disproportionately affects middle income countries because the size of their loan, they’re unfairly hit by surcharges because by needing loans, a larger portion of that loan is subject to the surcharge. If they had bigger quotas, a smaller portion of the loans would be subject to surcharges. So there’s a real need for reform there. And the review that’s coming up should really sort of put a suspension on these policies with view to eliminating them altogether. I’m not sure if you want to ask anything more, Jayati, or if I should go on some more, but I’ll just pause it there for a minute.

[00:40:30.510] – Jayati Ghosh

Well, we’ll come back to you, Christina, I’m sure. So thank you very much for that. I want to take an aspect of what you just said and link it to what Shereen has been saying. What is really interesting about this? Yes, there’s some economic mismanagement which has caused countries to be in crisis, but increasingly, countries are getting into crisis for no fault of their own, for global economic conditions, right. And that’s absolutely true of the pandemic, but it’s also now true of the Russia-Ukraine war, which has dramatically impacted food and fuel prices and is further worsening the balance of payments conditions of many developing countries. So in a sense, Shereen, you know, the point you made about these surcharges coming to countries that already cannot bear them, it’s worsened today. I think it’s something that should be addressed, perhaps even by countries that are not currently paying IMF surcharges because they’re going to end up paying them very soon, simply because global economic conditions are making it harder and harder to repay the existing debt. So what are your comments on that?

[00:41:42.150] – Shereen Talaat

This situation make me stand with my mouth open because, for example, I recall that Ms. Christine Lagarde, the former President of the IMF, at the anniversary of the [inaudible 00:42:06], she said that it’s time to have a new social contract. A new social contract means we all need to be happy because of what happened in 2011 and the Arabic Spring, people went to the street because they were saying we need social justice and bread and freedom, of course. So what we are seeing now is against all of this. It’s against any social contract, especially that the pandemic was a time for all the humanity to stand up together for ourselves. But what is happening is the poor is more poor and the rich is more rich. Actually, the IMF itself was benefited from the surcharges during the pandemic for around $2 billion. And I paid some of that $2 billion as a citizen. And I still suffer from lack of health services. I still suffer also as a middle class from the target policies of the IMF that is applied in our countries. And as a mother, I cannot have a proper education for my children. So it’s like a cycle of unjust that we are living under.

[00:44:11.870] – Shereen Talaat

And the most thing that is really very strange that again, that the IMF is going against its own statement. Article one, for example, allow me to read and give the audience an idea of, article one is “to get confidence to members by making the general resources of the fund temporarily available to them under adequate safeguards that’s providing them with opportunity to create maladjustment and their balance of payment without restoring measures destructive of national or international prosperity.” And what is happening now. What is happening now with the surcharges is against this statement. And as Stiglitz has said before, the IMF is going exactly against what the IMF is supposed to be doing. And this is the reality that we are facing now, not only in the region but the whole middle-income countries, the whole borrowers. Now during the pandemic, the countries that is being surcharged with raised from nine to 16. But in the future, like 2025 or more, they will be raised according to the IMF to 38 countries. That means not only Egypt, Tunisia, Ukraine, Argentina and Jordan, but also Morocco will come next. I’m thinking about maybe the whole region will come next. The whole MENA region will come next, the whole middle-income countries that are in a deep crisis. And what is happening now in Ukraine is affecting everyone in the world, especially the most poorest countries, the countries who are already in crisis. It’s not fair. It’s not just at all to live under those conditions. And I can recall that Ms. Kristalina Georgieva said at the beginning of the pandemic, “we are going to stand and help our members by any means.” And I don’t think that collecting and harvesting surcharges from our own resources is help by any means. Thank you.

[00:46:48.740] – Jayati Ghosh

Thank you. Yes. Thank you so much, Shareen. That’s very sort of striking and I would say strong statement about this. Samah, I would just want to take you up on the gendered impact I think you outlined very beautifully and so also did Christina, the impact on the care economy and the unpaid work of women, which comes about because of the reduction of public services. But almost more critical today is food. We are really facing a hunger crisis, I think across the developing world. And we know that this is often very gender differentiated. If you could talk a little bit about how the need to pay surcharges affects fiscal capacity to compensate for these dramatic food price increases.

[00:47:33.250] – Samah Krichah

Yeah, actually, the situation that’s a very good question because the situation in Tunisia is very critical and we cannot really trace the causes of this because some of it is linked to the war on Ukraine because of the lack of, for example, wheat and flour, et cetera. But many of it come from an inability of the country to pay for importing goods since we do not have food security in this country because of other reasons.

[00:48:13.690] – Jayati Ghosh
[00:48:16.390] – Samah Krichah

The country is not able now to pay salaries for public sector in general without getting loans. And the public sector is the biggest employer in this country. Second, there is a severe lack in cooking oil, in flour, in rice and eggs for months. Right now, there is no single pack of flour in the supermarkets for individuals. Some restaurants can get some flour with their own ways. But for individuals and I’ve never seen this in my lifetime, this never happened after the independence maybe. Anyways. And what this means is that we are going slowly towards hunger affecting lower classes and women, especially because women are when it is proven in instances of wars, for example, or crisis or economic crisis, that women tend to have very unhealthy coping mechanisms, cutting their own food portions to give to their families, go out and have unsafe jobs, for example. And this is going up into the class ladder in a bit. Before, it was like the poorest people. Now a lot of low and middle class women are going out on the streets and collecting trash, for example, to make ends meet. So, yeah, I don’t know where we are heading right now, but the impact seems to be more and more dangerous.

[00:50:20.850] – Jayati Ghosh

That’s a very depressing outlook. And I’m going to open it up to audience questions. We already have a couple that is from Mohammad and I think go to ask him to come up with his question. But before that, Monica has a quick comment. Go ahead. Monica.

[00:50:43.690] – Monica Erwer

Yes, can you hear me?

[00:50:45.590] – Samah Krichah

Yes, thank you.

[00:50:46.550] – Jayati Ghosh

We can hear you.

[00:50:47.890] – Monica Erwer

I just had a general comment because just from the gender strategy discussion that was the other day on the new upcoming IMF strategy, gender strategy. And that was, many of you were there. But for you who wasn’t, I just wanted to mention that Mariana Williams said that what is important is not fixing the gap. It is actually to do some proper transformation. And I thought that was such an excellent expression. So I just wanted to leave that here because I think that it’s the same when we talk about surcharges or whenever we talk about a gender strategy, that it’s a matter of transformation and not fixing the gender gap. Thank you.

[00:51:41.110] – Jayati Ghosh

Absolutely right, Monica. I’m completely with you on that. So Amy has asked a question about when the IMF actually introduced the surcharges. I’m going to leave it to Christina to talk about that history. But before that, maybe Mohammed, would you like to give your question or should I read it out for you? Would you like to come and speak yourself, please? Hi, Mohamed. Are you there. Okay. If Mohammad is not coming, let me actually read out his question, which is broadly, he’s expressing that these opinions are shared by everyone who rejects these borrowing policies. But for countries, especially in North Africa, in the Middle East, there is no solution to achieve growth and financial equilibrium, if not for debt, even to the detriment of the social sector. So what is clear is that the international financial institutions are taking advantage of this need and are beginning to blackmail countries even by imposing conditions and adding fees that strain countries budgets. The question, in my view, is how to deal with the greed of the international financial institutions and adopt a just international financial policy that takes into account the particular situation in which the sources of energy are lacking in countries like ours. He’s from Morocco.

[00:53:05.590] – Jayati Ghosh

So I’m going to once again go back to the same order, if that’s all right. And then I would like to move the discussion in the next round, perhaps to what we can do, what not just the IMF should be doing, which we I think are pretty much clear it should not be imposing surcharges. But I think now we are a group of likeminded people who all agreed that they should be removed. What do we do? But first, Christina, perhaps you could answer the factual question and then talk about the broader issue.

[00:53:38.330] – Christina Laskaridis

Okay. Thanks. Yeah. I’m noticing that there is a bit of discussion in the chat at the moment. We can definitely share a whole host of resources about surcharges that have come out in our report with CEPR that has useful information. So just to answer, Amy, they were introduced as part of the Southeast Asian financial crisis in 97 with the establishment of the Supplemental Reserve Facility. They were basically level based charges, so charges that are based on the size. But there was also this kind of complicated it wasn’t quite time based. It was a repurchase expectation policy that was introduced where the member could request an extension to the maximum allowed under the repurchase obligation schedule. So there was sort of a complicated arrangement of surcharges that differed according to maturity, which facility you’d borrowed from. And that’s why in 2009, so about a decade after they were initially introduced, they were streamlined and allied across all what’s called the GRA facility, which is the GRA account facilities, which is non-concessional borrowing of the fund to sort of simplify the structure and create these two kind of clear types, level and time, which the actual size of the level and time was then changed again in the 2016 review. So initially they were slightly higher and they were reduced to 187% of quota in the 2016 review from 200% from the 2009. And the same with what’s considered a prolonged use of fund credit is sort of dependent on which facility you’re borrowing from. So this is all like technical information that you can find in these sort of resources and reports that have been made. I guess one thing that’s important to note is that the level of surcharges is very much aligned to how the IMF sees its sort of target precautionary balance and reserves that it wants to accumulate and its whole sort of funding structure model, which I think is really the basis of what we’re criticizing. And that’s how we should be seeing the sort of role that surcharges are playing as part of the IMF’s funding arrangement. Thanks.

[00:56:09.330] – Jayati Ghosh

That’s a very important point. And I think it provides an excellent base for country directors in the IMF who are against the surcharges to be critiquing it in the board as well. So, yeah. Now let’s go on to Shereen to respond to the broader question that Muhammad raised.

[00:56:34.930] – Shereen Talaat

Allow me to answer Muhammad in Arabic. And thank you for our interpreters here. You are doing a very good job. I’ll try to speak slowly for everybody to understand.

[00:56:56.630] – Shereen Talaat

The greed of the international financial institutions. In fact, we shouldn’t or in fact, this theory on which those institutions were built and these financing of institutions, they should not be at that level of greed, but there should be stability of the market. This is their role to make more stability. But however, what happened is that in practice, the criteria and institutions such as the institution we are talking about, which is the surcharge of this institution, in my opinion, is greed. And this is not fair at all. And what we can do at this point is that we push towards to do all efforts possible in order to push towards the same topic and to try to have our voices heard and follow all means and ways to make our voices heard in order to eliminate these unfair policies, especially the surcharge, which is not fair. And we already pay interest on the loan. So imagine that this is interest on the interest of the loan. So we pay more because we are more in need. Instead of spending this money on sectors that are vital sectors in themselves, we try or at least we are trying to catch up with development. On the contrary, we become poorer and poorer. So I would say that there was a campaign was launched, and this campaign has sent a letter to the executive directors of the IMF, the executive directors and representatives of the countries asking this letter includes all the recommendations or demands requesting them to abolish this unfair surcharge. And we will need to talk to the granting countries. We will tell them, the donor countries, we need to tell those donor countries that we need to be at the same level as they are, at least.

[00:59:53.230] – Samah Krichah

Okay, from my perspective, as someone who works on gender, this is so unfair, but it’s not surprising because women have been suffering from disproportionate impact of all economic policies that are seen to be gender neutral, but they are not and what Muhammad is talking about is more of an intersectional question that he is raising regarding that in the sense that we need to know how this came to be, why we came to be poor countries and developing countries, and second, how this is used to make us poor and to prevent us from spending money on human development. If we are prevented to have money for health, education, transportation, et cetera, there is less likely people in general to get access to education, to jobs, to wealth, et cetera, to create their own decent life and to move up the scale of [inaudible 01:01:27] women are hindered and they are facing double injustice from that in the sense that whatever men are suffering, women are suffering double of it because of societal values and economic policies.

[01:02:07.010] – Jayati Ghosh

Thank you, Samah. So, Amy has, I think, a very pertinent question. If the surcharges have been going on now for more than two decades, why are we protesting only now what has caused the current outcry? And I think this is a very good question because it also relates to the broader question of what we do about it. And if I can impose my view and then get your reactions to this, I think one of the big reasons is really lack of awareness. I think when the surcharges were first introduced, they were imposed, or it began to be imposed in the early 2000s on countries that were relatively few in number and didn’t have too many other things to worry about then to bring this up as a particularly unfair issue. I think even now they are relatively little understood. And because it is still a minority of countries that pay it, most countries, even those who go to the fund, don’t see it as their problem. Whereas in fact, it will very soon become their problem, I suspect. Samah, I’m going to come to you to respond just now. Finally, I think there is this real problem that we are not bringing out the stupidity, if you like, the logical stupidity of having surcharges because think of it here is an IMF funding its own operations on the basis of a surcharge, which is imposed because it hasn’t done its own job properly. In other words, because countries are not repaying either on time or are supposedly taking too large a loan. So you are creating an incentive for the IMF to encourage countries to have large loans or not to actually deliver on time. It’s a complete case of what economists would call incentive incompatibility. It’s the opposite of what any management should be doing. So the very idea that the fund has to fund its own operations from surcharges is completely misconceived and wrong. And so that also should be a basic element of the protest that is made in the IMF board. But, Samah, you wanted to respond.

[01:04:09.650] – Samah Krichah

Yeah, I wanted to respond to Amy because from my perspective, other panelists can have other ideas on this, from my perspective is that economy in general is a taboo question for normal people, for all citizens. They think it’s like an elite kind of language and it’s not accessible, et cetera. And the work that, for example, Arab Watch Coalition has been doing and other organizations in Tunisia is extremely valuable to explain to citizens that they have a say on economy. And I think the surcharges conversations now we heard about it because more and more people are talking about it because before that it was negotiated behind closed doors with governments and IFIs.

[01:05:10.970] – Jayati Ghosh

Shereen wants to come in as well. Please do Shereen Yes.

[01:05:15.530] – Shereen Talaat

I totally agree with Samah, but there is a factor that we cannot ignore. Maybe Christina also can illustrate this a little bit. Some countries don’t know actually that they are being surcharged because it doesn’t come out in the staff reports. They don’t speak about surcharges that we are paying in the reports. So it’s a huge problem. And I guess the first review was about surcharges, about this specific term was in 2016. So yes, we just knew about surcharges when crisis happened. And because we were digging and my colleagues myself digging on how to get out of this crisis. And here’s the surcharges. And actually there was, I believe last year there were a question in the Congress about surcharges. So for us, it’s very new, but the policy itself and the money that we are paying are not new at all. Thank you.

[01:06:26.500] – Jayati Ghosh

Yes, I think we also have to thank the government of Argentina and Martin Guzman, the finance Minister in particular, for bringing this out in the international fora as well. But yeah, Christina, would you like to add to that?

[01:06:40.670] – Christina Laskaridis

I was just going to say the same. I think the countries and those negotiating who’ve really brought the issue on the table, who’ve had to renegotiate programs whilst also being subject to huge surcharges, and Martin Guzman brought that really forcefully to the fore really of public discussion. And I mean, it is quite staggering. Argentina itself will be paying a huge amount, one of the biggest payers of surcharges. So there are people in the audience that I’m sure know a lot more about also Ukraine’s situation and how stubbornly the IMF refused to sort of integrate and alleviate sort of a relief on the surcharge policy whilst trying to arrange financing for Ukraine at the same time, one thing I wanted to just add was just from a recent review, just about the status quo on how small it is, quite a small proportion of countries that borrow from the GRA that are subject to these charges. So for level based, it’s 16 countries and 2021 out of a total of 53 that are borrowing from that account. And for time based, it’s five. So the portion of countries is quite small. But with the IMF’s lending sort of cycle predicted to rise because the pandemic that’s only going to grow.

[01:08:15.750] – Christina Laskaridis

The other thing is that there is, despite the stubborn refusal of certain powerful members of the board to not change the surcharge policy, there are directors. I think there was a discussion about lobbying particular ED’s on this issue. I’ll point to a review from the end of 21 on the adequacy of fund’s precautionary balances, which mentions that some directors were in favor of considering an alleviation of the surcharge policy in light of the pandemic. And were in favor of a sort of holistic review. And that’s, I think, where the sort of push needs to come really on those people who are sort of willing to look at that.

[01:09:03.970] – Jayati Ghosh

Yes. Thank you. Shadi has a good point. Shadi, would you like to say it, or shall I read it out? I think the point is making is absolutely right, that what’s happened now is that the current level at which surcharges start to kick in is going to become the new normal for many countries. In other words, because of the exceptional circumstances in which we find ourselves, many developing countries are going to be forced to borrow from the IMF or continue their borrowing or be unable to repay their existing debts. And so the debt level at which they will suddenly have to start paying surcharges is, in a sense, already upon them. Within the next year, they will be forced to pay this. Yeah. Christina.

[01:09:50.390] – Christina Laskaridis

Yes. And I agree, Shadi, and if I may, that was the point about governance reform, that if countries have larger if the quota represents a larger nominal amount, the financing needs can be covered without hitting that threshold. So that’s where the need for governance reform comes in.

[01:10:09.450] – Jayati Ghosh

That’s absolutely true, since we’re on the governance reform. And let me put this to all of you. The trouble is really that the surcharges are part of a broader package of the way the IMF functions, which is making it increasingly untenable for the world that we’re in and the global economy that they’re in. Okay. So the conditions are all about cutting down state spending. They are not about dealing with the private sector at all. They allow capital flight in ways that completely undermine the loans that have been given. So when they give the loan, they don’t even ask that country to make sure that there are limits to how much private capital can flow out of the country, which you would think is the kind of obvious. It’s what any private lender would do, let’s face it, that I’m giving you money not so that you can go and give it to somebody else, but for you to meet your needs, that doesn’t seem to happen. The fact that we are now facing a global crisis that is not of these countries making. And so this is a case really, for compensatory financing. If ever there was one, like we had in the 1970s. But after the first [inaudible 01:11:13] price shock, there was compensatory financing to developing countries. This is such an open and shut case for compensatory financing. The fund doesn’t do that. Instead, it tightens the screws on countries that have been affected by these global forces not of their own making. Amy has asked yet another question which I think is very interesting, that the surcharge applies only to middle income countries because they don’t qualify for concessional loans. Did it happen before that the country went from being classified as a middle income country to a low income one? No, it has never happened. This question might look unrelated to surcharge, but with increased debts and surcharges, countries can really become poorer. Yes. But I think I’m going to come back to all of you. And I know Luz would like to share a thought, but just on this particular question, the threshold countries get classified and then they get stuck in that classification. It’s not very dynamic. It takes forever. And the fact that only low income are considered for so many different kinds of things, including the RST, the new fund that has been set up for climate is another huge problem. In other words, the surcharges is a particular problem, which is one aspect of a larger problem with the overall way in which the fund functions right now. Luiz, please go ahead.

[01:12:45.410] – Luiz Viera

Thank you very much. I’m Luiz Viera with the Bretton Woods Project. Just a quick thing we mentioned. It’s true that Argentina brought the issue to light recently, but also speaking a bit about the political economy of this issue and hopefully relating to what to do about, it is interesting right, because we had a similar panel on the CSPF during annuals and we tried to invite government officials from governments which are paying surcharges. And Argentina was the case. And because they were negotiating their loan package with IMF, people refuse. And I say this because it shows you the power that the fund has over the borrowers during the negotiations for loan programs, because, as Christina said, this is the last resort. Right. They see it as the last resort. The negotiating power is at least perceived to be very skewed. So what does this mean? It means, I think, to me and linking to what Samah and Shereen said, because civil society and groups are not aware that this is happening, it doesn’t create any pressure from within the country to have their representatives push back against surcharges at the global level. And the other thing that I would say, just to link to a point that Christina said about governance reform, it’s quite interesting right? Because there was governance reform and quota reform in 2016 right? And what you see is that there was some shifting of quotas to benefit, for example, China and a few other countries, but never at the expense of the European powers, for example, or the major shareholders. And instead, actually some of the quota of the low income countries were actually decreased. So instead of taking a progressive step in the right direction, which is desirable, obviously China represents a larger share of the economy. So it’s just that they have a greater quota. But also this was done precisely at the expense still of lower- and some middle-income countries. So I can only agree that we need to really push for a radical rethinking of the way the quota system works, look at the formulas again, and begin at the ground level to push our governments to push back against the key shareholders. Thanks.

[01:15:04.250] – Jayati Ghosh

Very important points, Luiz. I don’t know if there are any other comments or questions from the participants, but just in the final closing minutes, then of the discussion, let me go back to that question about what do we do? I think some ideas have already come out right. And clearly one very big part of this is just knowing about it, getting the information. I think Shereen was quite insistent that they hide this information. So for everyone, activists everywhere to get hold of this information, spread it, spread the word, disseminate about it, and lobby for the removal of these is absolutely critical and important. What else? What are the kinds of arguments that we can present to those who will have to go and fight it out in the IMF board? Christina, first.

