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What if the US leaves the IMF and the World Bank?

After withdrawing the United States from the Paris climate agreement and the World Health Organization, President Donald Trump may pull the country out of more international institutions in the coming months. Notably, Project 2025—the blueprint for his second presidency, developed by the conservative Heritage Foundation—calls for the US to exit the International Monetary Fund and the World Bank. Rather than acceding to Trump’s demands, member countries should recognise that a US withdrawal would primarily harm the US and use that to negotiate on their own terms.

On February 4, Trump ordered a sweeping 180-day review of all international organisations to which the US belongs and supports, as well as ‘all conventions and treaties to which the United States is a party.’ The directive aligns with the goals of Project 2025, which dismisses the IMF and World Bank as ‘expensive middlemen’ that ‘intercept’ US funding before they reach projects abroad. If Trump follows this playbook, a US exit would be imminent.

But Project 2025’s authors have clearly misunderstood how these institutions are funded and run. By abandoning the IMF and the World Bank, the US would lose a key source of global influence and economic leverage. In effect, the US would forfeit vital tools for supporting its partners—and withholding financing from its foes.

The proximity of the IMF and World Bank headquarters to the US State Department, Treasury and Congress is no coincidence. The US has consistently maintained tight control over these institutions, shaping their policies and leadership to advance its national interests. The US has always appointed the World Bank’s president, approved Europe’s choice to lead the IMF, and selected the fund’s deputy managing director. It remains the only member country with the power to block major decisions unilaterally, as both the IMF and World Bank require an 85 percent majority.

Unsurprisingly, studies have repeatedly shown that the IMF and World Bank’s lending patterns closely align with US national interests. The US regularly uses the IMF as a ‘first responder’ to protect the US economy. Trump knows this. In his first term, it enabled him to provide his longtime friend, the then-President of Argentina Mauricio Macri, with a US$57 billion IMF program—the largest of its kind in the fund’s history (paid for by all the members of the IMF). Similarly, the US has used the World Bank to bolster security and economic alliances, address terrorism threats and support the postwar reconstruction of countries such as Iraq and Afghanistan following US-led invasions.

Perhaps most importantly, the actual cost of US participation in the IMF and World Bank is far lower than many assume. Every year, the Treasury Department evaluates the financial impact of the country’s contributions to the IMF. In the 2023 fiscal year, it reported an unrealized gain of US$407 million.

The World Bank offers similar opportunities to use US resources. The main arm of the World Bank Group, which has four other subsidiaries, is the International Bank for Reconstruction and Development (IBRD). The cost of running the bank is not paid by the US but by major borrower countries such as India, Turkey, Indonesia, Argentina and the Philippines. Their loan repayments, along with the IBRD’s net income from previous years, largely fund the organisation’s headquarters, staff salaries and other operational expenses (most of which flow directly into the economy of Washington, DC).

Unlike many multilateral institutions, the IBRD does not rely on direct country donations. Instead, it raises capital by issuing bonds and then lends the proceeds to developing and emerging economies. In effect, the IBRD finances itself—issuing US$52.4 billion in bonds in 2024. Although its bonds are backed by guarantees from member countries, the IBRD has never tapped its callable capital. Consequently, each shareholder provides a small portion of its committed share as ‘paid-in capital’. For the US, that amounts to US$3.7 billion—about 19 percent of the US$20 billion in subsidies the federal government has given Elon Musk’s SpaceX over the past 15 years.

To be sure, the US contributes to the World Bank in other ways. In 2018, for example, Trump’s first administration approved a US$7.5 billion capital increase for the IBRD. This does not demand more financial contributions from the US. But the US gets much in return. For example, its contributions to the World Bank’s concessional lending arm, the International Development Association, are voluntary and renegotiated every three years, giving the US enormous influence over the association’s lending.

Simply put, withdrawing from the IMF and the World Bank would be a grave mistake, stripping the US of its ability to shape the rules of the international monetary order and pursue its strategic interests. Yet at least some in the Trump administration appear tempted.

Even if the US does not withdraw from the World Bank and instead withholds its funding, member countries representing 70 percent of the total voting power could suspend its voting rights for failing to meet its financial obligations. The US would then lose all rights under the Bank’s Articles of Agreement—except the right to withdraw—while still being bound by its existing commitments. If the suspension lasts more than a year, the US will automatically lose its membership unless the same majority votes to reinstate it.

US President Theodore Roosevelt famously said foreign policy should ‘speak softly and carry a big stick.’ The Trump administration believes in speaking loudly and letting Musk use his big stick to smash things. Other countries may be shocked, but they are not helpless. By staying focused, working together, and acting decisively, they can still salvage the multilateral system.

