National Interest

by Brett D. Schaefer

    The United States has urged the World Bank and the IMF to concentrate on their core missions and pare back unnecessary spending. So far, it has been successful.

    The International Monetary Fund (IMF) and the World Bank held their annual spring meeting last week. The coverage was largely and understandably, drowned out by news surrounding the conflict with Iran. But Treasury Secretary Scott Bessent reiterated many of the points he made last year in calling for both institutions to “step back from the expansive policy agendas” and refocus on their core mandates.

    That message is being heard. Last spring, Bessent called on the IMF to focus on short-term lending and debt transparency to bolster “macroeconomic and financial stability” and end its mission creep into climate change and social issues beyond its mandate. Likewise, he argued that the World Bank should focus on “poverty reduction and economic growth,” rather than “poorly defined and arbitrary climate financing targets.”

• The IMF and World Bank Are Listening to America’s Advice

    Over the past year, in reaction to US policy, both institutions have deemphasized climate change in their programs. The World Bank abandoned its prohibition on funding nuclear energy and adopted an “all of the above” approach to energy projects—not only nuclear and renewables, but greater fossil fuels as well. It also reoriented to focus more on job creation and economic growth versus humanitarian and social programs.

    The organizations have also acknowledged US complaints on distortions caused by Chinese exports in global markets. The IMF called for China to boost domestic consumption in its Article IV consultation.

    Both organizations also extended assistance this year to countries like Argentina and Ukraine, with support from Washington. In a clear response to US pressure, both also re-established relations with Venezuela after a seven-year suspension to “help the country achieve macroeconomic and financial stability, to help the people of Venezuela to see better days.” The United States is keen to reintegrate Venezuela into the global economy—particularly facilitating Venezuela’s oil exports, after taking former Venezuelan leader Nicolas Maduro into US custody and expressing support for interim President Delcy Rodríguez. These outcomes illustrate a desire to cooperate with America.

    Likewise, in a somewhat controversial move, World Bank president Ajay Banga joined the Board of Peace, President Donald Trump’s grouping of world leaders responsible for overseeing the Gaza peace process, as a limited trustee to oversee funding provided by governments in a trust fund.

    These outcomes have clearly pleased the United States—with Bessent noting recently that “I think we are very aligned now”—and both the IMF and the World Bank should be lauded for the steps they have taken. Still, more needs to be done.

• What International Financial Institutions Should—and Shouldn’t—Do

    This year, Bessent again called on the IMF to drop “international development, climate change, gender and social issues” from their agendas—all of which he described as “disconnected from the institution’s core mandate.” He urged the organization to act more like a traditional lender of last resort—emphasizing temporary lending to address balance of payments problems, undergirded by strict accountability for policy commitments and debt transparency.

    Similarly, Bessent urged the World Bank to jettison inefficient climate finance targets and focus on reducing poverty and increasing economic growth, particularly by promoting job growth, “abundant, reliable and affordable energy,” prudent macroeconomic policies, policy and regulatory reforms and the rule-of-law.

    In addition, Bessent called on the International Bank for Reconstruction and Development (IBRD) to prioritize graduation from assistance. This, too, is overdue. Argentina, China and Turkey together account for over $60 billion in IBRD loans, even though the World Bank has evaluated that all three are on the threshold of high-income status. Bessent rightly notes that graduation should be celebrated as a measure of success, but once a country has achieved success, it ought not seek further loans from development banks: “Countries that have long exceeded the graduation policy criteria should conclude IBRD lending, allowing additional lending capacity for poorer countries with greater development financing needs.”

    On the China front, the treasury secretary called for more support for projects in developing countries aimed at diversifying sources for critical minerals—and more stringent efforts to address anti-competitive bids from state-owned enterprises.

• America Cannot Support Debt Forgiveness that Rewards China

    Left unmentioned was the trend of developing countries borrowing from the IMF and World Bank as they face difficulty servicing their debt. This deserves more attention because debt forgiveness for these countries is again being pushed.

    This is not a new problem. The US and other creditor nations in the Paris Club supported debt forgiveness and restructuring decades ago “to deal decisively with the debt problems of the low-income countries and allow them to exit, once and for all, from the rescheduling process.” That optimistic vision, of course, did not come to pass. As noted in a recent American Enterprise Institute working paper, America’s past debt relief efforts did not permanently resolve unsustainable debt in the developing world. Debt relief simply created space for low-income countries to borrow on non-concessional terms from private sector creditors and governments like China.

    It is highly relevant to this situation that unlike the United States and other nations in the Paris Club, China persistently refuses to restructure or forgive bad debt. Indeed, data indicate that China is now receiving more in debt repayments than it is providing in new lending. Meanwhile, borrowing from the IMF and World Bank has increased. In essence, for the past few years, developing countries have been borrowing from Western-based international financial institutions purely to repay debt to China.

    Bessent supported debt restructuring in concept, but cautioned that “arrangements are undermined when critical IMF resources are diverted to make official creditors whole, unfairly increasing the burden of adjustment on borrower countries and jeopardizing prospects for restoring medium-term external viability.” He is correct, but he should be clearer. IMF and World Bank resources should not be used to bail out China when Beijing refuses to restructure or forgive debt, as the United States and other creditors have done.

• The IMF and World Bank Should Eliminate Waste at Home, Too

    Finally, refocusing the IMF’s and World Bank’s mission involves not just policy recommendations, but improved internal governance. Both organizations are seeking additional resources from member state taxpayers. Bessent praised them for not increasing their administrative budgets. Still, he noted that the requested increases “consistently exceed inflation”—on compensation that is more generous than comparable United Nations salaries and far higher than the salaries of equivalent US civil servants.

    Nor are high salaries the only eyebrow-raising perks that IMF and World Bank employees can enjoy. Why, for instance, do the two organizations’ employees receive free membership to a 286-acre private club with an 18-hole golf course, tennis courts and pool  Why is there a hotel for use by IMF and World Bank staff exempt from US taxes  These perks are incongruous with the missions of the IMF and World Bank and Bessent is right to call for divestment.

    More fundamentally, the need for more funding is less acute if the IMF and World Bank shed activities tangential to their core missions and focus available resources on poorer countries. US support for the World Bank’s International Development Association (IDA) replenishment or an IMF quota increase should follow such changes, not precede them.

    Over the past year, America’s relationship with the IMF and World Bank has been far less confrontational than that with the United Nations—albeit with some notable disagreements, particularly on trade policy and tariffs. But, as with the UN, the US is pressing hard to reshape the IMF and World Bank and their programs. So far, it has enjoyed remarkable success.