[01:16:03.310] – Christina Laskaridis

Thanks, Jayati. I’m not sure about the IMF board or sort of chain that Luiz was talking about through domestic sort of civil society and sort of internal pressures. But I think the sort of information is power argument is really strong. Certainly the comparisons between amounts paid on debt service as compared to health expenditures, for instance, in the pandemic are very powerful. They’ve been very powerful throughout the pandemic. Similarly, the amounts that the IMF has put towards financing the pandemic promised versus actually distributed funds, the pithy amount that’s gone to the debt service relief is a very, very small portion of what it’s actually receiving in surcharge income. So we need to challenge that rhetoric and argument of the IMF saying that it’s really pulling its weight when it’s not, and kind of turning that around to really show things for what it is. Another point which I think goes to what Monica was saying earlier, and it would be nice to hear more from her as well about the gender strategy that the IMF has proudly launched, and just to try and link what hasn’t been linked really more clearly. So the idea that the IMF is trying to present itself by mainstreaming gender and all of its activities whilst at the same time maintaining a surcharge policy that’s deeply disproportionately affecting women and girls. So the fact that the IMF can pursue policies whilst not really being able to weigh up the actual negative impacts that it has. At the same time, I think we should try and work on those issues to sort of highlight them as best we can.

[01:17:47.870] – Jayati Ghosh

Thank you so much, Christina. I’m going to ask Monica to come back on that because I also have a question on that gender strategy which perhaps we can close with. Okay. Shereen and then Samah. Shereen, will you go ahead?

[01:18:00.570] – Shereen Talaat

Yes, I totally agree with Christina here and Luiz. And again, we need to join the effort. We need to work on country levels in our countries, and we need to work within the board of directors, too. And also I encourage our colleagues in the donor countries to speak with their government. It’s very important to help [inaudible 01:18:30] in the Congress to speak with whomever can have a say in that. And the linkage between the other policies inside the IMF is very important. It’s not only the surcharge here, it’s also debt and austerity. And they are very related to each other. Countries that pay a huge amount of debt suffering already from debt, they also suffer because of this, because of surcharges, because of that, they are suffering from budget cuts, measures, decreasing public spending, and gradual elimination of social subsidies. So it is all linked to each other because they are paying surcharges. Because Egypt is paying surcharges, people are now being [inaudible 01:19:20] to buy a small piece of bread. So this is how I see. Thank you.

[01:19:27.710] – Jayati Ghosh

I think that’s very important. Thank you, Shereen. Samah.

[01:19:34.840] – Samah Krichah

I totally agree with Christina in the sense that the IMF should approach its own policies comprehensively, not having contradictory policies. The second thing is that the gender strategy or the gender issue in general is not a box ticking exercise. And for that, if you allow me, I have a number of recommendations that I would like to give you. So there is a need to include gender implications of broader policy based lending on macroeconomic reform.

[01:20:12.290] – Jayati Ghosh

If you’re going to read, please don’t read. If you can avoid it and just be slow because interpreters cannot go, okay. Try to avoid reading it.

[01:20:20.810] – Samah Krichah

Okay. So basically, the IMF gender policies should always include rights based language and documents and include men’s and women’s equal rights as a core development objective. Because this is the point of having policies. the IMF must attach a price tag to gender benchmarks and thereby encourage governments to reallocate spending on gender efforts, ensuring budget allocation. This can be done for example, in the updates of the country frameworks. The IMF must include the analysis of the civic space, environment and freedom of association as part of the creation of country engagement frameworks and must be part of the risk assessment, environmental and social frameworks and safeguards. Part of this documentation needs to include threats against women and human rights defenders, unionists under [inaudible 01:21:19] against CSOs. And finally, the IMF needs to ensure that the gender consultation is conducted in inclusive and transparent manner and ensure a diverse set of women’s organizations are represented in consultations through targeted outreach. This is the recommendation that you would like.

[01:21:44.790] – Jayati Ghosh

Thank you very much for that. I’m going to ask Monica to actually tell us very briefly whether the outcomes of the discussion that you had with the IMF, I think it was the Vice President in charge of gender or something, and whether that [inaudible 01:22:00] . But can I add a little bit? I’m going to slightly disagree with you Samah, on this. I really am sick and tired of them putting it into their documents because it doesn’t mean a thing. We have to make them walk the talk. They love the talk. They will put it in their gender documents. They put it in the strategy page. But they will have gender all over the place. It will be full of all the good verbiage. And we have been there. We’ve been calm in the gender budgeting exercise into believing the verbiage rather than the reality. I really think to go back to what Christina was saying, we should be getting out to them on these specific policies. If you say you’re also pro women and conscious of gender, why are you allowing surcharges? Why are you insisting on cutting down public spending? Why are you requiring austerity? Why are you not preventing capital flight?

[01:22:52.030] – Jayati Ghosh

Like, in other words, let’s ask them to do the specifics. I was a little worried when I saw the outcome. I haven’t listened to that meeting, but the tweet [inaudible 01:23:03] was really wonderful and said all the right things and responded very well and said she will do that. I want to see it in action and in strategy. I don’t want to see the words again. So I would like Monica to respond with that.

[01:23:16.650] – Monica Erwer

Well, I’m not a very good expert on IMF’s upcoming gender strategy. I think Friederike is with us from Bretton Woods. I think she knows this better. I just want to say that I certainly agree because Ratna has all the perfect answers. And also, however, I do think that it’s good that there is a gender strategy will be a gender strategy because then there is something to relate to. But I also think that sometimes it’s nearly a problem to have a strategy because then you can always relate to that which is good. But then IMF is sort of saying, okay, we have a gender strategy. It’s all fine. So one thing that I think is really important, except for what I was saying before, Mariam Williams said that we should not fix and it’s good to fix the gender gap. But that’s not what it’s about. It’s about power relations and transformation is that I think monitoring is important. And I think here the watchdog of women’s rights organizations are important. And I think it’s quite interesting. I mean Kvinna till Kvinna is quite new in this game. We have not worked with microeconomics at all before. We work on a very micro grassroots level. But what is interesting is that we can see that there is nearly none other women’s rights organizations that is part in this dialogue. And I think that says something in itself. And finally, I do think that if we look, I don’t know IMF enough, but I know World Bank. They have an independent evaluation group, which might not be super independent, but it’s still called independent evaluation group. And I went to a meeting there, and it was quite clear that I think from all the evaluations they’ve done, one has been about gender. So I think these kind of tools that is actually already there can be used more. But if there is four minutes left, Friederike, please, can you say something here? Because you know this gender strategy much better than I sorry to put you on the spot. Maybe you’re not available right now, but if you are, it would be nice if you said a few sentences.

[01:26:09.490] – Jayati Ghosh

Friederike seems to be here but… It was really about whether the IMF gender strategy is going beyond the usual talk and all the good stuff that frankly, I’m really a little tired of hearing.

[01:26:32.270] – Shereen Talaat

She has a problem.

[01:26:39.450] – Jayati Ghosh

Okay. She won’t be able to come in. All right, fine. Fair enough. Okay. I don’t know if there is any. Would any of you like to say anything more?

[01:26:50.310] – Luiz Viera

May I make just one quick comment? What Monica mentioned about the IEG the independent evaluation group at the bank, just to let people know that there is a movement afoot. Well, there are a couple of things that maybe we should consider, one of which there are efforts to bring international organizations responsible under international law. Human rights law, right. As we said, the former independent expert foreign debt and human rights Juan Pablo Bohoslavsky, he has analyzed the surcharge policy, and he says that they violate international law. So one of the avenues to consider those organizations that work on international law, et cetera, is how can we ensure that we continue to move to try to bring international organizations back under international law? The other thing I was going to say that relates to that is there’s also an effort to develop an ombuds mechanism within the IMF, which I think is quite important. It doesn’t exist yet, but that’s another structural thing where we could drive for change, structural changes to IMF alongside of working on quoted reform, et cetera. If you had an ombudsman type of system, then the issues related to the violation of gender rights, in particular by policies, could at least be brought to a different body and addressed. So I just wanted to share those bits of information. Thanks.

[01:28:15.890] – Jayati Ghosh

Thanks, Luiz. That’s very useful. I think Monica has also got her hand up. So maybe Monica, the last word goes to you.

[01:28:23.370] – Monica Erwer

Just one tiny, tiny thing. Again, talking about doing advocacy and push the banks, IFIs generally, I think that being so young in this game. It’s really difficult because there is such a language, there are so many structures, there’s so much to learn. And when we talk to our 150 women’s rights partner organization, none of them understand nearly anything about this. So I think capacity building from within civil society to be able to speak the language and push is super important. Thank you.

[01:29:04.170] – Jayati Ghosh

Absolutely. I can see that there’s a lot of good resources being shared in the chat so I hope this chat is going to be saved and can be distributed to all the participants. And in the meantime, I think I just want to close this really excellent and very illuminating discussion. Thanking all of your speakers. Thank you, Monica and Luiz and everybody else who has organized this and I guess that’s it.

[01:29:33.430] – Luiz Viera

Thank you very much.

The International Monetary Fund’s (IMF) “surcharges” are additional fees imposed on countries with high levels of IMF debt, on top of regular interest payments and service charges. In punishing the very countries most in need of relief, the IMF’s surcharges are both counterproductive and unfair — and top economists, political leaders, and civil society organizations around the world have called for their elimination.

On April 15, 2022, the Kvinna till Kvinna Foundation, Arab Watch Coalition, Bretton Woods Project, and Center for Economic and Policy Research hosted a panel of experts to examine an under-discussed aspect of these surcharges: their disproportionate burden on women and girls, and adverse impacts on the fulfillment of basic human rights.

Held at the Civil Society Policy Forum of the World Bank Group-IMF Spring Meetings, “Examining the Gendered and Other Impacts of IMF Surcharges” explored the extent to which the IMF’s surcharge policy is consistent with its stated commitment to gender equality and a greener, smarter, and fairer COVID-19 recovery. Session participants included:

  • Jayati Ghosh (moderator), professor of economics, Political Economic Research Institute; University of Massachusetts Amherst, USA
  • Christina Laskaridis, lecturer in economics, Open University, UK
  • Shereen Talaat, co-director MENA, Arab Watch Coalition, MENA
  • Samah Krichah, program officer, Kvinna till Kvinna Foundation, Tunis

In advance of this discussion, Christina Laskaridis prepared a brief article on the same subject, available here.

Video of the event is available here. A full event transcript can be found below.

The following are a few key highlights from the discussion:

“I want someone to answer me: aren’t we all in a crisis now? Ukraine is one of the biggest countries that pays surcharges. I don’t know how Ukraine is going to survive this with surcharges. And you know that the MENA region is the most affected region in the world. And they are still asking us to pay surcharges. While we are saying that we are all in a crisis, not less than the pandemic, the IMF is asking us to still pay these unfair charges.” — Shereen Talaat [20:23]

“The reasons behind women’s low labor force participation rates reside in the deficit of decent work in the private sector, low salaries, a lack of national child care systems, the limited availability of safe, reliable and affordable public transportation systems, unsafe environments, and the lack of productive job opportunities that match women’s educational attainment. Austerity measures related to the debt and surcharges… are likely to further impact infrastructure, including transportation and childcare services. Put together these policies undermine women’s most important employer without securing alternative decent working opportunities… the austerity policies supported by the IMF have contributed to a decrease in social spending and increase in poverty, leaving women the most affected.” — Samah Krichah [30:16]

“The overall reduction in public services affects women’s labor time and the provision of unpaid domestic care… That’s crucial in trying to understand how surcharges and further worsening of crises might impact basic gender indicators — childcare cost, sanitation, all of those things. So it’s particularly unconscionable that in the middle of a health crisis and a pandemic, the IMF is trying to fund itself, or target precautionary balances, from these extra hidden costs.” — Christina Laskaridis [37:56]

“And I can recall that Ms. Kristalina Georgieva said at the beginning of the pandemic: ’we are going to stand and help our members by any means.’ I don’t think that collecting and harvesting surcharges from our own resources is ‘help by any means.’” — Shereen Talaat [46:22]

“I think there is this real problem that we are not bringing out the stupidity, if you like, the logical stupidity of having surcharges, because, think of it here as the IMF funding its own operations on the basis of a surcharge, which is imposed because it hasn’t done its own job properly — in other words, because countries are not repaying either on time or are supposedly taking too large a loan. So you are creating an incentive for the IMF to encourage countries to have large loans or not to actually deliver on time… It’s the opposite of what any management should be doing. So the very idea that the fund has to fund its own operations from surcharges is completely misconceived and wrong.” — Jayati Ghosh [01:03:11]

[00:00:02.830] – Jayati Ghosh

Hello, everyone, and welcome to this special session. I think it’s going to be a very important and useful session on the gendered implications of IMF surcharges. This is actually an area that isn’t studied enough. It’s not something that people know about, even people who are working on the implications of IMF programs, because it’s a relatively esoteric topic and not that many countries have been affected so far, although more and more are likely to be affected by it. Well, of course, we’re going to find out how it is unjust and unfair in many different ways, but it has implications that go well beyond the surcharges themselves in terms of impacting the fiscal policies of governments and their ability to meet the basic needs, particularly of women in the society. We have with us a very interesting panel, and I’m so pleased that we’re going to be focusing specifically on one region, because that has a significant, again, a region that is under covered in a lot of the global studies, but it is one in which the impact of this and how it’s playing out is extremely sharply evident.

[00:01:17.210] – Jayati Ghosh

So first of all, to explain to us what exactly the issue is with the IMF surcharges, how they operate, what it means, and what the implications are, we have Christina Laskaridis. She’s a lecturer in economics at the Open University in England. She has a PhD from SOAS of the University of London and has been a research fellow at the center for the History of Political Economy at Duke University. Christina works on sovereign debt, on development, on international organizations, on a range of things, and she has recently done a very important study on the impact of IMF surcharges. We have Shereen Talaat. She’s a founder and co-director of the Arab Watch Regional Coalition. She has nearly two decades of experience working with different local communities around the MENA region, not just as a filmmaker, but also as a campaigner for social justice issues and as an important player in terms of civil society in the region. She has been actively engaged in watching the IFIs and looking at the impact of their activities. And we have Samah Krichah, who is a program officer at The Kvinna till Kvinna Foundation. She is in charge of feminist economic advocacy and the acting consortium coordinator for the Fem Power Program on the BGVG. Samah holds an MSC in women, peace, and security from the London School of Economics and Political Science.

[00:02:43.730] – Jayati Ghosh

You will agree that this is a really impressive group. I’m not going to stand in the way of getting through to you. So let me begin by asking Christina to outline for us the major issues. Please go ahead, Christina.

[00:03:01.650] – Christina Laskaridis

Okay. Thank you. You’re on mute, Jayati.

[00:03:05.870] – Jayati Ghosh

Yes, I’m sorry, I should also have mentioned there is simultaneous translation available into Arabic and from Arabic into English. Please go to the globe on the left bottom of your screen, there’s a little globe icon. If you press that, you will get the language that you can use.

[00:03:24.330] – Shereen Talaat

Allow me to translate this to Arabic first. Jayati.

[00:03:26.940] – Jayati Ghosh

Yes.

[00:03:27.500] – Shereen Talaat
[00:03:44.890] – Jayati Ghosh

Thank you very much, Shereen. And now let me request Christina, please, go ahead.

[00:03:51.910] – Christina Laskaridis

Okay. Thank you, Jayati. Big warm welcome to everybody. It’s a great honor to be part of this distinguished panel. Thank you for the opportunity to be here. I’ll be just introducing laying out a little bit of the scene about the IMF surcharge policy. What was once very little known, but gradually has gained a sort of campaign to eliminate this policy has gained steam with everyone from economic justice organizations, Nobel Prize economists, and members of the Congress increasingly calling for their elimination. So I just want to provide a bit of background. The IMF, as we all know, provides loans and financial assistance to countries with balance of payments problems, subject to a host of economic reforms and other types of conditionality that lead to well-known, devastating impacts. These loans are anyway subject to a range of fees and interest rates. On top of the regular borrowing costs are surcharges, which the IMF levies on its regular lending. And what I mean by regular lending is on its non concessional loans, which typically go to middle income and high income countries. So these surcharges are sort of hidden. They’re very opaque. The IMF doesn’t publish country by country information about them, which is why they’ve been little studied.

[00:05:30.200] – Christina Laskaridis

And they’ve evolved from the Southeast Asian financial crisis in the late 90s in a number of different ways. Currently, there are two types of surcharges imposed on IMF loans, ones that relate to the size of the loan and those that relate to the length of time that the loan has been outstanding. So the bigger the loan, there’s an extra surcharge. The longer that the loan is taken out for, there’s an extra surcharge. This is deeply problematic because typically large loans that are needed for a long time are needed by those countries in deep crises. So you end up paying more, the more you need to borrow from the fund. So this is a punitive costs that we’re going to be talking a lot about sort of different impacts that it has. But just to give a sort of rough sense, and I think this will be talked about in detail further on. The five largest borrowers of the fund currently make up the bulk of the surcharge income, which in and of itself is approximately half the IMF’s operating income. So the five biggest borrowers are contributing almost half of the IMF’s operating income in these hidden extra surcharges.

[00:06:45.710] – Christina Laskaridis

So what’s the rationale for them? The main rationale, ostensibly, and according to the fund, there’s multiple reasons that the fund argues these are necessary. The first is to disincentivize the large and prolonged use of fund credit, so to make it less appealing for countries to borrow from the fund. The other is to encourage early repayment. So the idea that by charging extra fees on top of existing fees, countries will be motivated to repay those loans early. A third reason that the IMF imposes the surcharge is to manage its own credit risk. So the idea that when there’s a high lending cycle, the IMF imposes more surcharges to sort of gather some protection of its own and to build up precautionary balances while it does. So let’s look at these rationales one by one. In almost all cases, when countries are in crisis and they borrow from the fund, they’ve been priced out the markets and they usually have nowhere else to go. So there is an insufficient financial safety net for countries in need due to the hierarchical structure of the international financial and monetary system. So by going to the fund, countries unwillingly have to give over a lot of sovereignty over their policies, instituting oftentimes a pro cyclical contractionary austerity program.

[00:08:15.000] – Christina Laskaridis

A country doesn’t need surcharges to be disincentivized from borrowing from the fund. So the reform plan itself domestic political and gross socioeconomic costs and inequalities are usually bad enough. So this argument doesn’t really hold water. The second argument, which is about prolonging, sort of disincentivizing prolonged use and encouraging early repayment. There are very few instances where countries have repaid early, only eight since 2009, and a lot of those most of the times the rationale for early repayment is not for surcharges. It’s because of the political stigma that’s attached to IMF borrowing and the desire to be rid of being under the tutelage of the fund and under an IMF program. The other thing is that the IMF doesn’t depend on early repayment in order to provide its own loans. The firepower, which the IMF boast is close to a trillion, doesn’t depend on this. It depends on the quota — so the paid in capital that countries pay to the fund, as well as new arrangements to borrow and bilateral borrowing arrangements. Despite the very large lending firepower that the IMF has wanted to popularize and sort of proudly popularized, it’s only used a very small portion, despite the size of the crisis of the pandemic.

[00:09:39.210] – Christina Laskaridis

So countries should be rewarded for repaying early and not be penalized with surcharges for paying according to schedule. The third argument is about the funds credit risk. So the idea that by making many loans, the IMF’s credit risk is at risk. What this really fails to recognize is the IMF’s role in the global financial monetary system and the role that it plays when countries face their repayment difficulties. Given the tight noose around its borrowers and in the context of what is a very faulty dysfunctional sovereign architecture, IMF loans are always repaid, which is why it’s considered a senior preferred creditor. So the idea that the IMF faces sort of a great credit risk again ignores what’s really happening. And the final point is the idea of the IMF relying on surcharges as an income generator. So the idea that it needs to charge these hidden extra fees to accumulate precautionary balances it’s, what it’s saying is that it’s relying on those in deep, deep crisis to fund itself, which is deeply, unethical and also against the IMF’s mission. Its regular charges can very well cover its own expenses. And it doesn’t need these surcharges to operate.

[00:11:10.030]

So I think the final thing that I just want to say just about the kind of structure of surcharges in the role for the fund is that it would be very unlikely that these surcharges would be in place if the governance issue at the heart of the fund was sort of more obviously addressed. Middle income countries are the countries that are paying the bulk of surcharges, and they’re misrepresented disproportionately at the fund’s governance structure. We can talk about this more as we go on with this panel, but I think I’ll close it there for what surcharges are and what the rationales for them have been. And we can go on to their impacts more generally, but also on women and girls. Thank you very much.

[00:11:56.410] – Jayati Ghosh

Thank you so much, Christina, also for being so clear and brief. And so now let’s move on to Shereen, who is going to tell us about some of the implications of this in the Arab region.