Sri Lanka’s long road to recovery

The economic and political upheavals Sri Lanka has faced in recent years, including its 2022 debt default and the mass protests that ousted former President Gotabaya Rajapaksa, serve as a stark reminder of the dangers posed by poor governance and rampant inequality.

A 2023 report by the International Monetary Fund attributes the country’s ongoing crisis to widespread corruption and fiscal mismanagement, underscoring the urgent need for the new president, Anura Kumara Dissanayake, to implement bold structural reforms aimed at restoring public trust and promoting social justice.

At the heart of Sri Lanka’s ongoing crisis is a deeply flawed institutional framework, plagued by inefficiencies and susceptible to political interference. The IMF report highlights the erosion of independent institutions such as the Public Service Commission, the National Police Commission, the Audit Service Commission, the Commission to Investigate Allegations of Bribery or Corruption (CIABOC), the Finance Commission and the Delimitation Commission, which led to the mismanagement of public resources and a chronic lack of transparency. Unless, and until, these fundamental governance issues are addressed, economic recovery will remain out of reach.

To revive Sri Lanka’s economy, Dissanayake, the leader of the left-wing National People’s Power alliance, should pursue three major reforms. First, he must strengthen institutions like the CIABOC and improve oversight of public appointments. Second, improving fiscal transparency and procurement policies could reduce inefficiencies and increase trust in public spending. Lastly, limiting government officials’ discretionary power over tax incentives would curb corruption, boost revenue and promote fiscal responsibility.

Dissanayake must also confront the deeply entrenched structural inequalities that have long impeded Sri Lanka’s GDP growth. In his 2012 book The Price of Inequality, economist Joseph E Stiglitz argues that inequality is ‘not just a moral issue, but an economic one’, with the potential to stifle growth and trigger social unrest. Sri Lanka, where rising income inequality has been a major cause of socioeconomic instability, is a prime example of this dynamic. As the IMF report suggests, corruption-fuelled financial mismanagement and opaque tax policies have deepened Sri Lanka’s income disparities.

Reducing inequality is critical for Sri Lanka’s long-term economic and political stability. Building on Stiglitz’s insights, the new administration must pursue progressive tax reforms to ensure that the burden does not fall disproportionately on lower-income households. This approach also aligns with the IMF’s call for greater transparency in tax incentives and exemptions.

Another way to reduce inequality is to invest in public goods such as education, health care and infrastructure. Sri Lanka must redirect resources from the inefficient capital investments favoured by the Rajapaksas toward projects that directly benefit underserved communities. Establishing a transparent and competitive investment process could help direct resources to where they are most needed, in line with the IMF’s recommendations.

Labor-market reforms are equally important. Sri Lanka’s economic recovery hinges on creating equitable job opportunities by guaranteeing fair wages and safe working conditions, particularly in sectors like manufacturing and services, where inequality is most pronounced.

Weak, poorly designed institutions often allow wealth to be concentrated in the hands of a few. As the IMF report reveals, the lack of independent governance structures in Sri Lanka has caused corruption and inefficiency to flourish. To reverse this trend, Dissanayake’s administration must bolster regulatory frameworks, protect independent agencies and the judiciary from political interference, and create a level playing field that provides equal opportunities to everyone.

Civil society can play a pivotal role in this transformation. As Stiglitz notes, inclusive governance holds the key to reducing inequality. The IMF report criticises the absence of platforms for public participation, emphasising the importance of citizen engagement in holding institutions accountable.

A vibrant civil society and a free press are crucial to restoring trust in the country’s institutions. But reforming Sri Lanka’s draconian and outdated security and anti-terrorism laws—remnants of the decades-long war against the Liberation Tigers of Tamil Eelam—Dissanayake could encourage greater public participation and promote accountability.

In sum, to accelerate its economic recovery, Sri Lanka must revitalise its institutions and tackle the systemic inequities that have fuelled much of its recent turmoil. Implementing the IMF’s technical recommendations would help stabilise the country’s finances, while drawing on Stiglitz’s insights could help reduce income and wealth gaps.

But long-term growth will require bold leadership. Fostering transparency, accountability, and meritocracy would help Sri Lanka build a stronger, more resilient economy, laying the groundwork for a more just, prosperous and sustainable future for all its citizens.

Can the world order catch up with the world?

The world turned a corner in 2019. The problem is that the world order didn’t turn with it. This disconnect could have disastrous consequences.

The biggest global power change has been the start of the ‘Asian century’. Today, Asia is home to three of the world’s top four economic powers (in purchasing power parity terms): China, India and Japan. The region’s combined GDP exceeds that of the United States and of the European Union.

