Biden’s plan to revitalise the two institutions is partly aimed at countering China’s growing sway among developing nations
The US president wants to strengthen US influence over the World Bank and IMF as China
OCTOBER 10 2023
In the middle of the G20 summit in New Delhi last month, President Joe Biden peeled away for a small gathering with a few other world leaders.
In attendance were Narendra Modi, the Indian prime minister and host, South African president Cyril Ramaphosa and Luiz Inácio Lula da Silva, the leader of Brazil — three of the five countries in the Brics grouping of large developing countries. They held hands and smiled for the cameras, along with Ajay Banga, the new president of the World Bank.
The event occurred shortly after Biden had presented what US officials describe as a big new push to deliver billions of dollars in additional financing to emerging and developing economies. Absent from the session at the G20 were China’s Xi Jinping and Russia’s Vladimir Putin.
The plan involves boosting the financial might of the World Bank and the IMF, the two Washington-based institutions that have been at the centre of the economic order America and its allies spearheaded after the second world war to foster international co-operation and increase their global leverage.
Biden’s bet — and that of his top officials including Janet Yellen, the Treasury secretary — is that he can revitalise them in a way that expands America’s economic offering to developing nations around the world, while countering China’s mounting international influence.
Joe Biden with Narendra Modi, prime minister of India, and Luiz Inácio Lula da Silva, president of Brazil, at the G20 meeting in New Delhi last month © POOL/AFP via Getty Images
The plan is a litmus test for the future of the US-led order — whether institutions such as the World Bank and IMF can be renewed even as the US plays a less dominant role in the global economy, or whether they will become more marginal amid growing geopolitical competition between the US and China.
“I cannot think of a time when the US Treasury secretary and president have focused this kind of sustained attention on the multilateral development banks [MDBs] and the IMF,” says Karen Mathiasen, who previously served as acting executive director for the US at the World Bank and in the Treasury’s international affairs department.
Such efforts, she says, feel “more acute and existential, because you have an increasingly polarised global environment, making the importance of multilaterals delivering even more essential so they can show that they’re relevant”.
Biden has already clinched agreement with member countries or is expecting agreement on reforms to the World Bank and other multilateral development banks that would expand its balance sheet by $200bn and make them more nimble and aggressive in helping struggling nations. But he has also called on Congress to approve new funds for the World Bank to bolster its financial power by a further $25bn. If other countries join in, the total war chest could grow by another $100bn.
With the IMF, Biden has proposed directing $21bn in US funds towards beefing up the lender’s ability to deliver financial aid to low-income nations and backed a plan to increase its capital over the longer term. The plans will be at the heart of discussions at the annual meetings of the IMF and World Bank in Marrakech this week.
“As we look at countries that have gone through a very hard time and think, ‘What can we in the United States do to drive global growth and stability?’, the [IMF and World Bank] are incredibly important tools,” a senior Treasury official says. “We want to make sure they are operating as well as possible.”
Yet delivering on the plan will not be straightforward. The administration needs to get congressional approval in the midst of a polarised and dysfunctional US political climate with the Republican party mired in chaos after the removal of Kevin McCarthy as Speaker of the House of Representatives.
It also will require broad international backing, testing America’s international economic clout at a time when advanced economies are feeling budgetary pressures that will limit their financial contributions, and developing countries may resist plans to give western-led institutions more resources without a boost in their representation.
The new US effort to inject fresh capital into the World Bank and IMF does not include a push to address the underrepresentation of China and other emerging economies, a notable omission given that Beijing has only the third-largest share of voting power in each respective institution despite being the world’s second-largest economy.
Critics also question the ability of the IMF and World Bank to deliver help to developing economies on a scale to match China’s Belt and Road Initiative, a grand scheme to win influence in the “global south” launched by Xi in 2013.
China has lent close to $1tn to developing countries mostly to build infrastructure under the BRI. As many of these countries slipped into financial distress, China’s financial institutions have stepped in with bailout packages that totalled $240bn between 2000 and the end of 2021, a recent study found. That amounts to more than 20 per cent of total IMF lending over the past decade.
“We’re in a situation where the China-US relationship is in a period of tension we haven’t seen for 40 or 50 years, and [the IMF and World Bank] are caught in the middle,” says Kenneth Rogoff, who used to work at the fund and is now at Harvard University.
“They’re at this crossroads where they need to make a decision about whether to keep China in and fully engaged or begin a process of disengagement,” he adds. “I don’t really see how we’re going to solve the world’s problems without China.”