[00:12:10.270] – Shereen Talaat

Thank you, Jayati. Thank you, Christina. And thank you to all the audience here. Again, I want to translate into Arabic. [inaudible 00:12:15] [in arabic] I’m Egyptian, live in Morocco, my organization operates in Jordan and the MENA region. So I live in between the brackets of surcharges, which is very unfair and very unjust and unfair is our reality in the MENA region. The problem is that not only those surcharge are unfair, not only the MENA region for all the borrowers that they surcharge, but also they raise inequality between countries and violates the international law of human rights. The surcharges allow the IMF to play the role of the global lender, especially in the time of crisis. But you will find that it’s an admission that the middle income countries, borrowing countries are paying the big part and share of surcharges and have been left out of measures of mitigating debt disaster or actually the fact of financing the IMF operations to help low income countries. So imagine that Egypt are paying surcharges to help Yemen and Djibouti, Tunisia, that is in the middle of a big crisis. We all know about the case in Tunisia are paying for the IMF to help other low-income countries.

[00:14:25.700] – Shereen Talaat

And the problem is that us as a middle-income countries, by paying the surcharges and that put us under a lot of pressure, can lead us to be also low-income countries. Paying those extra fees directly affects the potential growth and reduce the public investment in social sectors such as education and health and development. That means the countries will spend a lot from their resources and pay surcharges, not to reduce inequalities and poverty. And that was very clear during the Covid time and access to education and public health sector during the pandemic. They covered access to public health sector and education for vulnerable groups, which also includes the gap and raised inequality. So it’s actually here the surcharges and this policy, the IMF was investing in raising the gap and raising inequalities. Paying surcharges by diverting hard currency from countries when they most need it weakens the capacity of those countries to face crisis and put development and equal policies in place.

[00:15:54.750] – Shereen Talaat

You will find according to the International Covenant on economic Social and Cultural rights, Article two, states must generate adequately allocate and make use of maximum and of their available resources to move as effectively as possible towards achievement of full realization of human rights. International financial institutions should ensure that the terms of their transactions do not undermine the borrower state’s ability to respect and protect and fulfill its human rights obligation. And I know that the IMF doesn’t speak the human rights language, but speaking the language that the IMF understands actually surcharges is going against the sustainability of debt. Yesterday I was speaking with my colleague Amy about the same topic. And as you all know, we all take loans from different banks to be able to move onwards with our lives. But she actually draw my attention to the very important thing that the IMF with the surcharges are acting against its own entity by acting like commercial banks, commercial banks who are to take a very big amount of interest from the most in need. This is what is surcharges. In the case of Tunisia, for example, nowadays because there is a new loan that was discussed that is in the guideline. Of course, because of the situation, this loan will be for a long time, more than 35 months and it will be a huge amount. So the main [textures] of charges will be there for Tunisia to pay, and we call this rescue.

[00:18:09.190] – Shereen Talaat

The problem is that is putting Tunisia more in depth of the debt burden and this goes too much against the sustainability of debt. We know that without having different measures, without eliminating this policy, Tunisia cannot pay this amount of money. For example, now Egypt and Tunisia. Egypt is expected to spend around 1.8 billion on surcharges between 2019 and 2024, which is three times the US the six or 2 million. I cannot even pronounce the number. It’s very big. It is the cost to fully vaccinate all the Egyptians. For Tunisia, surcharges added to roughly a third of their entire health sector fiscal effort during the pandemic. Tunisia has to pay more than $44 million in surcharges between 2021 and 2026. Surcharges increase IMF borrowing costs by 26.9%. And Tunisia is negotiating a new program now potentially application of surcharge and additional debt. A part of being aligned with their own policy and their own statement and we can hear the IMF, especially after the pandemic speaking about post-recovery policies to recharge actually not only goes against the post-recovery policies and we all hear the IMF saying that they need broader effort to fight economically Covid countries need to navigate the monetary cycle. Countries need to shift their focus to fiscal sustainability. But still, countries need to pay surcharges, especially the most in debt countries, the most in need countries for rescue.

[00:20:37.190] – Shereen Talaat

And I want someone to answer me, aren’t we all in a crisis now? Ukraine also is one of the biggest countries that pay surcharges. I don’t know how Ukraine is going to survive this with the surcharges. And you know that the MENA region is the most affected region from the world also. And they are still asking us to pay surcharges. While we are saying that we are all in a crisis, not less than the pandemic, the IMF is asking us to still pay these unfair charges. And I want to refer a campaign was launched last week, 160 organizations around the world from different regions sent a statement to the board of directors and ask to eliminate immediately the surcharges. And you can see the statement here in the chat. If you want to check with the language, you can join the effort, too. I will stop here and wait for the other round. Thank you, Jayati.

[00:21:55.910] – Jayati Ghosh

Thank you so much, Shereen. That was also extremely important and pertinent. And so now Samah is going to draw out some of the gender implications of these broader macro processes. We know that no policies, fiscal or otherwise, are gender neutral. And, of course, how this plays out, the fact that governments have to pay surcharges impacts, again, the patterns of spending and their ability to meet citizens rights. So, Samah, please.

[00:22:23.630] – Samah Krichah

Yeah. Thank you very much. I’m really glad and honored to be in this panel today. And I would like to thank Christina and Shereen for their amazing presentations. And many of the points that I will be talking about will be based on Shereen’s points that she raised about Tunisia. And my presentation will start by briefly presenting Kvinna till Kvinna and the work that we have been doing regarding international financial institutions, including the IMF. And then I will draw an overview of the current situations now in Tunisia and talk a bit about why women pay the price of austerity measures and tax surcharges, et cetera. And if time allows, I will give some recommendations. So the Kvinna till Kvinna Foundation promotes women’s rights in conflict affected countries and in the Middle East especially. We support 150 women’s rights organizations across the world. In Tunisia, we partnered with eight women’s rights organizations and social justice organizations. It is at the core of Kvinna till Kvinna to provide long term support to the feminist movement in order for them to be able to work for sustainable change in gender norms and practices and for women’s rights.

[00:23:44.930] – Samah Krichah

In 2019, we published a report called Maintaining a Role for Women’s Rights Organizations in International Development Finance and one of the findings or the comments that we came up with was that the IMF and other international financial institutions have increasingly recognized that gender equality is a precondition to sustainability, sustaining peace and poverty reduction. IFIs in general have Additionally increased efforts to close the gender gap through development lending, investment projects and research through a range of gender equality strategies. Simultaneously, IFI’s formally implements the ownership principle as set up in the Paris Declaration on Aid Effectiveness, emphasizing the critical role of, example, Parliaments and civil society organizations in ensuring ownership of and feeding into development processes. In order to ensure the latter, IFI’s have each set up dedicated CSO and citizen engagement strategies through which they engage in information sharing, policy dialog, consultations and institutional partnerships. These processes remain ineffective and we will get back to that later. The same report

[00:25:00.050] – Jayati Ghosh

Could you be a bit slower Samah because it’s very fast for the interpreters.

[00:25:06.470] – Samah Krichah

Okay. In the same report, we have identified that in the MENA region, the lack of gender perspective in IMF loans and programs, as well as the lack of influence on the policies from women’s rights organizations is one important factor to hinder the work for more gender equal societies in general, and that in order to bridge that gap, more effort on both sides, especially from the IMF, to reach actors on the ground and seek reliable information on the impact of its policies on the daily life of women is needed, and we will get back to this later. A brief history of the IMF policies and impact in Tunisia and many of these informations come from an amazing Oxfam report called The Gendered Impact of IMF Policies in MENA. We realized that in the last decade, Tunisia has two IMF loan deals, one in 2013 with 1.7 billion and one in 2016 with 2.8 billion and these two loans have done little to fix the country’s public finance. The Coronavirus pandemic almost smashed the Tunisian economy with a deep recession that sent 80,000 small and medium sized firms into bankruptcy or out of the country since 2020. Over the same period, unemployment rate has surged from 15.1% to 18.4%. Knowing that the unemployment rate for women reached 24.1%, inflation rates destroyed people’s buying power. Official inflation rate is around 6.53% while perceived inflation rate is around 25% and reaches 35% for certain products. In addition Tunisia’s GDP has dropped by 1/5th since 2011 and the public debt is at an unprecedented level, over 100% of gross domestic products.

[00:27:18.450] – Samah Krichah

People in Tunisia in general think that the inflation comes from the government, while it comes mainly from IMF conditions and austerity and public mismanagement of the successive governments in Tunisia even before the revolution of 2011. For example, now [inaudible 00:27:38] and other society organizations. [inaudible 00:27:41] is a watchdog organization in Tunisia launched the campaign entitled that Stop the Debt Trap, which aims at explaining in simpler terms the impacts of such policies on the daily lives of people. Tunisia also has witnessed in the past several uprisings related to inflation rates and increases in the price of basic products. The most famous one of them is the bread riot in December 82 and January 84. This riot led to the death of around 100 people, but also to the price of bread back to what it was. What it meant by this is that any further increase in the cost of living of Tunisian people will lead to further unrest that can lead us to the unknown.

[00:28:30.250] – Samah Krichah

The latest negotiations for Tunisia deal is likely to demand an end to subsidies on energy, with some funds instead distributed directly to the poorest families as cash. This constitutes a problem in itself since in Tunisian law, men are still the heads of the family and in consequence they are the ones that will receive the funds like it was the case with small support funds distributed during the Covid pandemic. This does not guarantee in any way that the money will go towards paying the expenses of the wife and children. Further cuts on subsidies and structure austerity measures will very much influence the Tunisian society and in particular the opportunities for women. For example, the IMF, which has a record of demanding painful cuts to public spending, is likely to condition a loan on slashing the state’s wage bill, which is one of the highest in the world relative to the size of the economy. However, when women tend towards employment in the public sector for relatively [inaudible 00:29:36] conditions in comparison with the private sector and informal sector, the public sector is undergoing major downsizing as a result of cuts to spending also promoted by the IMF. Such reforms should be sought in ways that do not undermine the likelihood of most people working in this sector, especially women.

[00:29:56.590] – Samah Krichah

The IMF also calls for an increase in women’s labor force in Tunisia, but it has missed the opportunity to promote policies to address a severe lack of decent work conditions. In general, women in paid work face double inequality since they are often found in the lowest paid jobs with the least job security. The reasons behind women’s low labor force participation dates reside in the deficit of decent work in the private sector, low salaries, a lack of national child care systems, the limited availability of safe, reliable and affordable public transportation systems unsafe environments, and the lack of productive job opportunities that match women’s educational attainment. Austerity measures related to the debt and surcharges, as Shereen explained, also are likely to further impact infrastructure, including transportation and childcare services. Put together these policies undermine women’s most important employer without securing alternative decent working opportunities. In the past as well, the austerity policies supported by the IMF have contributed to a decrease in social spending and increase in poverty, leaving women the most affected. For example, in Tunisia between 2011 and 2019, the share of funding for education in the public decreased from 26.6% to 17.7% and the share of health expenditures declined from 6.6% in 2011 to 5% in 2019. This again was before Covid.

[00:31:37.520] – Samah Krichah

IMF has rarely supported an increase in corporate and income taxes, but has consistently supported the increase in indirect taxes VAT or removal of VAT exemptions on basic cuts. These measures increase both economic and gender inequality. These cuts in public spending are likely to be compensated for by an increase in women’s unpaid care work, reducing their time for paid work, leisure and rest. And knowing that according to a 2022 Oxfam report, women spent 8 hours of care work daily versus 45 minutes for men per week. In addition, the heavy focus on privatization programs leaves little room for implementation of human rights standards and in some cases, sets back the attainment of gender goals. Gender and women’s rights are not explicitly included in the text of IMF country frameworks, and if they are, there is no explicit gender targets. IMF gender strategies have evolved over the years, but the level of gender mainstreaming remains limited in practice due to the lack of capacity in country offices and the capacity to reach the right persons and organizations on the ground who are not the usual suspects. The IMF has a CSO team, but for its investment, CSO consultation is not mandatory and the IMF fails to incorporate a specific gender safeguard explicitly to guard against and proactively address negative gender impacts, and safeguards do not apply to policy based operations.

[00:33:27.930] – Jayati Ghosh

Samah, are you nearly done? Because then we can go out to the second round.

[00:33:31.890] – Samah Krichah

Yes, we can go to the second round if you.

[00:33:34.830] – Jayati Ghosh

No, I don’t want to stop you. Please finish what you were planning to say.

[00:33:42.090] – Samah Krichah

No, I can talk about the rest in the second round.

[00:33:45.490] – Jayati Ghosh

Okay. Thank you so much, because I think we’ve already got a wealth of material. I also want to encourage all the participants to please put your questions into the chat box, or if you would rather ask the question directly, which would be nice for us as well. Please do just mention Stack in the chat and we’ll call on you. So thank you so much. I think we have now a broad overview, and I’m going to just ask a couple of questions to each of you just very briefly to try and bring all of this together. So, Christina, I think one of the very important points that you’ve raised is about the fact that these are deeply procyclical. And this is something that Shareen also brought up, that this goes against the IMF mandate of coming in with countercyclical lending. I’d like you to talk specifically about how this is something that adds to pro-cyclicality in countries where the length of loans is large, not for reasons of their own doing. In particular, I’m thinking now of country outside the MENA region, but, you know, Argentina, because the nature of the IMF conditionalities is rather weird. They impose conditions on governments to spend less and so on, but they don’t do anything to restrict capital flight. So the famous or rather infamous loan to the Macri government in Argentina, the largest loan in IMF history, did not put in any specifications to prevent capital flight. And Argentina lost the entire amount that it had borrowed in capital flight, such that the next government was forced to go back to the IMF and to pay surcharges on the loan that could not be paid. So perhaps you would like to comment a little bit more on that.

[00:35:41.410] – Christina Laskaridis

That’s great. Thank you, Jayati, for your questions. And thanks to the previous speakers as well, for really laying the scene and the context in the different regions. I think one of the main points that’s already come out in the conversation and in the previous presentations, but it’s worth highlighting in terms of the procyclicality, is that debt crises obviously constrain developmental prospects and undermine the capacity of countries to fulfill realization of human rights, to ensure adequate sort of access to basic services. That happen anyways. So when the IMF is imposing surcharges on top of other fees and the loan itself, it’s extracting more from the country, reducing the ability of that country to pay furthermore. By further funneling out further hard currency funds, you’re actually reducing the ability of that country to repay. That has exactly the opposite effect of what the IMF loan is supposed to be doing because you’re further reducing growth, you’re further reducing available resources for investment, and you enter this sort of downward spiral of a recession, depression, contraction, which is the usual effect of a contractionary program. That really ties into the point you were making about capital flight as well.

[00:37:20.030] – Christina Laskaridis

So just going on to that, this point really ties into the gendered impact. All of the macroeconomic policies that the IMF implements are not gender neutral and surcharges is no exception. And one of the things that I wanted to link back to is it’s not just in the conditionalities that the IMF imposes that may, for instance, affect sectors which are more heavily gendered, say a certain type of public sector job, it’s that the overall reduction in public services affects women’s labor time and the provision of unpaid domestic care. So in any sector where you weaken public provision of goods or you’re in an environment where basic services such as access to clean water, transportation, anything that is the sort of host of reforms that the IMF will target, will affect unpaid female household labor. That’s crucial in trying to understand how surcharges and further worsening of crisis might impact basic gender sort of indicators, childcare cost, sanitation, all of those things. So it’s particularly unconscionable that in the middle of a health crisis and a pandemic, the IMF is trying to fund itself or target precautionary balances from these extra hidden costs. I just want to turn back to the governance issue, which has already been talked about a bit earlier.

[00:39:16.310] – Christina Laskaridis

Both of the previous speakers really made the point very forcibly about how countries in crisis are being asked to pay for the IMF’s operations. Middle income countries are grossly underrepresented on the fund’s board. So they are significant in size of world economy, but that is not represented in the governance structure of the fund. That’s something that not only civil society organizations, but the G77, the G24 have been calling for a long, long time to seek adequate quota reform at the fund. That disproportionately affects middle income countries because the size of their loan, they’re unfairly hit by surcharges because by needing loans, a larger portion of that loan is subject to the surcharge. If they had bigger quotas, a smaller portion of the loans would be subject to surcharges. So there’s a real need for reform there. And the review that’s coming up should really sort of put a suspension on these policies with view to eliminating them altogether. I’m not sure if you want to ask anything more, Jayati, or if I should go on some more, but I’ll just pause it there for a minute.

[00:40:30.510] – Jayati Ghosh

Well, we’ll come back to you, Christina, I’m sure. So thank you very much for that. I want to take an aspect of what you just said and link it to what Shereen has been saying. What is really interesting about this? Yes, there’s some economic mismanagement which has caused countries to be in crisis, but increasingly, countries are getting into crisis for no fault of their own, for global economic conditions, right. And that’s absolutely true of the pandemic, but it’s also now true of the Russia-Ukraine war, which has dramatically impacted food and fuel prices and is further worsening the balance of payments conditions of many developing countries. So in a sense, Shereen, you know, the point you made about these surcharges coming to countries that already cannot bear them, it’s worsened today. I think it’s something that should be addressed, perhaps even by countries that are not currently paying IMF surcharges because they’re going to end up paying them very soon, simply because global economic conditions are making it harder and harder to repay the existing debt. So what are your comments on that?

[00:41:42.150] – Shereen Talaat

This situation make me stand with my mouth open because, for example, I recall that Ms. Christine Lagarde, the former President of the IMF, at the anniversary of the [inaudible 00:42:06], she said that it’s time to have a new social contract. A new social contract means we all need to be happy because of what happened in 2011 and the Arabic Spring, people went to the street because they were saying we need social justice and bread and freedom, of course. So what we are seeing now is against all of this. It’s against any social contract, especially that the pandemic was a time for all the humanity to stand up together for ourselves. But what is happening is the poor is more poor and the rich is more rich. Actually, the IMF itself was benefited from the surcharges during the pandemic for around $2 billion. And I paid some of that $2 billion as a citizen. And I still suffer from lack of health services. I still suffer also as a middle class from the target policies of the IMF that is applied in our countries. And as a mother, I cannot have a proper education for my children. So it’s like a cycle of unjust that we are living under.

[00:44:11.870] – Shereen Talaat

And the most thing that is really very strange that again, that the IMF is going against its own statement. Article one, for example, allow me to read and give the audience an idea of, article one is “to get confidence to members by making the general resources of the fund temporarily available to them under adequate safeguards that’s providing them with opportunity to create maladjustment and their balance of payment without restoring measures destructive of national or international prosperity.” And what is happening now. What is happening now with the surcharges is against this statement. And as Stiglitz has said before, the IMF is going exactly against what the IMF is supposed to be doing. And this is the reality that we are facing now, not only in the region but the whole middle-income countries, the whole borrowers. Now during the pandemic, the countries that is being surcharged with raised from nine to 16. But in the future, like 2025 or more, they will be raised according to the IMF to 38 countries. That means not only Egypt, Tunisia, Ukraine, Argentina and Jordan, but also Morocco will come next. I’m thinking about maybe the whole region will come next. The whole MENA region will come next, the whole middle-income countries that are in a deep crisis. And what is happening now in Ukraine is affecting everyone in the world, especially the most poorest countries, the countries who are already in crisis. It’s not fair. It’s not just at all to live under those conditions. And I can recall that Ms. Kristalina Georgieva said at the beginning of the pandemic, “we are going to stand and help our members by any means.” And I don’t think that collecting and harvesting surcharges from our own resources is help by any means. Thank you.

[00:46:48.740] – Jayati Ghosh

Thank you. Yes. Thank you so much, Shareen. That’s very sort of striking and I would say strong statement about this. Samah, I would just want to take you up on the gendered impact I think you outlined very beautifully and so also did Christina, the impact on the care economy and the unpaid work of women, which comes about because of the reduction of public services. But almost more critical today is food. We are really facing a hunger crisis, I think across the developing world. And we know that this is often very gender differentiated. If you could talk a little bit about how the need to pay surcharges affects fiscal capacity to compensate for these dramatic food price increases.

[00:47:33.250] – Samah Krichah

Yeah, actually, the situation that’s a very good question because the situation in Tunisia is very critical and we cannot really trace the causes of this because some of it is linked to the war on Ukraine because of the lack of, for example, wheat and flour, et cetera. But many of it come from an inability of the country to pay for importing goods since we do not have food security in this country because of other reasons.

[00:48:13.690] – Jayati Ghosh
[00:48:16.390] – Samah Krichah

The country is not able now to pay salaries for public sector in general without getting loans. And the public sector is the biggest employer in this country. Second, there is a severe lack in cooking oil, in flour, in rice and eggs for months. Right now, there is no single pack of flour in the supermarkets for individuals. Some restaurants can get some flour with their own ways. But for individuals and I’ve never seen this in my lifetime, this never happened after the independence maybe. Anyways. And what this means is that we are going slowly towards hunger affecting lower classes and women, especially because women are when it is proven in instances of wars, for example, or crisis or economic crisis, that women tend to have very unhealthy coping mechanisms, cutting their own food portions to give to their families, go out and have unsafe jobs, for example. And this is going up into the class ladder in a bit. Before, it was like the poorest people. Now a lot of low and middle class women are going out on the streets and collecting trash, for example, to make ends meet. So, yeah, I don’t know where we are heading right now, but the impact seems to be more and more dangerous.