The US is no longer even the most globalised power; that title now goes to China. Already a larger trading partner to more countries than the US, China is signing on to more free-trade agreements as well, including potentially the largest in history, the Regional Comprehensive Economic Partnership. By contrast, the US has abandoned FTAs such as the Trans-Pacific Partnership, and America’s share of global trade continues to shrink.

The world order hasn’t kept pace with these shifting economic dynamics. On the contrary, the US dollar remains the predominant currency for settling international trade. The US and Europe retain control of the two leading global economic organisations: the International Monetary Fund and the World Bank. And the United Nations Security Council—the only body that can issue binding decisions for the UN’s 193 member states—is dominated by just a few, largely declining powers.

In theory, the easiest of these incongruities to address should be the inadequate influence of emerging powers like China in the IMF and the World Bank. After all, the US and Europe have already acknowledged—including in the 2006 and 2007 G20 communiqués—that ‘the selection of senior management of the IMF and World Bank should be based on merit’, ensuring ‘broad representation of all member countries’.

Yet the anachronistic ‘gentlemen’s agreement’ that has kept an American at the head of the World Bank and a European leading the IMF has proved stubbornly resilient. In 2007, Dominique Strauss-Kahn became IMF managing director, succeeded by another French citizen, Christine Lagarde, in 2011.

Six years later, Lagarde declared that the IMF could be based in Beijing by 2027, if growth trends continue and are reflected in the fund’s voting structure. After all, she noted, the IMF’s bylaws call for the institution’s head office to be located in the largest member economy.

Yet, when Lagarde resigned from her post to become president of the European Central Bank last November, it was yet another European who took her place: the Bulgarian economist Kristalina Georgieva. Likewise, the World Bank presidency passed from Robert Zoellick to Jim Yong Kim in 2012, and then to David Malpass in 2019. Future historians will marvel at the imprudence of the old powers’ shameless refusal to share control of global institutions.

And yet the US and the EU are not the only ones working to safeguard their clout. In the UN Security Council, the five permanent members (P5)—China, France, Russia, the UK and the US—also pay lip service to the need for reform, but consistently obstruct progress. Complicating matters further, additional countries attempting to get a permanent seat on the council are facing resistance from their neighbours: Pakistan is blocking India’s bid, Argentina is blocking Brazil, and Nigeria is blocking South Africa. Given these dynamics, the Security Council will be even more difficult to reform than the IMF or World Bank.

But, again, failure could be disastrous. If the composition of the council isn’t updated, it could lose its credibility and moral authority. If the African Union or India (each with over a billion people) refused to abide by the Security Council’s decisions—essentially the decisions of the P5—the international community’s most important body wouldn’t have much recourse.

To avert such an outcome, the Security Council should adopt a 7-7-7 formula. The first seven would be permanent members—Brazil, China, the European Union (represented by France and Germany), India, Nigeria, Russia and the US—each of which represents a different region. The second seven would be semi-permanent members, a rotating selection of 28 countries, based on population and GNP. The remaining 160 countries would rotate into the remaining seven seats.

The most difficult incongruity to resolve will be that between America’s declining leadership and its currency’s role as the leading international reserve currency. Today, more than 40% of cross-border payments and 90% of foreign-exchange trades are settled in US dollars. This reflects decades of trust: the US had deep markets and strong institutions—including efficient courts and an independent central bank—and it didn’t use the dollar as a tool to advance its own interests.

But, since 2017, US President Donald Trump has been aggressively undermining the international community’s trust in the dollar. He has pressured the US Federal Reserve to lower interest rates in order to deliver short-term economic growth as he campaigns for re-election. And he has weaponised the dollar, labelling China a ‘currency manipulator’ and instructing the US Treasury to put more countries—including close Asian and European allies—under surveillance.

Trump’s behaviour has raised the hackles not only of adversaries (Russia leads a new de-dollarisation trend), but also of key allies. In 2018, European Commission president Jean-Claude Juncker pledged that the euro would become an ‘active instrument’ of EU sovereignty. It was also significant that France, Germany and the UK—in collaboration with China and Russia—created INSTEX (Instrument in Support of Trade Exchanges) to bypass US sanctions on Iran.

But, in a sense, Trump has done the world a favour by making undeniable what was already obvious. If world leaders don’t start addressing the contradictions plaguing the world order soon, the likely result is crisis—and even more dangerous contradictions.

Corruption is crippling Ukraine’s economy, and Trump isn’t helping

The top priority for the new Ukrainian government of Volodymyr Zelensky should be to establish the ‘rule of law’, according to the International Monetary Fund.

