The future of the IMF caught in the tensions between the US, China and the EU (Part 2)
This is the second of a three-part series on the future of the IMF (read the first here). The second part starts with a short section to illustrate how the western bloc uses its dominant influence in the Fund. Then follows a section assessing several factors that affect the Fund’s chances of survival, positively and negatively.
How does the western bloc use its dominant influence?
Unsurprisingly the western bloc from the start created policy frameworks and rules which countries borrowing from the Fund have to comply with as a condition of emergency loans. These are the Fund’s “conditionalities”.
From the 1980s onwards, the conditionalities have derived from the policy paradigm known as the Washington Consensus, which set Washington’s and other western states’ core agenda for developing countries. The core message has been, “A nation that opens its economy and keeps government’s role to a minimum invariably experiences more rapid economic growth and rising incomes”, in the words of a New York Times journalist expressing the consensus at the Davos World Economic Forum meeting in 2002 (Uchitelle 2002). Or more elaborated, the paradigm stresses free trade and finance, deregulation, privatization, and small state. Even states which rarely receive a loan from the Fund have been pressed indirectly to implement these policies through the larger western win-win “world view” propagated from the Fund and World Bank.
Also, the western bloc has used the IMF to reward countries closely aligned with the West and withhold support for countries they see as hostile. For example, Ukraine received a very generous package of IMF funding after Russia’s invasion of Crimea in 2014. It was the first country at war to receive an IMF loan, after the IMF changed its rules to allow loans to countries at war. Argentina is another which has benefitted from IMF serial forbearance.
The Fund’s relations with Ethiopia under “Marxist” Prime Minister Meles shows the opposite. In 1996-97 the US led the Fund and other western governments in a campaign to get EMDCs to open their capital accounts to allow free inflows and outflows of (western) capital. The Fund even put intense pressure on the government of Ethiopia to open the capital account (and allow both the interest rate and the exchange rate to be determined largely by “the market”), even though poor Ethiopia was of no interest to international investors. Fund officials indicated to western insiders that they wanted to make Ethiopia a demonstration to the rest of sub-Saharan governments that they should all open their capital accounts. Their resolution was intensified by the US antipathy to the “Marxist” government. In the event the Meles government succeeded in pushing back, helped by (secret) advice from the then World Bank chief economist Joe Stiglitz and then by the onset of the East Asian financial crisis in mid-1997 (Wade 2001).
Will the IMF reach 100?
Several factors affect the likelihood that the IMF will survive in good shape to its 100th birthday in 2044. Some make it more likely, others less.
The Fund meets a clear functional need in the world economy and has few competitors.
It bears repeating that the Fund meets several critical, widely agreed functions in the world economy: an emergency source of finance when other lenders will not lend quickly; a collective discipline on national governments to reduce the chances that they need emergency loans and raise the chances that they repay the loans; a coordinator of foreign debt restructuring when necessary. The case in point is that the early Reagan government tried to “defund” the IMF and cut its staff, only to reverse gear when the 1982 Mexican and wider Latin American financial crisis hit.
The functional need is all the stronger today, because the fragmentation of the world order and the increasing politicization of international finance by the US, Europe and China raise the vulnerability of all but the biggest economies to foreign economic shocks and accumulation of unpayable debts.
Not only does the Fund fulfil functions that the world economy needs, but it also has no real competitors (while the World Bank has several). After the East Asian crisis of the late 1990s the countries of the region created the Chiang-Mai Initiative (CMI) intended to allow countries in crisis quick borrowing from other countries in the region not in crisis. From the beginning till today its rules say that a country can borrow through it only when the country is already in an IMF program (this is called “the IMF link”). So by design the CMI is scarcely a competitor to the Fund. In any case, its borrowing facility has been little used. When South Korea needed emergency loan in 199. t went straight to the US central bank, which agreed. When Indonesia needed an emergency loan during the same regional crisis it too went to the US central bank, which said no; so, it went to Japan’s central bank, which said yes.
In 2015 the BRICS coalition (Brazil, Russia, India, China, South Africa) established the Contingent Reserve Arrangement (CRA), intended to be a complement and eventual rival to the IMF, lending short term to countries in distress. But it has been still born; it exists with full authorizing documents but undertakes no lending activities. Brazil’s finance ministry was one of its key architects. Brazil’s central bank was one of its key opponents. Its authorizing documents say that for a country to access its funds the country must already be under a parallel IMF agreement (Nogueira Batista Jnr 2022).
Also suggesting a long life ahead, in 2021 the Fund’s Board of Governors approved a new allocation of Special Drawing Rights (an international reserve asset created by the Fund in 1969), equivalent to US$650 billion, to boost the Fund’s lending resources and global liquidity generally.
Another indicator is the popularity of the Fund’s Resilience and Sustainability Facility, created in 2023. It provides low-cost (“affordable”) longer-term financing to help “low-income and vulnerable middle-income countries” address long-term challenges like climate change, pandemic preparedness, long-term balance-of-payments stability and more.
Against these positive factors for the future of the Fund are several negatives.
The US legislature
As the world economy grows, the IMF and the World Bank have to ask member states to grant them more capital in order to boost their equity base. In virtually all member states this is a decision made by the executive branch. The US is, unusually, a “bifurcated principal” (in the language of principal-agent theory), in that the US Congress has to approve spending by the executive (above a threshold). The US Congress has long resisted handing over more US “taxpayers’ dollars” to these and other multilateral organizations. It took the US Treasury five years, from 2010 to 2015, to persuade enough congressional representatives to approve the quota increase negotiated and approved by all member government except the US in 2010 (the 14th Quota Review).