[00:50:20.850] – Jayati Ghosh

That’s a very depressing outlook. And I’m going to open it up to audience questions. We already have a couple that is from Mohammad and I think go to ask him to come up with his question. But before that, Monica has a quick comment. Go ahead. Monica.

[00:50:43.690] – Monica Erwer

Yes, can you hear me?

[00:50:45.590] – Samah Krichah

Yes, thank you.

[00:50:46.550] – Jayati Ghosh

We can hear you.

[00:50:47.890] – Monica Erwer

I just had a general comment because just from the gender strategy discussion that was the other day on the new upcoming IMF strategy, gender strategy. And that was, many of you were there. But for you who wasn’t, I just wanted to mention that Mariana Williams said that what is important is not fixing the gap. It is actually to do some proper transformation. And I thought that was such an excellent expression. So I just wanted to leave that here because I think that it’s the same when we talk about surcharges or whenever we talk about a gender strategy, that it’s a matter of transformation and not fixing the gender gap. Thank you.

[00:51:41.110] – Jayati Ghosh

Absolutely right, Monica. I’m completely with you on that. So Amy has asked a question about when the IMF actually introduced the surcharges. I’m going to leave it to Christina to talk about that history. But before that, maybe Mohammed, would you like to give your question or should I read it out for you? Would you like to come and speak yourself, please? Hi, Mohamed. Are you there. Okay. If Mohammad is not coming, let me actually read out his question, which is broadly, he’s expressing that these opinions are shared by everyone who rejects these borrowing policies. But for countries, especially in North Africa, in the Middle East, there is no solution to achieve growth and financial equilibrium, if not for debt, even to the detriment of the social sector. So what is clear is that the international financial institutions are taking advantage of this need and are beginning to blackmail countries even by imposing conditions and adding fees that strain countries budgets. The question, in my view, is how to deal with the greed of the international financial institutions and adopt a just international financial policy that takes into account the particular situation in which the sources of energy are lacking in countries like ours. He’s from Morocco.

[00:53:05.590] – Jayati Ghosh

So I’m going to once again go back to the same order, if that’s all right. And then I would like to move the discussion in the next round, perhaps to what we can do, what not just the IMF should be doing, which we I think are pretty much clear it should not be imposing surcharges. But I think now we are a group of likeminded people who all agreed that they should be removed. What do we do? But first, Christina, perhaps you could answer the factual question and then talk about the broader issue.

[00:53:38.330] – Christina Laskaridis

Okay. Thanks. Yeah. I’m noticing that there is a bit of discussion in the chat at the moment. We can definitely share a whole host of resources about surcharges that have come out in our report with CEPR that has useful information. So just to answer, Amy, they were introduced as part of the Southeast Asian financial crisis in 97 with the establishment of the Supplemental Reserve Facility. They were basically level based charges, so charges that are based on the size. But there was also this kind of complicated it wasn’t quite time based. It was a repurchase expectation policy that was introduced where the member could request an extension to the maximum allowed under the repurchase obligation schedule. So there was sort of a complicated arrangement of surcharges that differed according to maturity, which facility you’d borrowed from. And that’s why in 2009, so about a decade after they were initially introduced, they were streamlined and allied across all what’s called the GRA facility, which is the GRA account facilities, which is non-concessional borrowing of the fund to sort of simplify the structure and create these two kind of clear types, level and time, which the actual size of the level and time was then changed again in the 2016 review. So initially they were slightly higher and they were reduced to 187% of quota in the 2016 review from 200% from the 2009. And the same with what’s considered a prolonged use of fund credit is sort of dependent on which facility you’re borrowing from. So this is all like technical information that you can find in these sort of resources and reports that have been made. I guess one thing that’s important to note is that the level of surcharges is very much aligned to how the IMF sees its sort of target precautionary balance and reserves that it wants to accumulate and its whole sort of funding structure model, which I think is really the basis of what we’re criticizing. And that’s how we should be seeing the sort of role that surcharges are playing as part of the IMF’s funding arrangement. Thanks.

[00:56:09.330] – Jayati Ghosh

That’s a very important point. And I think it provides an excellent base for country directors in the IMF who are against the surcharges to be critiquing it in the board as well. So, yeah. Now let’s go on to Shereen to respond to the broader question that Muhammad raised.

[00:56:34.930] – Shereen Talaat

Allow me to answer Muhammad in Arabic. And thank you for our interpreters here. You are doing a very good job. I’ll try to speak slowly for everybody to understand.

[00:56:56.630] – Shereen Talaat

The greed of the international financial institutions. In fact, we shouldn’t or in fact, this theory on which those institutions were built and these financing of institutions, they should not be at that level of greed, but there should be stability of the market. This is their role to make more stability. But however, what happened is that in practice, the criteria and institutions such as the institution we are talking about, which is the surcharge of this institution, in my opinion, is greed. And this is not fair at all. And what we can do at this point is that we push towards to do all efforts possible in order to push towards the same topic and to try to have our voices heard and follow all means and ways to make our voices heard in order to eliminate these unfair policies, especially the surcharge, which is not fair. And we already pay interest on the loan. So imagine that this is interest on the interest of the loan. So we pay more because we are more in need. Instead of spending this money on sectors that are vital sectors in themselves, we try or at least we are trying to catch up with development. On the contrary, we become poorer and poorer. So I would say that there was a campaign was launched, and this campaign has sent a letter to the executive directors of the IMF, the executive directors and representatives of the countries asking this letter includes all the recommendations or demands requesting them to abolish this unfair surcharge. And we will need to talk to the granting countries. We will tell them, the donor countries, we need to tell those donor countries that we need to be at the same level as they are, at least.

[00:59:53.230] – Samah Krichah

Okay, from my perspective, as someone who works on gender, this is so unfair, but it’s not surprising because women have been suffering from disproportionate impact of all economic policies that are seen to be gender neutral, but they are not and what Muhammad is talking about is more of an intersectional question that he is raising regarding that in the sense that we need to know how this came to be, why we came to be poor countries and developing countries, and second, how this is used to make us poor and to prevent us from spending money on human development. If we are prevented to have money for health, education, transportation, et cetera, there is less likely people in general to get access to education, to jobs, to wealth, et cetera, to create their own decent life and to move up the scale of [inaudible 01:01:27] women are hindered and they are facing double injustice from that in the sense that whatever men are suffering, women are suffering double of it because of societal values and economic policies.

[01:02:07.010] – Jayati Ghosh

Thank you, Samah. So, Amy has, I think, a very pertinent question. If the surcharges have been going on now for more than two decades, why are we protesting only now what has caused the current outcry? And I think this is a very good question because it also relates to the broader question of what we do about it. And if I can impose my view and then get your reactions to this, I think one of the big reasons is really lack of awareness. I think when the surcharges were first introduced, they were imposed, or it began to be imposed in the early 2000s on countries that were relatively few in number and didn’t have too many other things to worry about then to bring this up as a particularly unfair issue. I think even now they are relatively little understood. And because it is still a minority of countries that pay it, most countries, even those who go to the fund, don’t see it as their problem. Whereas in fact, it will very soon become their problem, I suspect. Samah, I’m going to come to you to respond just now. Finally, I think there is this real problem that we are not bringing out the stupidity, if you like, the logical stupidity of having surcharges because think of it here is an IMF funding its own operations on the basis of a surcharge, which is imposed because it hasn’t done its own job properly. In other words, because countries are not repaying either on time or are supposedly taking too large a loan. So you are creating an incentive for the IMF to encourage countries to have large loans or not to actually deliver on time. It’s a complete case of what economists would call incentive incompatibility. It’s the opposite of what any management should be doing. So the very idea that the fund has to fund its own operations from surcharges is completely misconceived and wrong. And so that also should be a basic element of the protest that is made in the IMF board. But, Samah, you wanted to respond.

[01:04:09.650] – Samah Krichah

Yeah, I wanted to respond to Amy because from my perspective, other panelists can have other ideas on this, from my perspective is that economy in general is a taboo question for normal people, for all citizens. They think it’s like an elite kind of language and it’s not accessible, et cetera. And the work that, for example, Arab Watch Coalition has been doing and other organizations in Tunisia is extremely valuable to explain to citizens that they have a say on economy. And I think the surcharges conversations now we heard about it because more and more people are talking about it because before that it was negotiated behind closed doors with governments and IFIs.

[01:05:10.970] – Jayati Ghosh

Shereen wants to come in as well. Please do Shereen Yes.

[01:05:15.530] – Shereen Talaat

I totally agree with Samah, but there is a factor that we cannot ignore. Maybe Christina also can illustrate this a little bit. Some countries don’t know actually that they are being surcharged because it doesn’t come out in the staff reports. They don’t speak about surcharges that we are paying in the reports. So it’s a huge problem. And I guess the first review was about surcharges, about this specific term was in 2016. So yes, we just knew about surcharges when crisis happened. And because we were digging and my colleagues myself digging on how to get out of this crisis. And here’s the surcharges. And actually there was, I believe last year there were a question in the Congress about surcharges. So for us, it’s very new, but the policy itself and the money that we are paying are not new at all. Thank you.

[01:06:26.500] – Jayati Ghosh

Yes, I think we also have to thank the government of Argentina and Martin Guzman, the finance Minister in particular, for bringing this out in the international fora as well. But yeah, Christina, would you like to add to that?

[01:06:40.670] – Christina Laskaridis

I was just going to say the same. I think the countries and those negotiating who’ve really brought the issue on the table, who’ve had to renegotiate programs whilst also being subject to huge surcharges, and Martin Guzman brought that really forcefully to the fore really of public discussion. And I mean, it is quite staggering. Argentina itself will be paying a huge amount, one of the biggest payers of surcharges. So there are people in the audience that I’m sure know a lot more about also Ukraine’s situation and how stubbornly the IMF refused to sort of integrate and alleviate sort of a relief on the surcharge policy whilst trying to arrange financing for Ukraine at the same time, one thing I wanted to just add was just from a recent review, just about the status quo on how small it is, quite a small proportion of countries that borrow from the GRA that are subject to these charges. So for level based, it’s 16 countries and 2021 out of a total of 53 that are borrowing from that account. And for time based, it’s five. So the portion of countries is quite small. But with the IMF’s lending sort of cycle predicted to rise because the pandemic that’s only going to grow.

[01:08:15.750] – Christina Laskaridis

The other thing is that there is, despite the stubborn refusal of certain powerful members of the board to not change the surcharge policy, there are directors. I think there was a discussion about lobbying particular ED’s on this issue. I’ll point to a review from the end of 21 on the adequacy of fund’s precautionary balances, which mentions that some directors were in favor of considering an alleviation of the surcharge policy in light of the pandemic. And were in favor of a sort of holistic review. And that’s, I think, where the sort of push needs to come really on those people who are sort of willing to look at that.

[01:09:03.970] – Jayati Ghosh

Yes. Thank you. Shadi has a good point. Shadi, would you like to say it, or shall I read it out? I think the point is making is absolutely right, that what’s happened now is that the current level at which surcharges start to kick in is going to become the new normal for many countries. In other words, because of the exceptional circumstances in which we find ourselves, many developing countries are going to be forced to borrow from the IMF or continue their borrowing or be unable to repay their existing debts. And so the debt level at which they will suddenly have to start paying surcharges is, in a sense, already upon them. Within the next year, they will be forced to pay this. Yeah. Christina.

[01:09:50.390] – Christina Laskaridis

Yes. And I agree, Shadi, and if I may, that was the point about governance reform, that if countries have larger if the quota represents a larger nominal amount, the financing needs can be covered without hitting that threshold. So that’s where the need for governance reform comes in.

[01:10:09.450] – Jayati Ghosh

That’s absolutely true, since we’re on the governance reform. And let me put this to all of you. The trouble is really that the surcharges are part of a broader package of the way the IMF functions, which is making it increasingly untenable for the world that we’re in and the global economy that they’re in. Okay. So the conditions are all about cutting down state spending. They are not about dealing with the private sector at all. They allow capital flight in ways that completely undermine the loans that have been given. So when they give the loan, they don’t even ask that country to make sure that there are limits to how much private capital can flow out of the country, which you would think is the kind of obvious. It’s what any private lender would do, let’s face it, that I’m giving you money not so that you can go and give it to somebody else, but for you to meet your needs, that doesn’t seem to happen. The fact that we are now facing a global crisis that is not of these countries making. And so this is a case really, for compensatory financing. If ever there was one, like we had in the 1970s. But after the first [inaudible 01:11:13] price shock, there was compensatory financing to developing countries. This is such an open and shut case for compensatory financing. The fund doesn’t do that. Instead, it tightens the screws on countries that have been affected by these global forces not of their own making. Amy has asked yet another question which I think is very interesting, that the surcharge applies only to middle income countries because they don’t qualify for concessional loans. Did it happen before that the country went from being classified as a middle income country to a low income one? No, it has never happened. This question might look unrelated to surcharge, but with increased debts and surcharges, countries can really become poorer. Yes. But I think I’m going to come back to all of you. And I know Luz would like to share a thought, but just on this particular question, the threshold countries get classified and then they get stuck in that classification. It’s not very dynamic. It takes forever. And the fact that only low income are considered for so many different kinds of things, including the RST, the new fund that has been set up for climate is another huge problem. In other words, the surcharges is a particular problem, which is one aspect of a larger problem with the overall way in which the fund functions right now. Luiz, please go ahead.

[01:12:45.410] – Luiz Viera

Thank you very much. I’m Luiz Viera with the Bretton Woods Project. Just a quick thing we mentioned. It’s true that Argentina brought the issue to light recently, but also speaking a bit about the political economy of this issue and hopefully relating to what to do about, it is interesting right, because we had a similar panel on the CSPF during annuals and we tried to invite government officials from governments which are paying surcharges. And Argentina was the case. And because they were negotiating their loan package with IMF, people refuse. And I say this because it shows you the power that the fund has over the borrowers during the negotiations for loan programs, because, as Christina said, this is the last resort. Right. They see it as the last resort. The negotiating power is at least perceived to be very skewed. So what does this mean? It means, I think, to me and linking to what Samah and Shereen said, because civil society and groups are not aware that this is happening, it doesn’t create any pressure from within the country to have their representatives push back against surcharges at the global level. And the other thing that I would say, just to link to a point that Christina said about governance reform, it’s quite interesting right? Because there was governance reform and quota reform in 2016 right? And what you see is that there was some shifting of quotas to benefit, for example, China and a few other countries, but never at the expense of the European powers, for example, or the major shareholders. And instead, actually some of the quota of the low income countries were actually decreased. So instead of taking a progressive step in the right direction, which is desirable, obviously China represents a larger share of the economy. So it’s just that they have a greater quota. But also this was done precisely at the expense still of lower- and some middle-income countries. So I can only agree that we need to really push for a radical rethinking of the way the quota system works, look at the formulas again, and begin at the ground level to push our governments to push back against the key shareholders. Thanks.

[01:15:04.250] – Jayati Ghosh

Very important points, Luiz. I don’t know if there are any other comments or questions from the participants, but just in the final closing minutes, then of the discussion, let me go back to that question about what do we do? I think some ideas have already come out right. And clearly one very big part of this is just knowing about it, getting the information. I think Shereen was quite insistent that they hide this information. So for everyone, activists everywhere to get hold of this information, spread it, spread the word, disseminate about it, and lobby for the removal of these is absolutely critical and important. What else? What are the kinds of arguments that we can present to those who will have to go and fight it out in the IMF board? Christina, first.

[01:16:03.310] – Christina Laskaridis

Thanks, Jayati. I’m not sure about the IMF board or sort of chain that Luiz was talking about through domestic sort of civil society and sort of internal pressures. But I think the sort of information is power argument is really strong. Certainly the comparisons between amounts paid on debt service as compared to health expenditures, for instance, in the pandemic are very powerful. They’ve been very powerful throughout the pandemic. Similarly, the amounts that the IMF has put towards financing the pandemic promised versus actually distributed funds, the pithy amount that’s gone to the debt service relief is a very, very small portion of what it’s actually receiving in surcharge income. So we need to challenge that rhetoric and argument of the IMF saying that it’s really pulling its weight when it’s not, and kind of turning that around to really show things for what it is. Another point which I think goes to what Monica was saying earlier, and it would be nice to hear more from her as well about the gender strategy that the IMF has proudly launched, and just to try and link what hasn’t been linked really more clearly. So the idea that the IMF is trying to present itself by mainstreaming gender and all of its activities whilst at the same time maintaining a surcharge policy that’s deeply disproportionately affecting women and girls. So the fact that the IMF can pursue policies whilst not really being able to weigh up the actual negative impacts that it has. At the same time, I think we should try and work on those issues to sort of highlight them as best we can.

[01:17:47.870] – Jayati Ghosh

Thank you so much, Christina. I’m going to ask Monica to come back on that because I also have a question on that gender strategy which perhaps we can close with. Okay. Shereen and then Samah. Shereen, will you go ahead?

[01:18:00.570] – Shereen Talaat

Yes, I totally agree with Christina here and Luiz. And again, we need to join the effort. We need to work on country levels in our countries, and we need to work within the board of directors, too. And also I encourage our colleagues in the donor countries to speak with their government. It’s very important to help [inaudible 01:18:30] in the Congress to speak with whomever can have a say in that. And the linkage between the other policies inside the IMF is very important. It’s not only the surcharge here, it’s also debt and austerity. And they are very related to each other. Countries that pay a huge amount of debt suffering already from debt, they also suffer because of this, because of surcharges, because of that, they are suffering from budget cuts, measures, decreasing public spending, and gradual elimination of social subsidies. So it is all linked to each other because they are paying surcharges. Because Egypt is paying surcharges, people are now being [inaudible 01:19:20] to buy a small piece of bread. So this is how I see. Thank you.

[01:19:27.710] – Jayati Ghosh

I think that’s very important. Thank you, Shereen. Samah.

[01:19:34.840] – Samah Krichah

I totally agree with Christina in the sense that the IMF should approach its own policies comprehensively, not having contradictory policies. The second thing is that the gender strategy or the gender issue in general is not a box ticking exercise. And for that, if you allow me, I have a number of recommendations that I would like to give you. So there is a need to include gender implications of broader policy based lending on macroeconomic reform.

[01:20:12.290] – Jayati Ghosh

If you’re going to read, please don’t read. If you can avoid it and just be slow because interpreters cannot go, okay. Try to avoid reading it.

[01:20:20.810] – Samah Krichah

Okay. So basically, the IMF gender policies should always include rights based language and documents and include men’s and women’s equal rights as a core development objective. Because this is the point of having policies. the IMF must attach a price tag to gender benchmarks and thereby encourage governments to reallocate spending on gender efforts, ensuring budget allocation. This can be done for example, in the updates of the country frameworks. The IMF must include the analysis of the civic space, environment and freedom of association as part of the creation of country engagement frameworks and must be part of the risk assessment, environmental and social frameworks and safeguards. Part of this documentation needs to include threats against women and human rights defenders, unionists under [inaudible 01:21:19] against CSOs. And finally, the IMF needs to ensure that the gender consultation is conducted in inclusive and transparent manner and ensure a diverse set of women’s organizations are represented in consultations through targeted outreach. This is the recommendation that you would like.

[01:21:44.790] – Jayati Ghosh

Thank you very much for that. I’m going to ask Monica to actually tell us very briefly whether the outcomes of the discussion that you had with the IMF, I think it was the Vice President in charge of gender or something, and whether that [inaudible 01:22:00] . But can I add a little bit? I’m going to slightly disagree with you Samah, on this. I really am sick and tired of them putting it into their documents because it doesn’t mean a thing. We have to make them walk the talk. They love the talk. They will put it in their gender documents. They put it in the strategy page. But they will have gender all over the place. It will be full of all the good verbiage. And we have been there. We’ve been calm in the gender budgeting exercise into believing the verbiage rather than the reality. I really think to go back to what Christina was saying, we should be getting out to them on these specific policies. If you say you’re also pro women and conscious of gender, why are you allowing surcharges? Why are you insisting on cutting down public spending? Why are you requiring austerity? Why are you not preventing capital flight?

[01:22:52.030] – Jayati Ghosh

Like, in other words, let’s ask them to do the specifics. I was a little worried when I saw the outcome. I haven’t listened to that meeting, but the tweet [inaudible 01:23:03] was really wonderful and said all the right things and responded very well and said she will do that. I want to see it in action and in strategy. I don’t want to see the words again. So I would like Monica to respond with that.

