Concerns are rising over the U.S. potentially withdrawing from global institutions like the IMF and World Bank, especially following Treasury Secretary Scott Bessent’s absence at G20 meetings. Established post-WWII, the IMF provides emergency loans to struggling nations, imposing conditions for reforms, while the World Bank finances infrastructure projects and innovative financial tools. The U.S. holds significant influence, being the largest shareholder, and its withdrawal could destabilize global economies, enhance China’s role, and diminish trust in multilateral lending. Critics of the IMF cite its unpopular reform demands, yet most countries still value its support, highlighting its crucial role in global stability.
Concerns are growing in Washington regarding the possibility of the United States withdrawing from global institutions like the International Monetary Fund (IMF) and the World Bank. The anxiety has been exacerbated by the absence of US Treasury Secretary Scott Bessent at G20 meetings. So, what are the roles of the IMF and the World Bank, and what implications would a US withdrawal have?
WHAT DO THE IMF AND WORLD BANK DO?
In the aftermath of World War II, the US and its allies established the IMF and World Bank to promote global integration and prevent future conflicts.
The IMF acts as a lender of last resort to countries facing financial distress, aiding nations like Greece during its fiscal turmoil, Argentina through multiple debt defaults, and the United Kingdom following its 1976 economic crisis.
Its lending can vary from emergency funds to address balance of payment issues to precautionary lines to avert crises.
The IMF imposes conditions on its loans—released in installments—to ensure that countries implement necessary reforms, often requiring reductions in excessive spending, greater budget transparency, combating corruption, or increasing tax income. Investors analyze IMF data on GDP and growth as triggers for whether certain debt instruments tied to economic performance will yield more—or sometimes less—return.
The World Bank provides low-interest loans to assist countries in constructing infrastructure such as railroads and flood defenses, develops frameworks for innovative financial instruments like green bonds, and offers risk insurance.
Both institutions also lend their expertise on various issues, ranging from irrigation systems to central bank transparency.
WHO NEEDS THE IMF?
Many emerging market nations heavily depend on the IMF for support; for instance, Argentina relies on it to pay government salaries, with other countries like Senegal and Sri Lanka also currently utilizing its funds.
Engaging with the IMF can also reassure investors, both private and bilateral.
“The IMF has long served as a stabilizing anchor for debt investors,” remarked Yerlan Syzdykov, head of emerging markets at Europe’s largest asset management firm, Amundi, emphasizing that the US’s expertise, not just its financial support, bolsters investor confidence in nations with IMF programs.
Bilateral investors, including Saudi Arabia, increasingly see the IMF as a reliable foundation for their lending. Economy Minister Faisal Alibrahim stated that aligning funding with institutions like the IMF ensures “greater value from every dollar or riyal dedicated to supporting other economies.”
WHAT ABOUT THE WORLD BANK?
Investors collaborate closely with the World Bank’s private investment division, the International Finance Corporation, co-investing in public/private partnerships for countries pursuing the estimated trillions of dollars required for cleaner energy and infrastructure development.
Developed nations, particularly the United States, have leveraged these institutions to maintain global financial stability and promote adherence to sound fiscal and open economic practices.
Both institutions, at the request of their largest shareholder, the United States, have provided support to nations like Egypt, Pakistan, and Jordan, which align with US strategic interests, according to Mark Sobel, the US chairman of the Official Monetary and Financial Institutions Forum (OMFIF) and a veteran Treasury Department official.
“Economic turmoil abroad can negatively impact the U.S. economy,” Sobel noted.
WHAT HAPPENS IF THE UNITED STATES PULLS ITS SUPPORT?
“It would be catastrophic,” warned Kaan Nazli, an emerging market debt portfolio manager at Neuberger Berman.
As a founding member, the United States holds the largest single shares in both institutions—just over 16% for the IMF and slightly less for the World Bank. This position grants US policymakers significant influence over decisions that global economic leaders depend upon.
A US withdrawal would also astonish experts and investors, as these institutions provide Washington with substantial influence at a relatively low cost. Analysts argue that stepping back would provide a significant opportunity for China and others aiming to challenge US global leadership.
Other nations might fill the financial void; China has actively sought a more prominent role in global organizations and has advocated for a reconfiguration of IMF shareholdings to amplify emerging market voices. Currently, China’s stake is just over 5%.
A US departure “would severely disrupt their operations and benefit China,” Sobel said.
At the World Bank, US corporations would gain less access to contracts and projects funded by the institution. A shift in the IMF’s shareholder dynamics could disrupt the power equilibrium, leading to less predictable and potentially opaque decision-making processes.
The loss of expertise from US Treasury officials could erode trust, and credit rating agencies have cautioned that a US exit could jeopardize the coveted triple-A ratings of multilateral lenders, hindering their lending capabilities.
DOES THE DEVELOPING WORLD WANT THEM?
The IMF frequently faces criticism from protesters for advocating difficult and unpopular reforms aimed at balancing budgets, such as reducing fuel subsidies and increasing tax revenues.
Last summer, some Kenyans criticized the IMF amid violent protests, while the Fund’s handling of the 1997 Asian financial crisis received widespread backlash.
Nevertheless, only a handful of countries—such as Cuba, North Korea, and Taiwan—remain outside of IMF membership.
(Except for the headline, this article has not been edited by NDTV staff and is published from a syndicated feed.)