This is a key dilemma for the Fund: on the one hand, the US legislature resists approving increased funding for the IMF, even as the world economy grows, and the Fund should increase its capital base in line with that growth. On the other hand, the US government insists on the US government being the single largest shareholder and the only state with a veto, which sets a limit on the capital granted by others.
The Trump government
President Trump has long expressed disdain for multilateral cooperation and preference for bilateral deals – where the US mostly has the upper hand. He has also long expressed disdain for Europe and the whole western alliance. As Gideon Rachman remarked in the Financial Times, “Both Russia and China have long dreamt of pulling apart the western alliance. Trump is doing their work for them” (Rachman 2025). Moreover, his chief advisor Elon Musk seems obsessed with gunning for regime change in allied democracies. Using his own personal mass platform, X, he has repeatedly said that only the far-right Alternative for Germany (AfD) can save Germany in the February 2025 election. He calls for an end to the Labour Party government in Britain. On the other hand, he is silent about Russia and China (Luce 2024).
Not only that, Trump and those he has appointed to the top positions agree that globalisation and free trade have harmed the US economy by shifting critical industries abroad and making the US run huge trade deficits. They say it is critical that the US raise tariffs to cut imports, even from close allies. “‘Tariff’” is the most beautiful word in the dictionary”, Trump has said many times.
This win-lose, confrontational world view is inconsistent with the pro-globalisation, pro-free trade, pro-free capital movement, anti-industrial policy agenda that the Fund and the Bank have promoted for the past several decades.
Neither Trump nor his top lieutenants have said anything substantial about the Fund or the Bank. But top lieutenants have embraced the 900-page blueprint document to reshape the federal government drawn up by the Heritage Foundation, Project 2025, and its proponents populate his government. Moreover, when President Trump signed a blizzard of executive orders on his first day in office, nearly two-thirds of them came straight from Project 2025 (Schwenk and Brewster 2025).
The blueprint calls for the Treasury Department to “withdraw from both the World Bank and the IMF.”
This is most likely a threat to gain even more US leverage. Afterall, exit would be the nuclear option. Once gone to the US would lose leverage – lose the ability to advance US bilateral interests while gaining the legitimacy of multilateralism to advance bilateral interests.
For example, Argentina’s debt to the Fund is already $44 billion, far above its legal limit, and the Fund should not lend Argentina still more. The Trump people are keen to support the ideologically aligned Milei government. They know that it would be hard to persuade the US Congress to part with “taxpayers’ dollars” in the form of bilateral loans, and easier to make the Fund give Argentina a favourable deal -- as long as the US remains a member. There is speculation that the Fund will make another big loan to help Argentina build up central bank reserves (now negative) so that the central bank has the capacity to loosen capital controls and float the currency. But for all its commitment to free market philosophy, the Milei government knows that capital controls have been essential to stabilize the exchange rate and prevent the import of inflation. How this tension plays out remains to be seen. Here the main point is that the US threat of withdrawing from the Fund can give useful leverage if it is not carried out, to be used on behalf of Argentina and other needy US allies.
Indeed, Project 2025 contradicts itself. While it calls for Treasury Department to “withdraw from both the World Bank and the IMF” it also calls for the Treasury to “force reforms and new policies” in both, including by adding a “large cadre of US professionals” as a condition of future US funding (Mathiasen 2024).
Assuming it does not exit, the Trump government is likely to use its heightened leverage in the Fund to get enhanced power of the First Deputy Managing Director role, the number 2 position, reserved for an American. One question is how well qualified Trump’s appointee will be, and how much purview over the Fund’s work they will have. Managing Director Kristalina Georgieva has promoted Fund research and operational attention to issues of inequality, gender, and climate. The Trump government is likely to want to downsize all three topics. What will be the response from the Managing Director and from other states?
The Trump government will most likely try to cut the Fund’s lending (unless a major global financial crisis intervenes). The Fund gets most of its revenue from repayment of loans. The question is, how much of the revenue goes into savings, how much is available for new lending? Trump and Musk are famously determined to make radical cuts in US federal government spending. The odds are that Trump’s government will try the same in the IMF, in the name of “efficiency”.
The Chinese government
Meanwhile, the Chinese government indicates it is happy to increase its capital to the Fund (in contrast to the US Congress) – provided the rules, including the quota distribution, are changed in its favour. In effect the government says to the Fund and the US, “If you accept our conditions (including substantial governance reform in favour of China and some other EMDCs), we will raise our financial contributions to the Fund. If you don’t, we will lose interest in the Fund, it will wither, it will become an empty palace.” As always, the government is thinking long-term, in the spirit of “crossing the river one stone at a time.”
How will the US and western European states respond to China’s challenge?
The final part of this three-part series outlines six specific measures which, if implemented, would significantly raise the chances of the Fund surviving till 100.
Robert Wade is Professor of Political Economy and Development and Programme Co-Director, Development Management.
By International Monetary Fund - Wikicommons
References
Luce, Edward, 2024, “Musk’s war on America’s allies”, Financial Times, 8 January
Mathiasen, Karen, 2024, “Project 2025 and development policy”, Center for Global Development, July 30
Nogueira Batista Jnr., Paulo, 2022 The BRICS and the Financing Mechanisms They Created: Progress and Shortcomings
Rachman, Gideon, 2025, “Trump risks turning US into a rogue state”, Financial Times, 14 January
Schwenk, Katya and Freddy Brewster, 2025, “Donald Trump is drawing heavily from Project 2025”, Jacobin, January 22
Wade, Robert H., 2001, “Capital and revenge: the IMF and Ethiopia”, Challenge September/October