[01:23:16.650] – Monica Erwer

Well, I’m not a very good expert on IMF’s upcoming gender strategy. I think Friederike is with us from Bretton Woods. I think she knows this better. I just want to say that I certainly agree because Ratna has all the perfect answers. And also, however, I do think that it’s good that there is a gender strategy will be a gender strategy because then there is something to relate to. But I also think that sometimes it’s nearly a problem to have a strategy because then you can always relate to that which is good. But then IMF is sort of saying, okay, we have a gender strategy. It’s all fine. So one thing that I think is really important, except for what I was saying before, Mariam Williams said that we should not fix and it’s good to fix the gender gap. But that’s not what it’s about. It’s about power relations and transformation is that I think monitoring is important. And I think here the watchdog of women’s rights organizations are important. And I think it’s quite interesting. I mean Kvinna till Kvinna is quite new in this game. We have not worked with microeconomics at all before. We work on a very micro grassroots level. But what is interesting is that we can see that there is nearly none other women’s rights organizations that is part in this dialogue. And I think that says something in itself. And finally, I do think that if we look, I don’t know IMF enough, but I know World Bank. They have an independent evaluation group, which might not be super independent, but it’s still called independent evaluation group. And I went to a meeting there, and it was quite clear that I think from all the evaluations they’ve done, one has been about gender. So I think these kind of tools that is actually already there can be used more. But if there is four minutes left, Friederike, please, can you say something here? Because you know this gender strategy much better than I sorry to put you on the spot. Maybe you’re not available right now, but if you are, it would be nice if you said a few sentences.

[01:26:09.490] – Jayati Ghosh

Friederike seems to be here but… It was really about whether the IMF gender strategy is going beyond the usual talk and all the good stuff that frankly, I’m really a little tired of hearing.

[01:26:32.270] – Shereen Talaat

She has a problem.

[01:26:39.450] – Jayati Ghosh

Okay. She won’t be able to come in. All right, fine. Fair enough. Okay. I don’t know if there is any. Would any of you like to say anything more?

[01:26:50.310] – Luiz Viera

May I make just one quick comment? What Monica mentioned about the IEG the independent evaluation group at the bank, just to let people know that there is a movement afoot. Well, there are a couple of things that maybe we should consider, one of which there are efforts to bring international organizations responsible under international law. Human rights law, right. As we said, the former independent expert foreign debt and human rights Juan Pablo Bohoslavsky, he has analyzed the surcharge policy, and he says that they violate international law. So one of the avenues to consider those organizations that work on international law, et cetera, is how can we ensure that we continue to move to try to bring international organizations back under international law? The other thing I was going to say that relates to that is there’s also an effort to develop an ombuds mechanism within the IMF, which I think is quite important. It doesn’t exist yet, but that’s another structural thing where we could drive for change, structural changes to IMF alongside of working on quoted reform, et cetera. If you had an ombudsman type of system, then the issues related to the violation of gender rights, in particular by policies, could at least be brought to a different body and addressed. So I just wanted to share those bits of information. Thanks.

[01:28:15.890] – Jayati Ghosh

Thanks, Luiz. That’s very useful. I think Monica has also got her hand up. So maybe Monica, the last word goes to you.

[01:28:23.370] – Monica Erwer

Just one tiny, tiny thing. Again, talking about doing advocacy and push the banks, IFIs generally, I think that being so young in this game. It’s really difficult because there is such a language, there are so many structures, there’s so much to learn. And when we talk to our 150 women’s rights partner organization, none of them understand nearly anything about this. So I think capacity building from within civil society to be able to speak the language and push is super important. Thank you.

[01:29:04.170] – Jayati Ghosh

Absolutely. I can see that there’s a lot of good resources being shared in the chat so I hope this chat is going to be saved and can be distributed to all the participants. And in the meantime, I think I just want to close this really excellent and very illuminating discussion. Thanking all of your speakers. Thank you, Monica and Luiz and everybody else who has organized this and I guess that’s it.

[01:29:33.430] – Luiz Viera

Thank you very much.

The IMF’s newly established Resilience and Sustainability Trust sets the reserve asset status standard for SDR investments and creates a roadmap for regional development banks to onlend rich countries’ SDRs to developing countries in need of financing for sustainable development, and climate financing.

The IMF has published the details of the Resilience and Sustainability Trust (RST) that the IMF Executive Board approved during its 2022 Spring Meetings.

The idea for the RST was endorsed by the G20 last fall, with the IMF managing director and staff taking quick action to set up and obtain Executive Board approval for this new instrument. 

The Fund has repeatedly mentioned three avenues for rechannelling the SDRs issued in August 2021: existing IMF trusts such as the Poverty Reduction and Growth Trust (PRGT) and the Catastrophe Containment and Relief Trust (CCRT), the newly-created RST, and multilateral development banks (MDBs). While the Fund has focused on these three, there are more options for re-channeling SDRs including bilateral donations, donations for debt relief or the newly-created administered account for Ukraine.

Among those committed to making SDRs a key resource for development finance, the MDB option is seen as the best path to fulfill this vision. Development experts have been proposing a “development link” for SDRs since the mid-1960s.

Why MDBs? Because they have previously opened “prescribed-holder” SDR accounts at the IMF. Because they also have de jure and de facto preferred creditor status in most of the world, which usually translates into very high credit ratings. And because MDBs — and especially regional development banks  — are more closely aligned with the development needs, and climate investment needs, of developing countries, and are better suited to support the type of project-based financing that is needed. In contrast, IMF loans are focused on responding to macroeconomic and balance of payments needs. 

Wealthy countries and China received two-thirds of all the newly created SDRs. But they don’t need them as they have their own mechanisms to finance government spending, have adequate reserve cushions, have reserve-issuing status, and/or have access to dollars via the US Federal Reserve. 

France was behind a proposal to relend rich countries’ SDRs to Africa, principally via the African Development Bank (AfDB). The AfDB came up with an innovative proposal that considers SDR deposits from rich countries in the AfDB to be a hybrid instrument. From the perspective of the AfDB, these would be capital, or quasi-capital, injections that would allow for leverage and increased lending to developing countries. From the perspective of rich countries, they would remain as reserve assets. This assessment was supported by French investment bank Lazard. 

On February 18, 2022, IMF Managing Director Kristalina Georgieva gave a speech at the EU-Africa Summit, arguing that SDRs could not be deposited at MDBs because if so, they would lose their reserve asset status. A few days later, this statement was accompanied by a footnote that said that this assertion only applied to EU member countries. In a panel event with civil society organizations on April 18, 2022, the IMF reiterated the MDB rechannelling option.

In her speech in February, Georgieva had declared that only the IMF could guarantee reserve asset status for SDR investments. According to the IMF MD:

the reason our members cannot channel SDRs directly to the regional development banks is because we have to protect the reserve quality of this asset called “Special Drawing Rights.” And clearly, the responsibility to guarantee this reserve asset quality rests on the shoulders of the IMF. It is vitally important for our members who are willing to provide the SDRs that we do this in legal compliance with the Fund’s regulations.

The implied argument was that because the IMF is the issuer of SDRs, only the IMF can guarantee SDRs’ immediate liquidity. But this entails an erroneous understanding of the IMF’s Articles of Agreement and the IMF’s balance sheets. 

The issuer of SDRs is not the IMF General Department (which is the department in charge of loans and all regular operations). The issuer of SDRs is the Special Drawing Rights Department (SDRD), created in 1969. The SDRD has its own accounting and its own balance sheet, and is legally separate from the General Department. The SDRD is the only entity that can create SDRs, but it cannot lend them; it can only allocate them to countries. 

From a banking perspective, the IMF General Department is a customer of the SDRD. The IMF itself has an account at the SDRD: it is part of the General Resources Account. When SDRs are issued, none are allocated to the IMF. The IMF receives SDRs from countries when they pay their quota subscriptions with SDRs, or when they repay loans with SDRs. The SDRs held in the IMF’s trusts are pooled in the IMF’s General Resources Account. 

So what does all this have to do with the RST and financing for development? The new RST legal documents state that the way the RST guarantees that SDR contributions will maintain their “reserve asset status” is not simply by virtue of the fact that they are contributed to a trust at the IMF, but by including an “encashment requirement” composed of a tranche of the Trust’s loan account plus its deposit and reserve accounts. 

Figure 1. RST Financial Framework

Source: IMF

The relevant parts of the financial framework related to RST liquidity are highlighted in the IMF figure (above). In RST nomenclature, the liquid tranches of the RST are 20 percent of the Loan Account that serve as a buffer, plus 20 percent of the loan amount in the Deposit Account, plus 2 percent of the loan amount in the Reserve Account. The sum is equivalent to 34.4 percent of all of the RST accounts: roughly one-third. These calculations are shown in Table 1 below.

Table 1. Financial distribution of contributions to RST

Source: Author’s analysis based on IMF’s RST report

The effective lending of the RSST will thus mobilize 65.6 percent of the contributions to the Trust while 34.4 percent of these will remain liquid. This means that, for every dollar that the RST effectively lends, 52 cents must be left untouched at the RST. This encashment requirement will serve as a buffer if rich countries decide to withdraw their SDR contributions without advanced notice. The IMF considers the size of the encashment buffer (one-third of the total fund) to be enough to guarantee liquidity (reserve asset status) of the SDR contributions.

Similarly, top-rated regional development banks like the AfDB can easily open a line for receiving SDR reserve asset status contributions from rich countries as long as they can guarantee that at least one-third of the SDRs remain untouched and are not lent. The rest of the financial specifications, such as maximum grace period, maximum term, and interest rate structure can also be copied from the RST.

There is nothing that should stop other development banks that are already SDR prescribed holders from immediately adopting the proposal made by the AfDB. These include the African Development Fund, the Asian Development Bank, the Islamic Development Bank, the Nordic Investment Bank, and the International Fund for Agricultural Development.

There will be one difference between the RST and the development banks: the lack of macroeconomic conditionality (which the IMF calls “strong policy safeguards”). Given the fraught history of IMF conditionality in lending, this is a positive. 

And fortunately, nobody can seriously claim that conditionality attached to RST lending (basically having an ongoing upper-tranche credit program with the IMF), is what makes SDRs contributed in the RST fulfill the reserve asset status.

The IMF, in its April 2022 policy paper on the RST, noted that: “Global financing needs for climate change alone are estimated in the range of $3–4 trillion on an annual basis, dwarfing the $500-600 billion of climate finance mobilized annually from MDBs, climate funds, and markets.” 

This is why the world needs a new 2 trillion SDR allocation, but also a large-scale maturity transformation of SDRs from reserve asset status to climate and development investments.

The IMF should not lock out regional development banks from making use of SDRs by erroneously claiming that only it can guarantee rechannelled SDRs’ reserve-asset status. With the design of the RST, the IMF has set a standard for SDR liquidity. Let that standard be applied to development institutions anywhere, and let the development link — and climate financing — for SDRs finally see the light of day.

The IMF’s newly established Resilience and Sustainability Trust sets the reserve asset status standard for SDR investments and creates a roadmap for regional development banks to onlend rich countries’ SDRs to developing countries in need of financing for sustainable development, and climate financing.

The IMF has published the details of the Resilience and Sustainability Trust (RST) that the IMF Executive Board approved during its 2022 Spring Meetings.

The idea for the RST was endorsed by the G20 last fall, with the IMF managing director and staff taking quick action to set up and obtain Executive Board approval for this new instrument. 

The Fund has repeatedly mentioned three avenues for rechannelling the SDRs issued in August 2021: existing IMF trusts such as the Poverty Reduction and Growth Trust (PRGT) and the Catastrophe Containment and Relief Trust (CCRT), the newly-created RST, and multilateral development banks (MDBs). While the Fund has focused on these three, there are more options for re-channeling SDRs including bilateral donations, donations for debt relief or the newly-created administered account for Ukraine.

Among those committed to making SDRs a key resource for development finance, the MDB option is seen as the best path to fulfill this vision. Development experts have been proposing a “development link” for SDRs since the mid-1960s.

Why MDBs? Because they have previously opened “prescribed-holder” SDR accounts at the IMF. Because they also have de jure and de facto preferred creditor status in most of the world, which usually translates into very high credit ratings. And because MDBs — and especially regional development banks  — are more closely aligned with the development needs, and climate investment needs, of developing countries, and are better suited to support the type of project-based financing that is needed. In contrast, IMF loans are focused on responding to macroeconomic and balance of payments needs. 

Wealthy countries and China received two-thirds of all the newly created SDRs. But they don’t need them as they have their own mechanisms to finance government spending, have adequate reserve cushions, have reserve-issuing status, and/or have access to dollars via the US Federal Reserve. 

France was behind a proposal to relend rich countries’ SDRs to Africa, principally via the African Development Bank (AfDB). The AfDB came up with an innovative proposal that considers SDR deposits from rich countries in the AfDB to be a hybrid instrument. From the perspective of the AfDB, these would be capital, or quasi-capital, injections that would allow for leverage and increased lending to developing countries. From the perspective of rich countries, they would remain as reserve assets. This assessment was supported by French investment bank Lazard. 

On February 18, 2022, IMF Managing Director Kristalina Georgieva gave a speech at the EU-Africa Summit, arguing that SDRs could not be deposited at MDBs because if so, they would lose their reserve asset status. A few days later, this statement was accompanied by a footnote that said that this assertion only applied to EU member countries. In a panel event with civil society organizations on April 18, 2022, the IMF reiterated the MDB rechannelling option.

In her speech in February, Georgieva had declared that only the IMF could guarantee reserve asset status for SDR investments. According to the IMF MD:

the reason our members cannot channel SDRs directly to the regional development banks is because we have to protect the reserve quality of this asset called “Special Drawing Rights.” And clearly, the responsibility to guarantee this reserve asset quality rests on the shoulders of the IMF. It is vitally important for our members who are willing to provide the SDRs that we do this in legal compliance with the Fund’s regulations.

The implied argument was that because the IMF is the issuer of SDRs, only the IMF can guarantee SDRs’ immediate liquidity. But this entails an erroneous understanding of the IMF’s Articles of Agreement and the IMF’s balance sheets. 

The issuer of SDRs is not the IMF General Department (which is the department in charge of loans and all regular operations). The issuer of SDRs is the Special Drawing Rights Department (SDRD), created in 1969. The SDRD has its own accounting and its own balance sheet, and is legally separate from the General Department. The SDRD is the only entity that can create SDRs, but it cannot lend them; it can only allocate them to countries. 

From a banking perspective, the IMF General Department is a customer of the SDRD. The IMF itself has an account at the SDRD: it is part of the General Resources Account. When SDRs are issued, none are allocated to the IMF. The IMF receives SDRs from countries when they pay their quota subscriptions with SDRs, or when they repay loans with SDRs. The SDRs held in the IMF’s trusts are pooled in the IMF’s General Resources Account. 

So what does all this have to do with the RST and financing for development? The new RST legal documents state that the way the RST guarantees that SDR contributions will maintain their “reserve asset status” is not simply by virtue of the fact that they are contributed to a trust at the IMF, but by including an “encashment requirement” composed of a tranche of the Trust’s loan account plus its deposit and reserve accounts. 

Figure 1. RST Financial Framework

Source: IMF

The relevant parts of the financial framework related to RST liquidity are highlighted in the IMF figure (above). In RST nomenclature, the liquid tranches of the RST are 20 percent of the Loan Account that serve as a buffer, plus 20 percent of the loan amount in the Deposit Account, plus 2 percent of the loan amount in the Reserve Account. The sum is equivalent to 34.4 percent of all of the RST accounts: roughly one-third. These calculations are shown in Table 1 below.

Table 1. Financial distribution of contributions to RST

Source: Author’s analysis based on IMF’s RST report

The effective lending of the RSST will thus mobilize 65.6 percent of the contributions to the Trust while 34.4 percent of these will remain liquid. This means that, for every dollar that the RST effectively lends, 52 cents must be left untouched at the RST. This encashment requirement will serve as a buffer if rich countries decide to withdraw their SDR contributions without advanced notice. The IMF considers the size of the encashment buffer (one-third of the total fund) to be enough to guarantee liquidity (reserve asset status) of the SDR contributions.

Similarly, top-rated regional development banks like the AfDB can easily open a line for receiving SDR reserve asset status contributions from rich countries as long as they can guarantee that at least one-third of the SDRs remain untouched and are not lent. The rest of the financial specifications, such as maximum grace period, maximum term, and interest rate structure can also be copied from the RST.

There is nothing that should stop other development banks that are already SDR prescribed holders from immediately adopting the proposal made by the AfDB. These include the African Development Fund, the Asian Development Bank, the Islamic Development Bank, the Nordic Investment Bank, and the International Fund for Agricultural Development.

There will be one difference between the RST and the development banks: the lack of macroeconomic conditionality (which the IMF calls “strong policy safeguards”). Given the fraught history of IMF conditionality in lending, this is a positive. 

And fortunately, nobody can seriously claim that conditionality attached to RST lending (basically having an ongoing upper-tranche credit program with the IMF), is what makes SDRs contributed in the RST fulfill the reserve asset status.

The IMF, in its April 2022 policy paper on the RST, noted that: “Global financing needs for climate change alone are estimated in the range of $3–4 trillion on an annual basis, dwarfing the $500-600 billion of climate finance mobilized annually from MDBs, climate funds, and markets.” 

This is why the world needs a new 2 trillion SDR allocation, but also a large-scale maturity transformation of SDRs from reserve asset status to climate and development investments.

The IMF should not lock out regional development banks from making use of SDRs by erroneously claiming that only it can guarantee rechannelled SDRs’ reserve-asset status. With the design of the RST, the IMF has set a standard for SDR liquidity. Let that standard be applied to development institutions anywhere, and let the development link — and climate financing — for SDRs finally see the light of day.

Around the world, everyone from economic justice organizations, to Nobel Prize-winning economists, to members of Congress are calling for the elimination of a once little-known practice of the International Monetary Fund (IMF): the imposition of punitive, hidden fees on countries with high levels of outstanding IMF debt. In a report published last year, my coauthors and I called these surcharges “counterproductive and unfair.” As the movement to reverse this senseless policy gains steam, and in advance of the upcoming 2022 IMF Spring Meetings, I address some of the false rationale behind surcharges, and then take a look at one of their understudied impacts: their disproportionately harmful effects on women and girls.

What are IMF surcharges?

The IMF provides financial assistance to countries with balance of payment problems, often subject to conditionalities of macroeconomic austerity, which can lead to a host of well-known, devastating impacts. Surcharges are additional costs, on top of normal interest payments and other fees, that the IMF levies on its regular lending. Currently, there are two types of surcharges: those that relate to the size of the loan (200 basis points), and those that relate to length of time that the loan is still outstanding (100 basis points). 

Large loans are typically needed by countries in a deep crisis, so countries in a prolonged, significant downturn end up paying more when they borrow from the Fund. As the surcharges are over and above the IMF’s headline lending rate, and when all borrowing costs are put together, they constitute a severe punitive cost for borrowing countries. The details regarding the surcharges incurred are opaque and not published by the Fund, but our report estimated that 45 percent of all non-principal debt service owed to the IMF by the five largest borrowers (Argentina, Ecuador, Egypt, Pakistan, and Ukraine) are surcharges. In 2021, the five largest borrowers account for 95 percent of surcharge income, which makes up approximately half of the Fund’s operating income. As an example, Argentina will have spent $3.3 billion on surcharges from 2018 to 2023 — nine times the amount needed to fully vaccinate everyone in the country against COVID-19.

Why does the Fund apply surcharges?

The main rationales for surcharges, according to the Fund, are to:

  1. Disincentivize large or prolonged use of Fund credit

  2. Encourage early repayment 

  3. Manage its own credit risk

  4. Build up precautionary balances for the Fund

Let’s examine these one by one. 

First, in almost all cases, countries in crisis that borrow from the Fund have no other place to go; by going to the Fund, they lose control over policy and often institute a procyclical, contractionary austerity program. A country does not need surcharges to be disincentivized from borrowing from the Fund: the economic reform plan, stigma, and domestic political and socioeconomic costs are bad enough. 

Second, there is little evidence that surcharges disincentivize prolonged use and encourage early repayment of Fund credit, not least because “prolonged use” is arbitrarily defined as a cutoff in the middle of loan durations. Surcharges are not the main reason that countries have repaid the Fund early. Of the few cases where early repayment has occurred (only eight since 2009), it was primarily done to avoid IMF program stigma and the costs of conditionality. The IMF does not depend on early repayment for its available lending firepower, which is orders of magnitude larger than surcharge income and is composed of quotas, new arrangements to borrow, and bilateral borrowing agreements. Countries should be rewarded for paying early, and not be penalized with surcharges for paying according to the original schedule.

Third, the argument that surcharges are needed to help manage the Fund’s credit risk ignores its status as preferred creditor, ranking primus inter pares in any debt repayment difficulty that a sovereign borrower may experience. The tight noose around its borrowers, in the context of a dysfunctional sovereign debt architecture, means that IMF loans are always repaid. 

Fourth, the rationale that surcharges are an income generator to accumulate precautionary balances is problematic. Relying on those in deep crisis to fund itself is unethical, and goes against the IMF’s mission. The IMF’s own projections show that regular lending charges can cover all of its operating expenses, and it does not need surcharges to operate. For example, for 2023, the IMF projects that precautionary balances from all its revenue sources will grow from SDR 20.8 to 24.9 billion — a SDR 4.1 billion difference. However, the IMF will receive SDR 1.53 billion in surcharge revenue over the same period. 

