Implications of US Withdrawal from IMF and World Bank

February 28, 2025

The potential withdrawal of the United States from key global institutions like the International Monetary Fund (IMF) and World Bank is raising alarms. This concern follows the absence of US Treasury Secretary Scott Bessent from recent G20 meetings.

What Are the IMF and World Bank?

The IMF and World Bank were established post-World War II to promote global economic stability and integration.
The IMF serves as a lender of last resort, providing financial assistance to countries facing economic crises. This includes emergency loans and precautionary lines to prevent financial collapse.
The World Bank, on the other hand, offers low-interest loans for development projects, such as infrastructure and poverty alleviation. Both institutions also provide expertise in governance and financial management.

Who Relies on the IMF?

Numerous emerging market countries depend on the IMF for financial stability.
Nations like Argentina and Sri Lanka require IMF assistance to manage their economic situations.
An IMF programme reassures investors, enhancing confidence in the borrowing country. This support is crucial for both private and bilateral investors, who often prefer lending to countries backed by the IMF.

The Role of the World Bank

The World Bank collaborates with private investors through its International Finance Corporation. This partnership aims to mobilise funding for essential projects, particularly in clean energy and infrastructure. Developed nations, including the US, utilise the World Bank to promote global financial stability and encourage responsible economic policies in recipient countries.

Consequences of US Withdrawal

A US withdrawal from these institutions could lead to disruption. The US is a founding member and holds substantial voting power, influencing critical decisions. Its absence would likely empower other nations, particularly China, which seeks a more prominent role in global finance. This shift could destabilise the current balance of power within these institutions and diminish their effectiveness.

Impact on Global Economies

The ramifications of US withdrawal could extend beyond institutional functioning. It may affect global financial stability, as the IMF and World Bank play vital roles in crisis management. Furthermore, US companies might lose access to lucrative contracts linked to World Bank projects. The potential restructuring of IMF shareholdings could lead to less predictable decision-making processes.

Perception of the IMF in Developing Countries

The IMF has faced criticism for its stringent conditions attached to loans, often leading to public dissent in borrowing countries. While some nations vehemently oppose IMF interventions, most countries remain members, recognising the necessity of its support in times of crisis.

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