The fund’s survey team visiting Ukraine last month said the economy was at last heading in the right direction, showing growth while government debt was being controlled. But they highlighted how far Ukraine must travel to make up for the decades it has lost since its 1991 independence to corruption, poor governance and a war with Russia. Its income per capita is barely 20% of the European Union average, while its labour has only a tenth of the productivity of its European peers.

At independence, the people of Ukraine had about the same level of income as their neighbours in Poland. Polish incomes are now five times higher.

With a population of 44 million, Ukraine has an economy the size of South Australia’s plus the two territories’.

Raising income levels requires a greater commitment to structural reform, the director of the IMF mission to Ukraine, Ron van Rooden, said. ‘This includes most of all firmly establishing the rule of law—including through judicial reform—and decisively tackling corruption.’ Markets needed to be opened to competition, with a reduced role of the state and the ‘oligarchs’.

Zelensky is seeking a multibillion-dollar loan from the IMF to support Ukraine’s economy.

The IMF’s concerns about the rule of law reflect the persistent failure to prosecute cases of corruption affecting the empires of the half-dozen or so billionaires who seized control of state assets in the wake of the break-up of the Soviet Union in the late 1980s.

There is some irony in US President Donald Trump’s request to Zelensky that Ukrainian prosecutors intensify their investigations of tycoon Mykola Zlochevsky in the hope of revealing dirt on Democrat candidate Joe Biden. Zlochevsky had employed Biden’s son Hunter on the board of his gas company.

Two years ago, Trump was putting pressure on Zelensky’s predecessor, Petro Poroshenko, telling him he should back off investigations of corruption involving Trump’s former campaign chairman, Paul Manafort, who was ultimately jailed for concealing foreign bank accounts related to his dealings with the pro-Russian Ukrainian leader Viktor Yanukovych.

In both cases, Trump has been putting political pressure on the administration of justice in Ukraine, essentially perpetuating the corruption of process that is at the heart of the IMF’s concerns.

Since his election in April, Zelensky has fared better than many expected from someone whose only prior political experience was as the star of a satirical TV show, Servant of the People, which he then used as the name of his pop-up political party.

Aided by French President Emmanuel Macron, with whom he shares some affinity as a political outsider, he has made progress in negotiations with Russia’s Vladimir Putin over the border territories that have been seized by Russian secessionists. Swaps of war prisoners have been a good start.

Ukraine has been a strategic flashpoint since the 2013–14 revolution, which ousted a pro-Russian government in favour of a bid to join the EU, and was followed by Russia’s seizure of Crimea. IMF data shows that between 2013 and 2015, the size of the Ukrainian economy almost halved.

Zelensky is also pushing ahead with land reform legislation that would benefit individual private farmers at the cost of ‘oligarch’ land holdings. However, there are reasons to doubt that Zelensky will do much to upset the structure of power in Ukraine, notwithstanding his election promises to ‘break the system’.

A pointed comment in the IMF’s review is that the government should ‘make every effort to minimise the fiscal costs of bank resolutions’. This looks like a reference to the nationalisation by the former government of Poroshenko of the corrupt and failing PrivatBank, which was owned by Zelensky’s biggest backer, Ihor Kolomoisky. PrivatBank had been behind a Ponzi scheme, making ever larger and ultimately unrecoverable loans to shareholders secured by their equity in the bank.

Kolomoisky’s business empire includes the TV network that hosted Zelensky’s show. Kolomoisky says he doesn’t expect Zelensky to return the bank to him, but he’d like to be paid the US$2 billion he claims he’s owed. This would be a step too far for the IMF.

Poroshenko was himself one of the ‘oligarchs’—he made his fortune from a confectionary business. Only in Ukraine could someone gain political power claiming that it takes an oligarch to clean up the oligarchy.

Poroshenko introduced an anti-corruption agency, but according to the non-government organisation Transparency International, it has failed to bring to account any corrupt high-level official. Transparency International ranks Ukraine as the most corrupt country in Europe, with the exception of Russia.

Some saw Zelensky’s victory in April as a manifestation of the rivalry between Poroshenko and Kolomoisky.

Another reason for doubting how far Zelensky’s new broom will sweep is his decision to retain Poroshenko’s interior minister, Arsen Avakov, who has held the position since 2014. A report by the European Council on Foreign Relations claims the interior ministry has become a ‘personal empire’ for Avakov, shielding ‘organised crime and far-right militias’. ‘Zelensky appears to owe him a favour’, the report says.

The transcript of Trump’s phone call with Zelensky in July is not reassuring. Zelensky told Trump he would have a new prosecutor in place by September who would pursue the investigation that Trump requested. ‘Since we have won the absolute majority in our Parliament, the next prosecutor general will be 100% my person’, he said.