The impact of surcharges on women and girls

IMF surcharges are problematic not only because they fail to do what they say on the tin. They are actively harmful, and conflict with other IMF goals and policies — particularly the goal of ensuring that IMF policies do not harm the rights and well-being of women and girls. 

In an effort to mainstream gender across the Fund, the IMF recently launched its first-ever gender strategy to create a gender lens across all lending, surveillance, and technical assistance operations. The reasons for doing this are obvious: women are significantly disadvantaged in the labor market, and, in a crisis, are more likely to lose jobs, face lower wages, deal with worse working conditions, and endure increased domestic care work. Furthermore, there is ample evidence that IMF policies have a disproportionate, negative impact on women and girls. For example, in 2014–15, 165,000 civil service jobs were cut in Ukraine, 75 percent of which had been held by women, primarily in nonmanagerial positions.

Surcharges only make this worse, because they are punitive and procyclical, making an economic  downturn or crisis even worse for affected countries, and exacerbating the  devastating effects on women and girls. Women are more likely to be informal workers, without the benefits of social and legal protections. For example, the IMF praised Egypt’s decision to enact public sector layoffs in 2015 despite the fact that it “disproportionately disadvantages women, who will be forced to compete in a discriminatory unregulated private sector where they earn 35-40 per cent less than their male counterparts,” as Mahinour el-Badrawi and Allison Corkery of the Center for Economic and Social Rights noted.

Women and girls perform the bulk of unpaid household care work. When cuts affect child care or raise the price of basic amenities, unpaid female household labor expands significantly. IMF policies targeting public expenditure have an impact on unpaid labor and women’s “time poverty.” These harmful conditions undermine the provision of public services such as access to clean water, sanitation, education, and child care — directly impacting child and maternal mortality rates

Surcharges are not gender-neutral, because they further siphon away valuable budget resources from countries in crisis. For example, according to a number of gender justice NGOs, in Pakistan, where women perform nine times more unpaid work than men: “in December 2019… spending on cash transfers, health and education each fell short of their targets, while all performance criteria that cut or froze public sector jobs providing crucial services were observed.” From 2021 to 2023, Ukraine will pay roughly $423 million in surcharges — nearly a quarter of its entire health-sector fiscal effort during the pandemic. By funneling off much-needed cash, surcharges redirect scarce resources away from providing social protection to those who need it. 

The gendered impacts of the IMF’s surcharge policy result not only from the redirecting of resources needed elsewhere; extracting surcharges from debt-burdened countries actually reduces the borrowers’ ability to repay their debts. Debt crises constrain development prospects, undermining the capacity to create conditions for the realization of human rights — especially economic, social, and cultural rights, and the right to development — and surcharges only add to this debt burden. Despite there being a principle of primacy of human rights over debt payments, debt repayment is regularly carried out at the expense of human rights. By draining extra resources away from countries with severe debt repayment problems, surcharges leave less funds available for debt service, and have a negative impact on growth. Squeezing too much out of a country leaves it with unsustainable debts, meaning it will likely need to reschedule again in a short amount of time. This ultimately leaves creditors worse off too. 

Conclusion

The IMF’s launch of its much-publicized new gender strategy, while its surcharge policy remains intact, should be seen for what it is: hypocrisy. The social costs of debt crises are disproportionately borne by women, who step in to compensate for falling domestic incomes and for failing public provision of basic services. Women’s increased marginalization and impoverishment deepens gender inequality and the feminization of poverty. The surcharge policy is evidence of how incapable the Fund is in translating its attempt to mainstream gender into clear operational guidance, and what steps are needed to uphold women’s rights. 

The IMF’s refusal to eliminate its surcharge policy is indicative of a stubborn unwillingness to acknowledge or address the negative impacts of its policies. Along with the long-voiced need for the Fund to critically assess the gendered impact of its conventional fiscal, monetary, structural, and labor market policies is the need to eliminate surcharges, in order to fulfill the promise of developing truly gender-sensitive policies and strategies.

Around the world, everyone from economic justice organizations, to Nobel Prize-winning economists, to members of Congress are calling for the elimination of a once little-known practice of the International Monetary Fund (IMF): the imposition of punitive, hidden fees on countries with high levels of outstanding IMF debt. In a report published last year, my coauthors and I called these surcharges “counterproductive and unfair.” As the movement to reverse this senseless policy gains steam, and in advance of the upcoming 2022 IMF Spring Meetings, I address some of the false rationale behind surcharges, and then take a look at one of their understudied impacts: their disproportionately harmful effects on women and girls.

What are IMF surcharges?

The IMF provides financial assistance to countries with balance of payment problems, often subject to conditionalities of macroeconomic austerity, which can lead to a host of well-known, devastating impacts. Surcharges are additional costs, on top of normal interest payments and other fees, that the IMF levies on its regular lending. Currently, there are two types of surcharges: those that relate to the size of the loan (200 basis points), and those that relate to length of time that the loan is still outstanding (100 basis points). 

Large loans are typically needed by countries in a deep crisis, so countries in a prolonged, significant downturn end up paying more when they borrow from the Fund. As the surcharges are over and above the IMF’s headline lending rate, and when all borrowing costs are put together, they constitute a severe punitive cost for borrowing countries. The details regarding the surcharges incurred are opaque and not published by the Fund, but our report estimated that 45 percent of all non-principal debt service owed to the IMF by the five largest borrowers (Argentina, Ecuador, Egypt, Pakistan, and Ukraine) are surcharges. In 2021, the five largest borrowers account for 95 percent of surcharge income, which makes up approximately half of the Fund’s operating income. As an example, Argentina will have spent $3.3 billion on surcharges from 2018 to 2023 — nine times the amount needed to fully vaccinate everyone in the country against COVID-19.

Why does the Fund apply surcharges?

The main rationales for surcharges, according to the Fund, are to:

  1. Disincentivize large or prolonged use of Fund credit

  2. Encourage early repayment 

  3. Manage its own credit risk

  4. Build up precautionary balances for the Fund

Let’s examine these one by one. 

First, in almost all cases, countries in crisis that borrow from the Fund have no other place to go; by going to the Fund, they lose control over policy and often institute a procyclical, contractionary austerity program. A country does not need surcharges to be disincentivized from borrowing from the Fund: the economic reform plan, stigma, and domestic political and socioeconomic costs are bad enough. 

Second, there is little evidence that surcharges disincentivize prolonged use and encourage early repayment of Fund credit, not least because “prolonged use” is arbitrarily defined as a cutoff in the middle of loan durations. Surcharges are not the main reason that countries have repaid the Fund early. Of the few cases where early repayment has occurred (only eight since 2009), it was primarily done to avoid IMF program stigma and the costs of conditionality. The IMF does not depend on early repayment for its available lending firepower, which is orders of magnitude larger than surcharge income and is composed of quotas, new arrangements to borrow, and bilateral borrowing agreements. Countries should be rewarded for paying early, and not be penalized with surcharges for paying according to the original schedule.

Third, the argument that surcharges are needed to help manage the Fund’s credit risk ignores its status as preferred creditor, ranking primus inter pares in any debt repayment difficulty that a sovereign borrower may experience. The tight noose around its borrowers, in the context of a dysfunctional sovereign debt architecture, means that IMF loans are always repaid. 

Fourth, the rationale that surcharges are an income generator to accumulate precautionary balances is problematic. Relying on those in deep crisis to fund itself is unethical, and goes against the IMF’s mission. The IMF’s own projections show that regular lending charges can cover all of its operating expenses, and it does not need surcharges to operate. For example, for 2023, the IMF projects that precautionary balances from all its revenue sources will grow from SDR 20.8 to 24.9 billion — a SDR 4.1 billion difference. However, the IMF will receive SDR 1.53 billion in surcharge revenue over the same period. 

The impact of surcharges on women and girls

IMF surcharges are problematic not only because they fail to do what they say on the tin. They are actively harmful, and conflict with other IMF goals and policies — particularly the goal of ensuring that IMF policies do not harm the rights and well-being of women and girls. 

In an effort to mainstream gender across the Fund, the IMF recently launched its first-ever gender strategy to create a gender lens across all lending, surveillance, and technical assistance operations. The reasons for doing this are obvious: women are significantly disadvantaged in the labor market, and, in a crisis, are more likely to lose jobs, face lower wages, deal with worse working conditions, and endure increased domestic care work. Furthermore, there is ample evidence that IMF policies have a disproportionate, negative impact on women and girls. For example, in 2014–15, 165,000 civil service jobs were cut in Ukraine, 75 percent of which had been held by women, primarily in nonmanagerial positions.

Surcharges only make this worse, because they are punitive and procyclical, making an economic  downturn or crisis even worse for affected countries, and exacerbating the  devastating effects on women and girls. Women are more likely to be informal workers, without the benefits of social and legal protections. For example, the IMF praised Egypt’s decision to enact public sector layoffs in 2015 despite the fact that it “disproportionately disadvantages women, who will be forced to compete in a discriminatory unregulated private sector where they earn 35-40 per cent less than their male counterparts,” as Mahinour el-Badrawi and Allison Corkery of the Center for Economic and Social Rights noted.

Women and girls perform the bulk of unpaid household care work. When cuts affect child care or raise the price of basic amenities, unpaid female household labor expands significantly. IMF policies targeting public expenditure have an impact on unpaid labor and women’s “time poverty.” These harmful conditions undermine the provision of public services such as access to clean water, sanitation, education, and child care — directly impacting child and maternal mortality rates

Surcharges are not gender-neutral, because they further siphon away valuable budget resources from countries in crisis. For example, according to a number of gender justice NGOs, in Pakistan, where women perform nine times more unpaid work than men: “in December 2019… spending on cash transfers, health and education each fell short of their targets, while all performance criteria that cut or froze public sector jobs providing crucial services were observed.” From 2021 to 2023, Ukraine will pay roughly $423 million in surcharges — nearly a quarter of its entire health-sector fiscal effort during the pandemic. By funneling off much-needed cash, surcharges redirect scarce resources away from providing social protection to those who need it. 

The gendered impacts of the IMF’s surcharge policy result not only from the redirecting of resources needed elsewhere; extracting surcharges from debt-burdened countries actually reduces the borrowers’ ability to repay their debts. Debt crises constrain development prospects, undermining the capacity to create conditions for the realization of human rights — especially economic, social, and cultural rights, and the right to development — and surcharges only add to this debt burden. Despite there being a principle of primacy of human rights over debt payments, debt repayment is regularly carried out at the expense of human rights. By draining extra resources away from countries with severe debt repayment problems, surcharges leave less funds available for debt service, and have a negative impact on growth. Squeezing too much out of a country leaves it with unsustainable debts, meaning it will likely need to reschedule again in a short amount of time. This ultimately leaves creditors worse off too. 

Conclusion

The IMF’s launch of its much-publicized new gender strategy, while its surcharge policy remains intact, should be seen for what it is: hypocrisy. The social costs of debt crises are disproportionately borne by women, who step in to compensate for falling domestic incomes and for failing public provision of basic services. Women’s increased marginalization and impoverishment deepens gender inequality and the feminization of poverty. The surcharge policy is evidence of how incapable the Fund is in translating its attempt to mainstream gender into clear operational guidance, and what steps are needed to uphold women’s rights. 

The IMF’s refusal to eliminate its surcharge policy is indicative of a stubborn unwillingness to acknowledge or address the negative impacts of its policies. Along with the long-voiced need for the Fund to critically assess the gendered impact of its conventional fiscal, monetary, structural, and labor market policies is the need to eliminate surcharges, in order to fulfill the promise of developing truly gender-sensitive policies and strategies.

In August of last year, the International Monetary Fund (IMF) responded to the COVID-19 pandemic and the resulting global economic crisis with a new allocation of $650 billion worth of Special Drawing Rights (SDRS). These assets serve to supplement the foreign reserve holdings of countries, thereby helping stabilize their finances and avoid balance of payments crises, which can cause severe economic damage and increases in poverty and mortality. SDRs can also be exchanged for hard currency by countries in need, in order to invest in economic recovery plans and import essential goods, including vaccines and medical equipment. 

Last year’s allocation came at zero cost to the United States, and has proved invaluable for developing countries around the world. Already, 99 countries — including Ukraine — have made use of their allocation to stabilize their currencies, shore up reserves, pay off debts, or finance health care and other urgent needs. 

But for many, last year’s allocation was not nearly enough. On top of the continued fallout from the pandemic, the repercussions of the Russian invasion of Ukraine will reverberate around the world, with rising food and fuel prices hitting developing countries hardest. The need to get more SDRs into the hands of developing countries — both through a new allocation and through the transfer of existing SDRs from wealthy countries to poorer countries — is as urgent as ever. But misinformation, and one falsehood in particular, keeps coming up.

The claim: 

The United States should oppose a new allocation, or the recycling of SDRs, because SDRs would be used by authoritarian governments, competitors, and countries under US sanctions, like Russia.

The reality: 

Sanctioned countries like Russia have not, and almost certainly, will not be able to use their SDRs.

  • Afghanistan, Belarus, Iran, Myanmar, Russia, Sudan, Syria, and Venezuela, all countries facing broad financial sanctions, have not used any of their SDRs since the August allocation. Regardless of one’s position on the use and efficacy of economic sanctions, claims that further SDR distribution would meaningfully benefit these countries have proven false.[1]

  • Countries whose central banks are sanctioned, including Iran and Russia, have effectively not been able to use their new SDRs, because turning SDRs into hard currency requires another party to exchange with. Sanctions, and the threat of secondary sanctions, have deterred other countries, including China, from playing that role. In theory, the IMF can obligate wealthy countries to provide cash in exchange for SDRs, but as an article published by the Center for Global Development explains, the US and its European allies can easily ignore an instruction of this sort without negative consequences.

  • Iran, an IMF member country with an IMF-recognized government, whose central bank is currently not even sanctioned by the European Union, has not been able to access or use its new SDRs, because other banks are unwilling to transfer currency to the Central Bank of Iran and face potential secondary sanctions from the US. 

  • Even the Saudi-backed, IMF-recognized branch of the Yemen Central Bank, which is not under US sanctions, but which is a warring party, has not been able to find a trading partner for its SDRs, even among its close allies. 

  • Some countries, such as Afghanistan and Venezuela, have not been able to use their new SDRs because, in addition to being sanctioned, the IMF does not recognize their governments. When the IMF managing director requests the suspension of recognition of a country’s government, the Executive Board requires the United States’ assent in order to recognize it again.

  • Cuba and North Korea are not IMF members, and therefore did not receive any share of the SDR issuance.

China — much like the United States — does not need its SDRs, and is unlikely to ever use them.

  • China has over $3 trillion in foreign reserves, and the renminbi is a major, globally-traded currency included in the basket of currencies used to determine the value of the SDR. China has the resources and monetary policy tools to maintain a stable financial environment. It has not used its 2021 SDR allocation and it is difficult to imagine a situation in which it would do so, under IMF rules. 

  • In fact, rather than using its SDRs, China is pledging a quarter of its SDR allocation to Africa, and playing the role of a provider of liquidity by buying SDRs held by poorer countries. The Biden administration also planned on transferring many of its SDRs to countries in need, but was blocked from doing so by Republicans in Congress.

While some have misleadingly cited Russia’s invasion of Ukraine as a reason to oppose SDRs, the war in Ukraine is actually all the more reason to support the allocation and recycling of SDRs.

  • The 2021 SDR allocation was of significant help to Ukraine, which was under serious financial strain, even prior to the invasion. Ukraine has already used the entirety of its 2021 allocation.

  • A new allocation, or the recycling of SDRs, would aid Ukraine even further. Ukraine has already used virtually all of the SDRs it acquired from last year’s allocation and recently  requested access to more SDRs from the IMF in order to stabilize its finances. 

  • The IMF predicts that the Russian invasion of Ukraine, and the restrictions subsequently placed on the Russian economy, will have a “severe impact” on the global economy. Fuel and food prices, the latter a key predictor of social unrest and political instability, are rising. This, on top of the already slow pandemic recovery, makes it all the more urgent to get SDRs into the hands of vulnerable countries. 

  • While directing aid to specific countries would be welcome, a new allocation of SDRs and the recycling of SDRs held by the United States are some of the fastest and most direct tools available to help all developing countries facing this crisis — and a new allocation would come at no cost to the United States. 

See here for more fact-checks of common arguments used by opponents of SDRs.


[1] Though Myanmar and Afghanistan have not accessed or used their SDRs, the IMF has automatically debited their accounts to cover minor regular charges.

In August of last year, the International Monetary Fund (IMF) responded to the COVID-19 pandemic and the resulting global economic crisis with a new allocation of $650 billion worth of Special Drawing Rights (SDRS). These assets serve to supplement the foreign reserve holdings of countries, thereby helping stabilize their finances and avoid balance of payments crises, which can cause severe economic damage and increases in poverty and mortality. SDRs can also be exchanged for hard currency by countries in need, in order to invest in economic recovery plans and import essential goods, including vaccines and medical equipment. 

Last year’s allocation came at zero cost to the United States, and has proved invaluable for developing countries around the world. Already, 99 countries — including Ukraine — have made use of their allocation to stabilize their currencies, shore up reserves, pay off debts, or finance health care and other urgent needs. 

But for many, last year’s allocation was not nearly enough. On top of the continued fallout from the pandemic, the repercussions of the Russian invasion of Ukraine will reverberate around the world, with rising food and fuel prices hitting developing countries hardest. The need to get more SDRs into the hands of developing countries — both through a new allocation and through the transfer of existing SDRs from wealthy countries to poorer countries — is as urgent as ever. But misinformation, and one falsehood in particular, keeps coming up.

The claim: 

The United States should oppose a new allocation, or the recycling of SDRs, because SDRs would be used by authoritarian governments, competitors, and countries under US sanctions, like Russia.

The reality: 

Sanctioned countries like Russia have not, and almost certainly, will not be able to use their SDRs.

  • Afghanistan, Belarus, Iran, Myanmar, Russia, Sudan, Syria, and Venezuela, all countries facing broad financial sanctions, have not used any of their SDRs since the August allocation. Regardless of one’s position on the use and efficacy of economic sanctions, claims that further SDR distribution would meaningfully benefit these countries have proven false.[1]

  • Countries whose central banks are sanctioned, including Iran and Russia, have effectively not been able to use their new SDRs, because turning SDRs into hard currency requires another party to exchange with. Sanctions, and the threat of secondary sanctions, have deterred other countries, including China, from playing that role. In theory, the IMF can obligate wealthy countries to provide cash in exchange for SDRs, but as an article published by the Center for Global Development explains, the US and its European allies can easily ignore an instruction of this sort without negative consequences.

  • Iran, an IMF member country with an IMF-recognized government, whose central bank is currently not even sanctioned by the European Union, has not been able to access or use its new SDRs, because other banks are unwilling to transfer currency to the Central Bank of Iran and face potential secondary sanctions from the US. 

  • Even the Saudi-backed, IMF-recognized branch of the Yemen Central Bank, which is not under US sanctions, but which is a warring party, has not been able to find a trading partner for its SDRs, even among its close allies. 

  • Some countries, such as Afghanistan and Venezuela, have not been able to use their new SDRs because, in addition to being sanctioned, the IMF does not recognize their governments. When the IMF managing director requests the suspension of recognition of a country’s government, the Executive Board requires the United States’ assent in order to recognize it again.

  • Cuba and North Korea are not IMF members, and therefore did not receive any share of the SDR issuance.

China — much like the United States — does not need its SDRs, and is unlikely to ever use them.

  • China has over $3 trillion in foreign reserves, and the renminbi is a major, globally-traded currency included in the basket of currencies used to determine the value of the SDR. China has the resources and monetary policy tools to maintain a stable financial environment. It has not used its 2021 SDR allocation and it is difficult to imagine a situation in which it would do so, under IMF rules. 

  • In fact, rather than using its SDRs, China is pledging a quarter of its SDR allocation to Africa, and playing the role of a provider of liquidity by buying SDRs held by poorer countries. The Biden administration also planned on transferring many of its SDRs to countries in need, but was blocked from doing so by Republicans in Congress.

While some have misleadingly cited Russia’s invasion of Ukraine as a reason to oppose SDRs, the war in Ukraine is actually all the more reason to support the allocation and recycling of SDRs.

  • The 2021 SDR allocation was of significant help to Ukraine, which was under serious financial strain, even prior to the invasion. Ukraine has already used the entirety of its 2021 allocation.

  • A new allocation, or the recycling of SDRs, would aid Ukraine even further. Ukraine has already used virtually all of the SDRs it acquired from last year’s allocation and recently  requested access to more SDRs from the IMF in order to stabilize its finances. 

  • The IMF predicts that the Russian invasion of Ukraine, and the restrictions subsequently placed on the Russian economy, will have a “severe impact” on the global economy. Fuel and food prices, the latter a key predictor of social unrest and political instability, are rising. This, on top of the already slow pandemic recovery, makes it all the more urgent to get SDRs into the hands of vulnerable countries. 

