The future of the IMF in the tensions between the US, China and the EU
This is the first post in a three-part series about the interstate political-economy order, and specifically about the IMF and how it can best ensure its survival in our currently very unsettled world. The series explores how the US and the Europeans have sustained the concentration of power in their hands from the Fund's start in 1944 until today, and used it to advance their individual and collective foreign policy objectives – causing many developing countries to become increasingly resentful at their marginalization and looking to build alternatives.
“The IMF is the linchpin of the international financial system …. I have an unbreakable commitment to increased funding for the IMF … The stakes are great. This [quota increase] legislation is not only crucial to the recovery of America’s trading partners abroad and to the stability of the entire international financial system, it is also necessary to a sustained recovery in the United States” (President Ronald Reagan, September 27, 1983, quoted in Boughton 2001)
It is now widely recognized that the world has moved into a more chaotic state than a decade and more ago. The “global liberal order” is wounded (though not broken), as the internally polarized US cuts back on its “responsibility” to lead this order while it insists on its continuing claims to unilateral “greatness”, allowing no one else to challenge its dominance. Inter-state relations have become more confrontational, economic globalization more win-lose, global debt relative to ability to repay is at near record levels, artificial intelligence (AI) poses grave dangers, and looming over all are the global crises of climate change and species extinction. This is the G-0 world, the world of “Made in China 2025”, “America First”, and in reply, “Europe First”. It makes a sharp contrast with the world system marked by reflexive cooperation in the quarter century after the end of the Cold War.
The question for this post is how legacy international organizations from the 20th century are likely to survive in the more chaotic world. Specifically, how likely is it that the IMF will survive till 100 in 2044?
UN Secretary-General Antonio Guterres is downbeat. At the BRICS summit in Johannesburg in 2023 he told the gathering that the Bretton Woods institutions “reflect yesterday’s world” (Reuters 2023).
The IMF and the World Bank were created eight decades ago when large parts of the non-western world were still formal colonies of western states and others were informal colonies. Unsurprisingly the western states, led by the US, created rules which concentrated “influence” (including share of votes and representation in the governing bodies) in their own hands, even though all member states were part of a representation mechanism (in contrast to the G20 today).
Remarkably, western states (plus Japan), which today account for about 17% of the world population, continue to enjoy highly concentrated influence in these organizations, almost as much as in 1945. It is as though the emerging “multipolarity” or “pluralisation” of the world order has not taken place. This is a source of both resentment and loss of interest on the part of governments and officials in many emerging markets and developing countries (EMDCs, to use IMF nomenclature), especially the big ones.
From the start the Fund’s central role was (a) to supply emergency loans to governments in economic distress so that the countries could continue importing and not send contractionary waves into countries from which they had previously imported, (b) to discipline countries’ management of exchange rates and interest rates, and (c) help coordinate the restructuring of countries’ unpayable debts. In contrast, the central role of the World Bank was to provide long-term capacity-building development loans.
The post argues that the Fund meets a still-strong “collective need” in the world economy and has few competitors – as implied by President Reagan’s statement in the epigraph. This alone improves the prospects for its future. But those prospects are clouded by (a) the concentration of influence in the hands of the US and European states and the continuing marginalisation of states of the global South, especially China, (b) the use of that western influence to push developing countries to open their economies to more-or-less free trade and finance, deregulate large areas of economic activity, privatize state-owned enterprises and natural resources, and more generally, expand the scope of markets and shrink the role of the state. The Fund presents these conditions as impartial and technocratic, derived from the best economic theory. But some of the big developing countries resent their marginalization in the Fund and look to develop alternatives. The question is what the Fund should do to bring them back in?
The allocation of quota and votes
The Fund defines itself as a “quota-based organization”. A country’s quota determines how much capital it must hand over to the Fund, how much it can borrow from the Fund, and its share of votes in the Board of Governors (finance ministers or central bank governors) and the Board of Executive Directors (EDs, usually civil servants representing country governments).
The Fund presents the allocation and reallocation of quota as a technical (non-political) exercise, governed by a formula and elaborate calculations. The reality is that the quota distribution is much affected by political horse-trading disguised as economics and statistics.
The irony is that votes in the Board of Executive Directors are rarely taken. The chair – generally the Managing Director -- infers a consensus or near-consensus based on their weighting of the votes represented by each of the speakers.
We see the politics behind quota and votes in the original allocation of quota, which gives a microcosm of the US beginning to exercise global hegemony in the later years of World War Two.
