Tag Archive for: World Bank

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.

Imperatives for the World Bank’s next president

The World Bank will soon pick a new president. With the world facing a confluence of climate, debt, energy and security crises, the leadership change comes at a pivotal moment for the institution. A more active leader could put the bank in pole position to assist countries in crisis, help fight climate change and facilitate cooperation between the United States and China, despite their escalating rivalry. But to do that, the new president must avoid the traps into which their well-intentioned predecessors have fallen.

The leadership race has moved quickly. A week after current president David Malpass announced on 15 February that he would step down, the World Bank’s executive board announced that nominations would be accepted until 29 March and urged countries to nominate women. But within a day of the board’s statement, the US announced that its candidate would be Ajay Banga, effectively ending the real contest, given that every World Bank president has been the US nominee (likewise, the International Monetary Fund’s managing director has always been a European nominee).

Banga is certainly qualified for the job. As the former CEO of Mastercard, he has experience running a global business with staff delivering services all over the world. He has also worked in microfinance and advised US Vice President Kamala Harris.

But the World Bank is a large and complex organisation whose mission is to deliver services and financing to its most needy members. As such, its new leadership must be guided by several practical imperatives.

First, the president should not be tempted to embark on yet another reform of the organisation. Instead, they should focus on making a real difference to those the bank exists to serve. In the past, some World Bank presidents immediately hired advisers to transform the bank itself, devoting enormous resources to changes driven by empty promises to ‘save money’ or ‘deliver better results’. This is a tempting way to make one’s mark in a hurry, but it is far better to drive the bank to deliver on two or three urgent priorities. Former presidents have underestimated their power to achieve change by recognising excellence and promoting innovators from within the bank.

Second, the new president must lead on behalf of all countries. That is easier said than done. In theory, the president is selected by the executive board and leads the organisation on behalf of all the countries that belong (and contribute) to it. In practice, however, World Bank presidents serve at the pleasure of the US Treasury secretary, who appoints them and decides whether to reappoint them for a second term or even pressure them to retire early. This limits the bank’s accountability to its other shareholders.

To be effective, the next president must refrain from taking orders from the White House. Instead, they should use their position to inform, explain, persuade and cajole an American government that doesn’t always understand the bank’s role. When US Senate Republicans accuse the bank of giving US taxpayers’ money to China, the organisation needs to make clear that it is not US taxpayers’ money, and it is not a gift. Over the years, the US itself has urged the World Bank to self-fund by charging China and other emerging economies a premium to borrow, and this generates considerable revenue for the bank.

The third imperative for the next president is not to take the organisation’s mandate as given. The World Bank can and should lead in responding to crises rather than simply adhering to time-worn constraints and practices. The new president must not slip into being a passive hostage of the board.

Being president of the World Bank is not as straightforward as being the CEO of a public company. It requires both deft management and exceptional political skills. As chair of the bank’s executive board, the president must work behind the scenes to broker agreements. It is the responsibility of the World Bank’s head to help low- and middle-income countries sometimes counter the most powerful shareholders and press the institution to act when needed. The bank’s president can work discreetly to help form coalitions and give voice to a wider range of shareholders. For example, the next president could urge countries to consider Barbadian Prime Minister Mia Mottley’s Bridgetown initiative, which seeks to reform global finance to address the developing world’s debt crisis.

With dozens of countries struggling to meet their development goals amid a perfect storm of food, energy, debt and climate crises, the World Bank must deploy more resources. Here, too, the lender’s new president, whether Banga or someone else, could make a real difference. For example, they could unlock the bank’s existing resources by persuading shareholding governments to be less risk-averse and lower their minimum equity ratios. Beyond that, the new head could persuade countries to increase their contributions to the bank, and show that every dollar given to it could be leveraged and used far more effectively than any dollar spent by an individual government, as expert reports to the G20 and the G7 have shown.

As the World Bank’s likely next president, Banga faces a particularly difficult set of challenges. If he manages to increase lending, he could prevent the world’s poorest countries from losing the last decade’s hard-won progress in education, health, and social and political inclusion. He must also mobilise governments, resources and knowledge to mitigate the disastrous effects of climate change on low- and middle-income countries. But to achieve all this, the incoming leader must be emboldened by the urgency of the current moment and shake the organisation out of its sclerotic state.