  • While directing aid to specific countries would be welcome, a new allocation of SDRs and the recycling of SDRs held by the United States are some of the fastest and most direct tools available to help all developing countries facing this crisis — and a new allocation would come at no cost to the United States. 

See here for more fact-checks of common arguments used by opponents of SDRs.


[1] Though Myanmar and Afghanistan have not accessed or used their SDRs, the IMF has automatically debited their accounts to cover minor regular charges.

The enduring legacy of Venezuela’s short-lived 2002 coup d’etat, and the subsequent countercoup, for US-Latin American relations

On April 11, 2002, Venezuela’s democratically elected government, headed by Hugo Chávez Frías, was ousted in a military coup d’etat. Then, dramatically, two days later, the coup was overturned by a mass mobilization of Venezuelans. They demanded the restoration of democracy and the return of a government that appeared to be making good on its commitment to redistribute Venezuela’s oil wealth to benefit the country’s most marginalized sectors. These events led to lasting ramifications not just for Venezuela, but for Latin America and the Caribbean as a whole, paving the way for a “pink tide” of progressive movements that took power democratically throughout the region. In many cases, similar power struggles ensued, pitting left-leaning governments supporting economic and social gains for the poor, the working class, and marginalized communities, against powerful factions of society seeking, generally, to maintain a status quo that has served to benefit mostly a small number of elites and foreign interests while exploiting and repressing the majority population.

The coup itself was not novel, of course, but it was the first Latin American coup in the twenty-first century, and showed that the US government would continue to prioritize its perceived geopolitical interests — and those of multinational corporations — in the region over democracy. The US would go on to support coups, and other sorts of undemocratic political transitions, in Haiti (2004), Honduras (2009), Paraguay (2012), Brazil (2016), and Bolivia (2019) — and would show support for attempted coups in Bolivia (2008), Ecuador (2010), and Venezuela (2019). Elements of the 2002 Venezuela coup playbook would also be repeated in many cases.

Much has since been written about the trajectory the Chávez government took following its survival of the coup, for better and for worse. The experiences of late 2002 and early 2003 (in which many of the same opposition forces continued their attempt to topple the government through a crippling months-long managerial strike that paralyzed the oil industry), and 2004, when Chávez handily survived a recall referendum, demonstrated both that Chávez had nothing to lose by turning farther left (he would proclaim his government’s goal of working toward “socialism for the twenty-first century” in 2005), and that he would need to take firm action if he were to gain control of the Venezuelan economy and be able to carry out his agenda. Chávez sacked PDVSA’s striking managers, which subsequently allowed Venezuela to achieve some of the strongest economic growth in the region for several years after. This was accompanied by impressive poverty reduction and the launching of the many misiones — programs designed to provide low-income Venezuelans with food, health care, education, and other needs.

The “self-proclaimed socialist” President Chávez (as international media loved to call him) that we remember now is really the post-coup Chávez. More than 20 years after he was first elected, it is easy to forget that he originally campaigned on a “third way” platform, calling to mind Tony Blair and Bill Clinton. So what did Chávez do in his first years that so upset his opponents, foreign and domestic, that they overthrew him?

At home, Chávez’s fledgling government embarked on long-overdue land reform. It enacted a new constitution, which consolidated a breaking of the old political order exemplified by the punto fijo pact that had ensured that political power alternated between the nominally social democratic Acción Democrática party and more conservative Christian democrat COPEI party. The traditional parties and factions lost seven elections in just three years.

On the global stage, amid the start of the US’s “Global War on Terror” and George W. Bush’s imperious declaration that “Either you are with us, or you are with the terrorists,” Chávez did not hesitate to harshly condemn the US bombing of Afghanistan and its predictable civilian death toll. Chávez’s government reinvigorated OPEC; its oil diplomacy led to production cuts and a global oil price stabilization. Worse, Chávez sought to renegotiate oil deals with foreign companies that, for years, had supplied US and other companies with cheap oil while providing little revenue to Venezuela itself. He stopped allowing US counternarcotics flights from entering Venezuelan airspace, and ended the US military presence at the Fuerte Tiuna military base. He was skeptical of the US effort to expand NAFTA throughout the hemisphere as the “Free Trade Area of the Americas.” And he conspicuously developed a close relationship with the Cuban government.

The US government was wary of Chávez well before he was elected president. Once he was in office, this began to turn toward open hostility, and in the months before the coup, some observers, such as John Pilger and Conn Hallinan, began to warn that a coup d’etat appeared likely.

Shortly after Chávez’s denunciations of the US war on Afghanistan in late 2001, which he made on TV while holding up photographs of Afghan children killed in US strikes, US military and intelligence agencies met to discuss their Venezuela strategy. Within Venezuela, militant opposition sectors launched a protracted effort to undermine the Chávez government with the goal of toppling it. Senior military officers held press conferences denouncing the “dictatorship” and calling for “civil disobedience” against the country’s recently reelected president. The main trade union federation, the Confederación de Trabajadores de Venezuela (CTV), close to the corrupt, centrist traditional parties that Chávez’s movement had made suddenly irrelevant, joined with the main business association, Fedecámaras, to launch a “general strike” (mostly involving temporary closures of small businesses rather than actual worker strikes).

It was against this backdrop of economic sabotage — and what was reported in the international media as organized labor’s discontent with the Chávez administration — that the coup took place. The catalyzing event that would justify military action against Chávez, and that would explain the quick emergence of a new, unelected government headed by Fedecámaras president Pedro Carmona, was violence connected to a massive opposition march on the presidential palace where marchers faced off against a wall of supporters of the elected government and presidential guard troops who fired tear gas at the opposition demonstrators. Snipers fired on the crowd, mostly killing chavistas, but Venezuela’s opposition-controlled private media blamed Chávez for the killings — accusations soon relayed by international media and the US State Department. This supposed chavista violence became a key part of the pretext for the coup and the narrative that, with the military turning on him, Chávez had decided to resign and flee. In fact, he was taken prisoner and held at military bases (where, Chávez would later claim, he was nearly executed).

Meanwhile, the hastily assembled coup regime abolished Venezuela’s Congress, Supreme Court, and constitution. The coup was greeted with applause in the US, with the International Republic Institute (IRI) — a US government-funded group set up in large part to “do today [what] was done covertly [before] by the CIA” — openly celebrating, and the New York Times praising Chávez’s removal in an editorial. The IMF quickly offered assistance to the “new administration” in prepared remarks just hours after the coup had transpired, suggesting that the Fund’s leaders may have had advance knowledge. (Several members of the US Congress would later ask the Fund to explain this, but never received more than a dismissive response.)

On the ground in Venezuela, some opposition leaders, some of whom are still prominent today, such as Leopoldo López, participated in the coup by helping to persecute and detain officials from the elected government. But what Carmona, López, and other coup supporters didn’t count on was the reaction of the Venezuelan people. Tens of thousands mobilized, coming down from the barrios that line the hillsides above Caracas, and marched on the presidential palace. Chávez retained supporters in the military as well, where he had first organized his revolutionary movement, and the combination of popular pressure and military support for the elected government — along with the revelation that Chávez never had, contrary to Venezuelan media claims, resigned — led to the coup being overturned on April 13.

The golpistas quickly began to back peddle; some who had signed the infamous “Carmona Decree” abolishing the democratic government would deny they had, or would express regret. International supporters of the overthrow of the elected government, including the New York Times, were forced to walk back their statements and admit they had betrayed principles of democratic governance.

Following his return, Chávez was emboldened; even more so after he survived the 2002–2003 oil lockout and took control of PDVSA. He easily triumphed in a 2004 recall referendum (Ricardo Hausmann’s baseless claims of a rigged vote notwithstanding). Within three years, Chávez moved away from his previous “third way” positioning and proclaimed that his government would pursue “socialism for the 21st century.”

Meanwhile, the “Pink Tide” took off, with the elections of Tabaré Vázquez in Uruguay (2004), Evo Morales in Bolivia (2005), Rafael Correa in Ecuador and Manuel Zelaya in Honduras (2006), and Fernando Lugo in Paraguay (2008), in addition to Lula da Silva (Brazil, 2002) and Néstor Kirchner (Argentina, 2003). Regional integration projects soon took off: the Bolivarian Alliance for the Peoples of Our America (ALBA), Petrocaribe and Petrosur (which provided discounted Venezuelan oil to neighboring countries), and UNASUR, among others. The Pink Tide governments also buried the US’s central policy priority for the region at the time: the Free Trade Area of the Americas, which would have expanded NAFTA throughout nearly the entire hemisphere. The Mar del Plata, Argentina summit where the FTAA met its end in 2005 was such a fiasco for the US government that President Bush left early.

Countering Venezuela became the main priority for the US in Latin America and the Caribbean, as a 2006 State Department memo, published by WikiLeaks, made clear. Scores of other cables record how often Venezuela would be a prime topic of discussion between US officials and government and civil society figures in the region, as first Bush and then the Obama administration attempted to stop countries from joining Petrocaribe and other Venezuela-led initiatives, despite privately acknowledging the significant economic benefits for the countries that joined them.

Despite its failure, the Venezuela coup fit a pattern for US-backed regime change efforts. NGOs and activist groups received funding and training from the US government and affiliated groups (notably, the National Endowment for Democracy, NED, of which the IRI is a core grantee). US officials and NED advisors worked hard, although with limited success, to get Venezuela’s opposition to unify and agree on a long-term strategy for throwing out the Chávez government. A similar playbook had been used in places like Serbia, and it would be implemented in subsequent coups in Haiti, Honduras, and Bolivia, with many of the same antagonists (the NED and its core grantees, major media outlets, the business community, and often the Catholic Church hierarchy and the military — except in Haiti, where the military was abolished, but active coup participants included former military).

Denial that a coup had happened after the fact is also a key element of the strategy, one that followed coups in Haiti, Honduras, and Bolivia as well. “It makes perfect sense that in a time when the international community frowns upon coups, that if one were to organize a coup, the first order of business would be to make the coup look like it was something else,” long-time Venezuela analyst Greg Wilpert wrote in an introduction to a 2003 book on the Venezuela coup. Yet internally, the US State Department itself referred to the events of April 2002 in Caracas as a “brief coup” (in 2004 and 2005 cables, for example).

In Haiti in 2004, the prevailing narrative put forward by US officials as well as most of the media was that the democratically elected president, Jean-Bertrand Aristide, had not been overthrown in a coup, but had “resigned” and chosen to flee the country. Never mind that Aristide and Haiti’s first lady were escorted onto a US plane by US Special Forces soldiers; that the Aristides had no idea where the plane was taking them; that Aristide said it had been a “‘new coup d’etat,’ or ‘modern kidnapping’”; and never mind that one of the only other witnesses to these events not in the employ of the US, Aristide’s helicopter pilot, would have the same description of these events as the Aristides. In the wake of the coup, it was easy for the media to overlook the hunting down and persecution of officials and supporters of the ousted government, as the media all but vacated Haiti after the coup, even as thousands were murdered and hundreds imprisoned on bogus charges. As with Venezuela in 2002, the coup government was quickly offered assistance by international finance institutions in Washington, which had previously enacted an aid embargo and had withheld hundreds of millions in loans to Aristide’s government. Some of the same individuals, affiliated with the IRI, even appear to have been involved in both the Venezuelan and Haitian coups.

The 2009 Honduras coup followed a similar playbook, with President Zelaya being forced onto a plane and flown out of the country (after it stopped at a US airbase to refuel) while coup supporters suggested that Zelaya had somehow staged the whole thing and that no coup had taken place. As with Venezuela in 2002, evidence suggests that US officials knew of the coup plans in advance, but there is no indication that they warned the democratically elected government. (It is notable that State Department cables published by WikiLeaks also show that US officials believed there was a credible threat to Evo Morales’s government in Bolivia in 2008, and that he even might be overthrown or killed, but this was not what the US government communicated to the world or to the Bolivian government at the time.)

The following year, Ecuador’s left-wing president, Rafael Correa, came close to being overthrown, and even killed, amid a dramatic confrontation with protesting police officers that ended in a shootout at a hospital where Correa was being treated after he was tear-gassed by the police. Paraguay’s progressive president Fernando Lugo, a former priest, was ousted in a parliamentary coup in 2012 that foreshadowed Brazil president Dilma Rousseff’s fate in 2016. In each of these cases, loud voices proclaimed that these were not “coups,” or coup attempts.

Though it was especially bloody, and racist violence and threats of violence were employed against officials of the elected government to force their departure, there are today still some (even in academia) who loudly deny that the Evo Morales government ended in a coup d’etat. Morales only resigned and left Bolivia after the head of the military asked him to resign, and even then, Morales almost didn’t make it out of Bolivia alive. Violent repression, including two notorious massacres of Indigenous Bolivians, followed the coup. The coup government targeted journalists and activists, and many former government officials were forced to flee the country or take shelter in embassies. Yet anyone who condemned these events as a “coup” was systematically criticized and harassed on social media.

The Bolivian coup, like Venezuela’s, would also effectively be overturned, but only after a year, through elections that were finally organized only after strikes and popular mobilizations demanding that elections be held. Morales’s Movement Toward Socialism (MAS) party won overwhelmingly, making it impossible for the pro-coup right to even make credible claims of election fraud. The elected government is attempting to hold the coup perpetrators accountable for their crimes, but the initial arrests and charging of top officials were promptly condemned by US officials and the likes of Human Rights Watch, who dismissed them as “revenge justice.”

Whether the Bolivian government will be able to successfully hold accountable those who overthrew an elected government, and those who were responsible for the repression and violence that took place under the coup government, is important not just for Bolivia, but for the region. If coup perpetrators rarely face consequences for their crimes, and if the US continues to condemn efforts to hold such individuals to account, there is much incentive and little to dissuade antidemocratic forces in Latin America from continuing to carry out coups.

But if countries in Latin America and the Caribbean work together to oppose extralegal regime changes, and demand consequences when coups are attempted, then perhaps the Latin American coup d’etat will become a relic of the past. There are important lessons from the regional response to the Honduras coup, when a majority of countries in the region loudly rejected the coup and would have overturned it, returning Zelaya to office, had the US not blocked this at the Organization of American States (OAS). The episode brought US-Latin American relations to a historic low and led to the creation of the Committee of Latin American and Caribbean States (CELAC), intended to be an alternative to the OAS, and which included all the countries of the Americas except for the US and Canada.

With the Pink Tide returning, and with the OAS especially tarnished following its disgraceful role in the lead-up to the Bolivia coup, regional integration initiatives like CELAC should be pursued even more vigorously than before. Otherwise, Latin American elites and their allies in the US will continue their attempts to veto democracy, and resort to using the bullet when the ballot doesn’t go their way.

The enduring legacy of Venezuela’s short-lived 2002 coup d’etat, and the subsequent countercoup, for US-Latin American relations

On April 11, 2002, Venezuela’s democratically elected government, headed by Hugo Chávez Frías, was ousted in a military coup d’etat. Then, dramatically, two days later, the coup was overturned by a mass mobilization of Venezuelans. They demanded the restoration of democracy and the return of a government that appeared to be making good on its commitment to redistribute Venezuela’s oil wealth to benefit the country’s most marginalized sectors. These events led to lasting ramifications not just for Venezuela, but for Latin America and the Caribbean as a whole, paving the way for a “pink tide” of progressive movements that took power democratically throughout the region. In many cases, similar power struggles ensued, pitting left-leaning governments supporting economic and social gains for the poor, the working class, and marginalized communities, against powerful factions of society seeking, generally, to maintain a status quo that has served to benefit mostly a small number of elites and foreign interests while exploiting and repressing the majority population.

The coup itself was not novel, of course, but it was the first Latin American coup in the twenty-first century, and showed that the US government would continue to prioritize its perceived geopolitical interests — and those of multinational corporations — in the region over democracy. The US would go on to support coups, and other sorts of undemocratic political transitions, in Haiti (2004), Honduras (2009), Paraguay (2012), Brazil (2016), and Bolivia (2019) — and would show support for attempted coups in Bolivia (2008), Ecuador (2010), and Venezuela (2019). Elements of the 2002 Venezuela coup playbook would also be repeated in many cases.

Much has since been written about the trajectory the Chávez government took following its survival of the coup, for better and for worse. The experiences of late 2002 and early 2003 (in which many of the same opposition forces continued their attempt to topple the government through a crippling months-long managerial strike that paralyzed the oil industry), and 2004, when Chávez handily survived a recall referendum, demonstrated both that Chávez had nothing to lose by turning farther left (he would proclaim his government’s goal of working toward “socialism for the twenty-first century” in 2005), and that he would need to take firm action if he were to gain control of the Venezuelan economy and be able to carry out his agenda. Chávez sacked PDVSA’s striking managers, which subsequently allowed Venezuela to achieve some of the strongest economic growth in the region for several years after. This was accompanied by impressive poverty reduction and the launching of the many misiones — programs designed to provide low-income Venezuelans with food, health care, education, and other needs.

The “self-proclaimed socialist” President Chávez (as international media loved to call him) that we remember now is really the post-coup Chávez. More than 20 years after he was first elected, it is easy to forget that he originally campaigned on a “third way” platform, calling to mind Tony Blair and Bill Clinton. So what did Chávez do in his first years that so upset his opponents, foreign and domestic, that they overthrew him?

At home, Chávez’s fledgling government embarked on long-overdue land reform. It enacted a new constitution, which consolidated a breaking of the old political order exemplified by the punto fijo pact that had ensured that political power alternated between the nominally social democratic Acción Democrática party and more conservative Christian democrat COPEI party. The traditional parties and factions lost seven elections in just three years.

On the global stage, amid the start of the US’s “Global War on Terror” and George W. Bush’s imperious declaration that “Either you are with us, or you are with the terrorists,” Chávez did not hesitate to harshly condemn the US bombing of Afghanistan and its predictable civilian death toll. Chávez’s government reinvigorated OPEC; its oil diplomacy led to production cuts and a global oil price stabilization. Worse, Chávez sought to renegotiate oil deals with foreign companies that, for years, had supplied US and other companies with cheap oil while providing little revenue to Venezuela itself. He stopped allowing US counternarcotics flights from entering Venezuelan airspace, and ended the US military presence at the Fuerte Tiuna military base. He was skeptical of the US effort to expand NAFTA throughout the hemisphere as the “Free Trade Area of the Americas.” And he conspicuously developed a close relationship with the Cuban government.

The US government was wary of Chávez well before he was elected president. Once he was in office, this began to turn toward open hostility, and in the months before the coup, some observers, such as John Pilger and Conn Hallinan, began to warn that a coup d’etat appeared likely.

Shortly after Chávez’s denunciations of the US war on Afghanistan in late 2001, which he made on TV while holding up photographs of Afghan children killed in US strikes, US military and intelligence agencies met to discuss their Venezuela strategy. Within Venezuela, militant opposition sectors launched a protracted effort to undermine the Chávez government with the goal of toppling it. Senior military officers held press conferences denouncing the “dictatorship” and calling for “civil disobedience” against the country’s recently reelected president. The main trade union federation, the Confederación de Trabajadores de Venezuela (CTV), close to the corrupt, centrist traditional parties that Chávez’s movement had made suddenly irrelevant, joined with the main business association, Fedecámaras, to launch a “general strike” (mostly involving temporary closures of small businesses rather than actual worker strikes).

It was against this backdrop of economic sabotage — and what was reported in the international media as organized labor’s discontent with the Chávez administration — that the coup took place. The catalyzing event that would justify military action against Chávez, and that would explain the quick emergence of a new, unelected government headed by Fedecámaras president Pedro Carmona, was violence connected to a massive opposition march on the presidential palace where marchers faced off against a wall of supporters of the elected government and presidential guard troops who fired tear gas at the opposition demonstrators. Snipers fired on the crowd, mostly killing chavistas, but Venezuela’s opposition-controlled private media blamed Chávez for the killings — accusations soon relayed by international media and the US State Department. This supposed chavista violence became a key part of the pretext for the coup and the narrative that, with the military turning on him, Chávez had decided to resign and flee. In fact, he was taken prisoner and held at military bases (where, Chávez would later claim, he was nearly executed).

Meanwhile, the hastily assembled coup regime abolished Venezuela’s Congress, Supreme Court, and constitution. The coup was greeted with applause in the US, with the International Republic Institute (IRI) — a US government-funded group set up in large part to “do today [what] was done covertly [before] by the CIA” — openly celebrating, and the New York Times praising Chávez’s removal in an editorial. The IMF quickly offered assistance to the “new administration” in prepared remarks just hours after the coup had transpired, suggesting that the Fund’s leaders may have had advance knowledge. (Several members of the US Congress would later ask the Fund to explain this, but never received more than a dismissive response.)

On the ground in Venezuela, some opposition leaders, some of whom are still prominent today, such as Leopoldo López, participated in the coup by helping to persecute and detain officials from the elected government. But what Carmona, López, and other coup supporters didn’t count on was the reaction of the Venezuelan people. Tens of thousands mobilized, coming down from the barrios that line the hillsides above Caracas, and marched on the presidential palace. Chávez retained supporters in the military as well, where he had first organized his revolutionary movement, and the combination of popular pressure and military support for the elected government — along with the revelation that Chávez never had, contrary to Venezuelan media claims, resigned — led to the coup being overturned on April 13.