The quota process began in the White House and Treasury in 1943, a year before the Bretton Woods conference. The leader of the US side, Harry Dexter White, based in Treasury, called a young Treasury official, Raymond Mikesell, into his office and told him to produce a technical-looking formula which yielded the following result (without consulting allies).
1. The US quota should be $2.9 billion, the largest amount that could be given to the Fund without congressional approval.
2. The UK’s share should be half of the US’s.
3. The Soviet Union’s, a bit less than UK’s.
4. China’s, a bit less than Soviet Union’s.
5. The combined share of the emerging British Commonwealth should be less than the US share.
White added that he didn’t care about the rest of the ranking, Mikesell could determine the rest himself. He added specifically, in Mikesell’s later-recalled words, “…he did not care where France ranked, and its ranking did not need to be an objective in the exercise”.
When White revealed the quota allocations a year later to the delegates at Bretton Woods “they provoked volcanic outbursts of indignation. Russia was furious it had been placed below Britain … France was devastated to be below China, as was India” (Conway 2014, p.223-24). France insisted again and again it must be equal to Britain.
Today’s formula gives 50% weighting to country GDP (60% at market exchange rates, 40% at PPP). 45% to two other variables, called “openness “ and “variability”. 5% to “international reserves”.
The high weight to openness and variability skews the allocation of quota in favor of developed countries and away from the distribution of country “weights” in the world economy as measured by GDP.
EMDCs have long pressed for the reduction or even elimination of “openness” and “variability” from the quota formula to no effect. Also, for the GDP weights to be changed to 60% at PPP, 40% at market exchange rates, which would advantage EMDCs, to no effect.
At present, China is by far the most under-represented state, the state with the biggest gap between its large share of world GDP and its small share of quota and votes. Its share of world GDP (PPP) was 19% in 2022, share of calculated quota by the quota formula was 14%, its actual quota was 6.40%. This keeps China at number three in the IMF behind Japan (6.47%). The western bloc plus Japan are determined to keep China behind Japan. That 0.07% difference matters.
The European bloc is very over-represented. For example, Netherlands has a higher share of quota (1.83%) than Indonesia (0.98%). Ireland has a higher share (0.72%) than Nigeria (0.52%) or South Africa (0.64%). (IMF 2025)
Europe is also over-represented in the Board of Executive Directors (recently expanded from 24 seats to 25 with a third ED for Sub-saharan Africa). Eight states represent only themselves on the Board, of which three are European : Germany, France, UK. (The others are the US, Japan, China, Russia, Saudi Arabia.) The remaining states are grouped into constituencies, each constituency represented by a single Executive Director. The system puts Europeans at the head of some constituencies with developing countries. The upshot is that European states have between seven and nine seats on the Board of Executive Directors, in contrast to the US’s one and China’s one.
These structural determinants of western influence are reinforced by the big western states’ operating as a coalition within the Board to shape Board decisions, including sensitive ones about loan conditions to countries in crisis. A recent study of transcripts of Board meetings between 1995 and 2015 finds that the US, Germany, Japan, France and the UK – the G5, the IMF’s most powerful member states – act as a collective principal on the wide range of issues where they share preferences, and build winning coalitions to translate their preferences into Fund actions (Forster et al. 2025).
The whole EMDC bloc is very under-represented. They are “rule takers” (Nogueira Batista Jnr and Wade, 2024).
Next week's second post weighs up factors favourable to the Fund surviving to 100 and some of those against it. The third outlines some changes that should be made in its governance, scope, and staff composition in order to raise the chances of its survival.
Robert Wade is Professor of Political Economy and Development and Programme Co-Director, Development Management.
By International Monetary Fund - Wikicommons
References
Boughton, James, 2001, Silent Revolution: The IMF 1979-1989, chapter 17
Conway, Ed, 2014, The Summit: The Biggest Battle of the Second World War – Fought Behind Closed Doors
Forster, Timon, Dan Honig, Alexandros Kentikelenis, 2025, “Formal governance matters: when, how, and why states act on the IMF Executive Board”, Review of International Political Economy, January
Nogueira Batista, Jr., Paulo and Robert H. Wade, 2024, “Will the IMF survive to 100?”, Project Syndicate, https://search.app/ENsGpViQk3fk8d5A9
Reuters, 2023, “UN’s Guterres: today’s global governance structures reflect yesterday’s world”, August 24
