By Andrea Shalal

WASHINGTON, (Reuters) – The U.S. Treasury Department rejected Friday’s appeal from 18 Democratic legislators who wanted the International Monetary Fund to stop charging significant surcharges for larger loans not repaid within a short time.

IMF estimates that the surcharges for borrowing countries, in addition to interest payments and fees, will exceed $4 billion from the beginning of the pandemic up through 2022.

Jonathan Davidson was the Biden administration’s deputy Treasury secretary for legislative affairs. He explained to the legislators that surcharges are intended to reduce the risk to shareholders when lending large amounts to member nations. These surcharges do not apply in the poorest countries of the world, Davidson said. Loans made frequently had rates that were well below market rate.

“Revenue from surcharges for those countries who do pay them helps build precautionary balances to protect the IMF’s shareholders against potential losses,” Davidson wrote in his reply to a Jan. 10 letter from lawmakers, a copy of which was seen by Reuters.

“In Treasury’s view, surcharges need to be considered in the context of the overall balance sheet of the IMF, most importantly its ability to absorb potential losses from nonrepayment of its lending,” he said.

Washington is critical because the United States is the biggest shareholder of the global lending institution. It is funded from its member countries. However, Germany, France, and Britain are open to reviewing surcharge policies.

Pramila Jayapal and Alexandria Ocasio Cortez led a group of representatives to Treasury Secretary Janet Yellen last month. They asked her to support a review on a policy which they claimed was unfair and counterproductive and robbed nations of funds needed to defeat the COVID-19 epidemic.

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 role of surcharges as the largest revenue source for the IMF was reviewed by the executive board of the IMF late last year without reaching a decision.