The golpistas quickly began to back peddle; some who had signed the infamous “Carmona Decree” abolishing the democratic government would deny they had, or would express regret. International supporters of the overthrow of the elected government, including the New York Times, were forced to walk back their statements and admit they had betrayed principles of democratic governance.

Following his return, Chávez was emboldened; even more so after he survived the 2002–2003 oil lockout and took control of PDVSA. He easily triumphed in a 2004 recall referendum (Ricardo Hausmann’s baseless claims of a rigged vote notwithstanding). Within three years, Chávez moved away from his previous “third way” positioning and proclaimed that his government would pursue “socialism for the 21st century.”

Meanwhile, the “Pink Tide” took off, with the elections of Tabaré Vázquez in Uruguay (2004), Evo Morales in Bolivia (2005), Rafael Correa in Ecuador and Manuel Zelaya in Honduras (2006), and Fernando Lugo in Paraguay (2008), in addition to Lula da Silva (Brazil, 2002) and Néstor Kirchner (Argentina, 2003). Regional integration projects soon took off: the Bolivarian Alliance for the Peoples of Our America (ALBA), Petrocaribe and Petrosur (which provided discounted Venezuelan oil to neighboring countries), and UNASUR, among others. The Pink Tide governments also buried the US’s central policy priority for the region at the time: the Free Trade Area of the Americas, which would have expanded NAFTA throughout nearly the entire hemisphere. The Mar del Plata, Argentina summit where the FTAA met its end in 2005 was such a fiasco for the US government that President Bush left early.

Countering Venezuela became the main priority for the US in Latin America and the Caribbean, as a 2006 State Department memo, published by WikiLeaks, made clear. Scores of other cables record how often Venezuela would be a prime topic of discussion between US officials and government and civil society figures in the region, as first Bush and then the Obama administration attempted to stop countries from joining Petrocaribe and other Venezuela-led initiatives, despite privately acknowledging the significant economic benefits for the countries that joined them.

Despite its failure, the Venezuela coup fit a pattern for US-backed regime change efforts. NGOs and activist groups received funding and training from the US government and affiliated groups (notably, the National Endowment for Democracy, NED, of which the IRI is a core grantee). US officials and NED advisors worked hard, although with limited success, to get Venezuela’s opposition to unify and agree on a long-term strategy for throwing out the Chávez government. A similar playbook had been used in places like Serbia, and it would be implemented in subsequent coups in Haiti, Honduras, and Bolivia, with many of the same antagonists (the NED and its core grantees, major media outlets, the business community, and often the Catholic Church hierarchy and the military — except in Haiti, where the military was abolished, but active coup participants included former military).

Denial that a coup had happened after the fact is also a key element of the strategy, one that followed coups in Haiti, Honduras, and Bolivia as well. “It makes perfect sense that in a time when the international community frowns upon coups, that if one were to organize a coup, the first order of business would be to make the coup look like it was something else,” long-time Venezuela analyst Greg Wilpert wrote in an introduction to a 2003 book on the Venezuela coup. Yet internally, the US State Department itself referred to the events of April 2002 in Caracas as a “brief coup” (in 2004 and 2005 cables, for example).

In Haiti in 2004, the prevailing narrative put forward by US officials as well as most of the media was that the democratically elected president, Jean-Bertrand Aristide, had not been overthrown in a coup, but had “resigned” and chosen to flee the country. Never mind that Aristide and Haiti’s first lady were escorted onto a US plane by US Special Forces soldiers; that the Aristides had no idea where the plane was taking them; that Aristide said it had been a “‘new coup d’etat,’ or ‘modern kidnapping’”; and never mind that one of the only other witnesses to these events not in the employ of the US, Aristide’s helicopter pilot, would have the same description of these events as the Aristides. In the wake of the coup, it was easy for the media to overlook the hunting down and persecution of officials and supporters of the ousted government, as the media all but vacated Haiti after the coup, even as thousands were murdered and hundreds imprisoned on bogus charges. As with Venezuela in 2002, the coup government was quickly offered assistance by international finance institutions in Washington, which had previously enacted an aid embargo and had withheld hundreds of millions in loans to Aristide’s government. Some of the same individuals, affiliated with the IRI, even appear to have been involved in both the Venezuelan and Haitian coups.

The 2009 Honduras coup followed a similar playbook, with President Zelaya being forced onto a plane and flown out of the country (after it stopped at a US airbase to refuel) while coup supporters suggested that Zelaya had somehow staged the whole thing and that no coup had taken place. As with Venezuela in 2002, evidence suggests that US officials knew of the coup plans in advance, but there is no indication that they warned the democratically elected government. (It is notable that State Department cables published by WikiLeaks also show that US officials believed there was a credible threat to Evo Morales’s government in Bolivia in 2008, and that he even might be overthrown or killed, but this was not what the US government communicated to the world or to the Bolivian government at the time.)

The following year, Ecuador’s left-wing president, Rafael Correa, came close to being overthrown, and even killed, amid a dramatic confrontation with protesting police officers that ended in a shootout at a hospital where Correa was being treated after he was tear-gassed by the police. Paraguay’s progressive president Fernando Lugo, a former priest, was ousted in a parliamentary coup in 2012 that foreshadowed Brazil president Dilma Rousseff’s fate in 2016. In each of these cases, loud voices proclaimed that these were not “coups,” or coup attempts.

Though it was especially bloody, and racist violence and threats of violence were employed against officials of the elected government to force their departure, there are today still some (even in academia) who loudly deny that the Evo Morales government ended in a coup d’etat. Morales only resigned and left Bolivia after the head of the military asked him to resign, and even then, Morales almost didn’t make it out of Bolivia alive. Violent repression, including two notorious massacres of Indigenous Bolivians, followed the coup. The coup government targeted journalists and activists, and many former government officials were forced to flee the country or take shelter in embassies. Yet anyone who condemned these events as a “coup” was systematically criticized and harassed on social media.

The Bolivian coup, like Venezuela’s, would also effectively be overturned, but only after a year, through elections that were finally organized only after strikes and popular mobilizations demanding that elections be held. Morales’s Movement Toward Socialism (MAS) party won overwhelmingly, making it impossible for the pro-coup right to even make credible claims of election fraud. The elected government is attempting to hold the coup perpetrators accountable for their crimes, but the initial arrests and charging of top officials were promptly condemned by US officials and the likes of Human Rights Watch, who dismissed them as “revenge justice.”

Whether the Bolivian government will be able to successfully hold accountable those who overthrew an elected government, and those who were responsible for the repression and violence that took place under the coup government, is important not just for Bolivia, but for the region. If coup perpetrators rarely face consequences for their crimes, and if the US continues to condemn efforts to hold such individuals to account, there is much incentive and little to dissuade antidemocratic forces in Latin America from continuing to carry out coups.

But if countries in Latin America and the Caribbean work together to oppose extralegal regime changes, and demand consequences when coups are attempted, then perhaps the Latin American coup d’etat will become a relic of the past. There are important lessons from the regional response to the Honduras coup, when a majority of countries in the region loudly rejected the coup and would have overturned it, returning Zelaya to office, had the US not blocked this at the Organization of American States (OAS). The episode brought US-Latin American relations to a historic low and led to the creation of the Committee of Latin American and Caribbean States (CELAC), intended to be an alternative to the OAS, and which included all the countries of the Americas except for the US and Canada.

With the Pink Tide returning, and with the OAS especially tarnished following its disgraceful role in the lead-up to the Bolivia coup, regional integration initiatives like CELAC should be pursued even more vigorously than before. Otherwise, Latin American elites and their allies in the US will continue their attempts to veto democracy, and resort to using the bullet when the ballot doesn’t go their way.

On February 17, 2022, the House Financial Services Committee (HFSC) Subcommittee on National Security, International Development and Monetary Policy held a virtual hearing titled “The Role of the International Monetary Fund in a Changing Global Landscape.” The hearing addressed critical issues facing developing countries in their efforts to recover from the fallout of the COVID-19 pandemic, and proposed key steps forward for the International Monetary Fund (IMF, or Fund).

IMF Surcharges: Procyclical, Illogical, Unjust

One of the central topics of discussion was the IMF’s policy of imposing punitive and opaque surcharges, onerous fees that the Fund adds to the loan payments of countries with high levels of IMF debt. In recent years, the procyclical and regressive nature of these surcharges has gained increased attention, with civil society, development experts, and human rights advocates increasingly calling for their elimination. This growing demand for a reconsideration of IMF surcharge policy continued at the HFSC hearing.

“The IMF surcharges policy, which imposes extra, often hidden fees on to countries with high levels of debt, has been widely denounced as an unjust burden and a hindrance to our global … economic recovery by development experts and civil society organizations,” said Rep. Ayanna Pressley.

Hearing witness, Nobel laureate, and CEPR Advisory Board member Joseph Stiglitz is one such expert: “The IMF has come to increasingly rely on surcharges on borrowing countries to finance its operations. This is inappropriate and counterproductive. The IMF is supposed to help countries dealing with foreign exchange problems. It is now contributing to their foreign exchange problems through surcharges,” he said, adding: “Surcharges are procyclical. They go exactly against the objective of good economic policy.” 

Another witness, CEPR Senior Research Fellow Jayati Ghosh stated, “There is no logical reason for the surcharges … it’s a completely unnecessary imposition on countries that are distressed and cannot afford it.”

Citing CEPR research on the deadly costs of these surcharges, Rep. Pressley noted that “There was a recent report that reported that Argentina will spend more than $3 billion covering surcharges through 2023. I want us to sit with that. That is nine times the amount it would cost to vaccinate every single Argentinian against COVID-19.”

As Rep. Chuy García put it: “To me, this looks like the business model of payday lenders here in Chicago, not an economic development agency.” García went on to note the specific burden of surcharges on Ukraine: “We all know Ukraine is currently at risk of attack from Russia. What’s more? It’s only vaccinated about a third of its population, but Ukraine has to pay surcharge fees to the IMF.”

Rep. Stephen Lynch also cited the case of Ukraine, among others: “We got into this issue about surcharges on so-called middle-income countries. And just to be clear, we’re talking about Ukraine. We’re talking about Egypt, Argentina, Brazil. There hasn’t been any relief for those countries in terms of the surcharges that have been applied by the IMF… During the period of this pandemic, there’ll be about $4 billion paid by these countries to the IMF in terms of surcharge fees.” Lynch went on to call for the suspension of IMF surcharges.

Asked whether these surcharges should be halted during the pandemic, Ghosh responded: “Absolutely. I believe that right now in the continuing pandemic there should absolutely be a review. I believe the IMF should actually cancel this program altogether because it really does not make sense and it is not justified. I believe the U.S. government should actively propose this.” Rep. Pressley concurred: “Indeed, surcharges are an obstacle to our global economic recovery and our efforts to end this pandemic. And I agree, they should be abolished.”

Following the criticism of surcharges expressed by multiple witnesses and members of Congress, Subcommittee Chair Rep. Jim Himes committed to taking on the issue.

Special Drawing Rights For a Global COVID Response

Also a focus of discussion were IMF Special Drawing Rights (SDRs). SDRs are a unique, global reserve asset that can be issued to support developing countries in responding to the pandemic and encouraging an equitable global recovery — all at no cost to the United States. 

In August of 2021, the IMF approved a $650 billion SDR issuance, which was distributed according to IMF quotas. Though a positive step with a tremendous impact for countries around the world, this initial issuance remains insufficient. Civil society and Congressional leaders have called for an allocation of an additional $2-$3.5 billion, and for the fair rechanneling of SDRs held by wealthy countries like the United States to those that need them most. At the HFSC hearing:

Stiglitz described the initial issuance as “of extraordinary importance.” Ghosh agreed, stating that “The release of new SDRs has been crucial even though they are unequally distributed, because SDRs are automatic, they are debt free… they do not require fiscal conditionalities… and they are effectively costless.” Citing CEPR research, Ghosh noted that “At least 80 countries have already used their SDRs.. to add to their imports… to pay back the IMF… and for their own budget increases… This has added to some degree to helping the world economy revive, but it’s also helped the United States’ economy” by boosting demand for exports.

Rep. García similarly praised the initial allocation — stating that “last year’s issuance of SDRs was a tremendous success,” — and went on to call for more, citing his bill supporting the issuance of an additional $2 trillion in SDRs that was already approved by the House of representatives. Ghosh expressed her support for this proposal, stating that “a large allocation would play a huge role in determining a future recovery in the global economy.” Stiglitz agreed, and called for not only a new one-time issuance, but for regular annual issuances for years to come: “The international community has made a commitment to help developing countries make the green transition. An annual emission of SDRs would be a reliable way to achieve our climate commitments.”

Ghosh also highlighted the importance of rechanneling SDRs held by the United States, but criticized the IMF’s proposed rechanneling mechanism, the Resilience and Sustainability Trust (RST), citing its inadequate scale, its limited scope, the fact that it will add to national debt burdens, and the harmful conditionality that will likely come with it.

Daouda Sembene, Distinguished Non-Resident Fellow at the Center for Global Development, also called on wealthy countries to rechannel their SDRs to the countries that need them, and proposed that they partner with regional multilateral development banks to do so, stating, “We — especially the US and all the large shareholders — have to make sure that the IMF handles and manages these resources in the most effective way by partnering with other multilateral development banks… to make sure that they can take advantage of their expertise to fight climate change. That’s for one. The second issue is we are talking about $50 billion [in proposed SDR rechanneling], but don’t you forget that the G20 members have accumulated more than $440 billion out of the SDR allocation of $650 billion, so we are talking about money that is sitting there at the IMF not serving any purpose. Why wouldn’t the G20 accept on top of the $100 billion that it has pledged… to add all of that and use SDRs… [in] the fight of climate change?… It can go through the World Bank, it can go through regional development banks like ADP, or the African Development Bank… I think that would be the most effective way to mobilize more meaningful resources on the fight against climate change.”

Though the International Monetary Fund has a number of structural deficiencies limiting its ability to support a sustainable and equitable global recovery, addressing the issues discussed in this hearing — eliminating harmful surcharges, and re-issuing and fairly rechanneling SDRs — would be critical steps in the right direction. Read more about IMF surcharges here, and Special Drawing Rights here.

Watch the full hearing here.

On February 17, 2022, the House Financial Services Committee (HFSC) Subcommittee on National Security, International Development and Monetary Policy held a virtual hearing titled “The Role of the International Monetary Fund in a Changing Global Landscape.” The hearing addressed critical issues facing developing countries in their efforts to recover from the fallout of the COVID-19 pandemic, and proposed key steps forward for the International Monetary Fund (IMF, or Fund).

IMF Surcharges: Procyclical, Illogical, Unjust

One of the central topics of discussion was the IMF’s policy of imposing punitive and opaque surcharges, onerous fees that the Fund adds to the loan payments of countries with high levels of IMF debt. In recent years, the procyclical and regressive nature of these surcharges has gained increased attention, with civil society, development experts, and human rights advocates increasingly calling for their elimination. This growing demand for a reconsideration of IMF surcharge policy continued at the HFSC hearing.

“The IMF surcharges policy, which imposes extra, often hidden fees on to countries with high levels of debt, has been widely denounced as an unjust burden and a hindrance to our global … economic recovery by development experts and civil society organizations,” said Rep. Ayanna Pressley.

Hearing witness, Nobel laureate, and CEPR Advisory Board member Joseph Stiglitz is one such expert: “The IMF has come to increasingly rely on surcharges on borrowing countries to finance its operations. This is inappropriate and counterproductive. The IMF is supposed to help countries dealing with foreign exchange problems. It is now contributing to their foreign exchange problems through surcharges,” he said, adding: “Surcharges are procyclical. They go exactly against the objective of good economic policy.” 

Another witness, CEPR Senior Research Fellow Jayati Ghosh stated, “There is no logical reason for the surcharges … it’s a completely unnecessary imposition on countries that are distressed and cannot afford it.”

Citing CEPR research on the deadly costs of these surcharges, Rep. Pressley noted that “There was a recent report that reported that Argentina will spend more than $3 billion covering surcharges through 2023. I want us to sit with that. That is nine times the amount it would cost to vaccinate every single Argentinian against COVID-19.”

As Rep. Chuy García put it: “To me, this looks like the business model of payday lenders here in Chicago, not an economic development agency.” García went on to note the specific burden of surcharges on Ukraine: “We all know Ukraine is currently at risk of attack from Russia. What’s more? It’s only vaccinated about a third of its population, but Ukraine has to pay surcharge fees to the IMF.”

Rep. Stephen Lynch also cited the case of Ukraine, among others: “We got into this issue about surcharges on so-called middle-income countries. And just to be clear, we’re talking about Ukraine. We’re talking about Egypt, Argentina, Brazil. There hasn’t been any relief for those countries in terms of the surcharges that have been applied by the IMF… During the period of this pandemic, there’ll be about $4 billion paid by these countries to the IMF in terms of surcharge fees.” Lynch went on to call for the suspension of IMF surcharges.

Asked whether these surcharges should be halted during the pandemic, Ghosh responded: “Absolutely. I believe that right now in the continuing pandemic there should absolutely be a review. I believe the IMF should actually cancel this program altogether because it really does not make sense and it is not justified. I believe the U.S. government should actively propose this.” Rep. Pressley concurred: “Indeed, surcharges are an obstacle to our global economic recovery and our efforts to end this pandemic. And I agree, they should be abolished.”

Following the criticism of surcharges expressed by multiple witnesses and members of Congress, Subcommittee Chair Rep. Jim Himes committed to taking on the issue.

Special Drawing Rights For a Global COVID Response

Also a focus of discussion were IMF Special Drawing Rights (SDRs). SDRs are a unique, global reserve asset that can be issued to support developing countries in responding to the pandemic and encouraging an equitable global recovery — all at no cost to the United States. 

In August of 2021, the IMF approved a $650 billion SDR issuance, which was distributed according to IMF quotas. Though a positive step with a tremendous impact for countries around the world, this initial issuance remains insufficient. Civil society and Congressional leaders have called for an allocation of an additional $2-$3.5 billion, and for the fair rechanneling of SDRs held by wealthy countries like the United States to those that need them most. At the HFSC hearing:

Stiglitz described the initial issuance as “of extraordinary importance.” Ghosh agreed, stating that “The release of new SDRs has been crucial even though they are unequally distributed, because SDRs are automatic, they are debt free… they do not require fiscal conditionalities… and they are effectively costless.” Citing CEPR research, Ghosh noted that “At least 80 countries have already used their SDRs.. to add to their imports… to pay back the IMF… and for their own budget increases… This has added to some degree to helping the world economy revive, but it’s also helped the United States’ economy” by boosting demand for exports.

Rep. García similarly praised the initial allocation — stating that “last year’s issuance of SDRs was a tremendous success,” — and went on to call for more, citing his bill supporting the issuance of an additional $2 trillion in SDRs that was already approved by the House of representatives. Ghosh expressed her support for this proposal, stating that “a large allocation would play a huge role in determining a future recovery in the global economy.” Stiglitz agreed, and called for not only a new one-time issuance, but for regular annual issuances for years to come: “The international community has made a commitment to help developing countries make the green transition. An annual emission of SDRs would be a reliable way to achieve our climate commitments.”

Ghosh also highlighted the importance of rechanneling SDRs held by the United States, but criticized the IMF’s proposed rechanneling mechanism, the Resilience and Sustainability Trust (RST), citing its inadequate scale, its limited scope, the fact that it will add to national debt burdens, and the harmful conditionality that will likely come with it.

Daouda Sembene, Distinguished Non-Resident Fellow at the Center for Global Development, also called on wealthy countries to rechannel their SDRs to the countries that need them, and proposed that they partner with regional multilateral development banks to do so, stating, “We — especially the US and all the large shareholders — have to make sure that the IMF handles and manages these resources in the most effective way by partnering with other multilateral development banks… to make sure that they can take advantage of their expertise to fight climate change. That’s for one. The second issue is we are talking about $50 billion [in proposed SDR rechanneling], but don’t you forget that the G20 members have accumulated more than $440 billion out of the SDR allocation of $650 billion, so we are talking about money that is sitting there at the IMF not serving any purpose. Why wouldn’t the G20 accept on top of the $100 billion that it has pledged… to add all of that and use SDRs… [in] the fight of climate change?… It can go through the World Bank, it can go through regional development banks like ADP, or the African Development Bank… I think that would be the most effective way to mobilize more meaningful resources on the fight against climate change.”

Though the International Monetary Fund has a number of structural deficiencies limiting its ability to support a sustainable and equitable global recovery, addressing the issues discussed in this hearing — eliminating harmful surcharges, and re-issuing and fairly rechanneling SDRs — would be critical steps in the right direction. Read more about IMF surcharges here, and Special Drawing Rights here.

Watch the full hearing here.

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