By Andrea Shalal

WASHINGTON (Reuters] – Sixteen Democratic legislators have asked Janet Yellen from the U.S. Treasury to approve a study that will end the International Monetary Fund’s practice of charging surcharges to countries for loans larger than they are repaying quickly.

Reps. Jesus Garcia and Alexandria Ocasio Cortez addressed Yellen on Jan. 10, calling the policy “unfair” and “counterproductive” and claiming that it robbed nations of the resources necessary to fight the COVID-19 pandemic.

“At a time when countries around the world should be focused on this public health crisis, these surcharges divert billions of dollars into the IMF’s pockets here in Washington and prevent an equitable recovery,” Garcia said in a statement to Reuters.

Reuters was able to view a copy of the letter. It stated that the policy might also raise the likelihood of sovereign defaults.

Argentina is estimated to have spent $3.3 billion in surcharges between 2018 and 2023. However, IMF executives remain split on the larger issue.

The Argentine government has also begun negotiations with the IMF for the transfer of $45 billion owed to the lender by the standby loan amounting $57 billion signed in 2018 by the former government.

Joseph Stiglitz (Columbia University professor) and Kevin Gallagher (Boston University’s Global Development Policy Center head), supported reform. The paper was published in October.

The IMF estimates that countries borrowing money will pay more than $4B in surcharges, on top of interest and fees.

Last month, the IMF’s executive board discussed surcharges as the largest revenue source. Some were open to temporary relief while others felt no need for a review of the surcharge policies. According to IMF, those who opposed the IMF’s borrowing policy cited both the low total cost and surcharge income that help build up risk buffers.

The UK, France, and Germany are willing to review the IMF’s surcharge policies, while the United States (the largest shareholder) has opposed such an action.

Surcharges do not apply to the poorest borrowers, and help build precautionary balances to protect the IMF’s shareholders against potential losses from these higher risk programs, said a source familiar with Treasury’s position.

According to the source, rates for IMF loans generally fell below market rates. Surcharges were not included. Argentina paid about 4% for its IMF loans, which is well under the 50% rate it pays to borrow capital markets.