IMF and World Bank forced to shift gear as America’s power wanes

The International Monetary Fund and World Bank host their annual meetings in Washington this week, marking the 80th anniversary of the establishment of the Bretton Woods institutions.
There’s unlikely to be much of a celebratory mood in the air, as the world’s finance ministers and central bankers gather in the shadow of an escalating regional war in the Middle East and as their hosts are preoccupied with the US presidential election in two weeks.
With polls neck and neck, the return of Donald Trump is being seriously contemplated inside the institutions. If the first Trump administration had a complicated relationship with multilateralism, a potential second will take a more categorical stance on the merits of international co-operation through lenders where the US is the majority shareholder and largest benefactor.
It will not have been lost on IMF officials that the “Project 2025” dossier produced by a conservative think tank, the Heritage Foundation, has urged Trump to stop all funding and quit membership of the IMF and World Bank, which it slams as “expensive middle men” and “foreign entities’’ that act against US interests. The 920-page manifesto for the next Republican administration has not been formally claimed by Trump, who has distanced himself from parts of the playbook.
Trump’s main legacy from his first term was the appointment of his ally David Malpass as head of the World Bank, a stint that was mired in controversy over questions about Malpass’s belief in the scientific consensus on climate change, and which ended prematurely last year.
The former president also approved a capital increase for the Bank under conditions that made lending to middle-income countries and China more expensive. More recently Republicans in Congress have repeatedly blocked requests to increase the World Bank’s firepower.
Kristalina Georgieva, who started her second term as the IMF’s managing director this year, said she expected the next US administration would be “very pragmatic” in its attitudes towards the fund. Ajay Banga, the World Bank’s new head, has praised Trump for his “understanding of the value” of a lender which can leverage up to ten times its dollar funding for global development.
The IMF has a complicated relationship with its largest shareholder and the country that hosts the Bretton Woods institutions. In its spring outlook, the fund hit out at US fiscal policy, admonishing the Biden administration for overseeing a mass expansion of the federal budget deficit, which it has warned is a threat to the global economy.
The criticism asserted the fund’s independence against Washington’s influence, but recently Georgieva has taken a more conciliatory stance on trade protectionism and toned down warnings about “made in America” industrial policy, both of which have been spearheaded by Biden’s Democrats. Perhaps in anticipation of a regime change to the Republicans, Georgieva has said it is the fund’s job to understand rather than condemn the drift into protectionism.
Worthy as that may be, what is the future of an institution that was born 80 years ago in an era of US-led dominance in the world? Challenges to US hegemony from China and Russia and a domestic climate that is growing wary of US leadership in the world mean the IMF is at risk of becoming a relic of a bygone era of globalisation and a neoliberal credo that allowed it to impose punishing “structural reforms” on indebted countries in return for aid.
The shifting tides have forced the fund to respond to critics of its lending practices. Last week the IMF said it would reform its system of imposing surcharges on its weakest debt economies that are forced to pay escalating interest rates on their arrears. It was a partial concession to demands for more equity in procedures that disproportionately target the lowest-income nations, which have long complained that they are not given fair representation inside the postwar institutions.
This shift towards multipolarity will be neatly on display during the annual meetings, which will coincide with leaders from China, India, Brazil, Saudi Arabia and the United Arab Emirates being hosted by President Putin at the annual “Brics summit” on Tuesday and Wednesday. While their finance ministers and central bankers are in DC, President Xi and Narendra Modi will travel to Kazan, 550 miles east of Moscow, handing Putin his biggest diplomatic coup since his invasion of Ukraine in 2022.
The attendance of heads of state from the world’s second and fourth largest economies is in open defiance of US-led diplomatic, military and financial sanctions against Putin. It is also a testament to the growing interest in the expanded Brics economies developing tools, such as a common currency, to protect themselves against the sanctions that have attempted to siphon Russia off from the dollarised financial system.
Photoshoots and glad-handing with Putin are sure to irk Trump, who has already threatened to punish countries if they seek to move away from using the dollar.
China and Russia are sensitive touch points for the fund. IMF officials have already been forced to abandon a staff visit to Russia — the first since the invasion — after protests from a host of European countries. The so-called Article IV mission was supposed to be part of a tentative re-engagement with the Russian economy, and has been quickly shut down by European shareholders.
On China, the Biden administration wants Georgieva to take a tougher line on Beijing’s lending to bailout nations. Brent Neiman, one of the US Treasury’s financial diplomats, has said the fund is too “polite” about Chinese creditor assurances to debtor countries, and told Georgieva to name and shame Beijing when carrying out debt restructuring deals. Washington also wants the fund to forcefully condemn Chinese state subsidies to its financial system.
The IMF’s latest World Economic Outlook will make for an interesting read after China has unleashed its largest ever stimulus this month to reflate its economy and jump-start consumer spending. The fund’s verdict on the measures, which have been welcomed as necessary but insufficient by financial markets, will be closely watched by Democrats and Republicans.
Mehreen Khan is Economics Editor of The Times