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When the World Bank and IMF were created 80 years ago, the world was a very different place. More than half of the population lived in extreme povertyprotectionism was very widespreadand much of Europe had been devastated. Charged with postwar reconstruction and development and promoting monetary cooperation, the Bretton Woods twins helped change things.
Poverty has decreased drastically. Trade now represents more than 60 percent of global GDP and liberal democracies have emerged around the world. Of course, the World Bank and the IMF were not solely responsible for this progress, nor were their interventions without flaws. But armed with technical experience, significant credit capacity and convening power, both filled a void where global coordination was lacking.
However, when the twins meet next week for their annual meetings, they will face a new set of challenges that risk undoing some of what they have achieved so far.
First, its authority as a global voice has weakened. The world’s economic and demographic center of gravity has shifted away from the United States and Europe and toward China and India. But voting power at both the World Bank and the IMF remains disproportionately in favor of the West, making it more difficult for either to claim to be a truly global voice. China is already My dear be the largest creditor in the world. Its increased role in lending to the developing world has complicated the IMF’s debt restructuring processes and undermined the institutions’ lending, which is often conditional on reforms.
Second, the West is moving away from many of the economic values it came from both institutions to defend. The trade war between the United States and China has intensified. Tariff and non-tariff barriers are increasing, as are calls for offshoring. A second “America First” agenda under Donald Trump would deepen this trend, which has seen a slowdown in globalization and a weakening of global cooperation.
Third, the developing world appears fragile. This week, The World Bank warned that global poverty reduction had “slowed to near stagnation” amid damaged post-pandemic economies, the shocks of wars in Ukraine and the Middle East and rising debt payments. Structural reforms have slowed and democratization has been uneven. Finally, the fight against global warming has increased financial pressures on the Bretton Woods pair to support the climate transition and build resilience around the world to extreme weather conditions.
These are enormous pressures. But they only underscore why global cooperation is such a precious commodity. Climate change, cycles of poverty, and economic conflicts between superpowers create international problems that require international solutions.
As they have done before, the World Bank and the IMF must adapt. No other set of institutions can match their levels of capital, expertise and support across continents. The couple is currently consulting on how they might evolve. There are a few areas they should focus on. They need to better represent the world they seek to govern and use their position with shareholders, other lenders and private investors to raise more financing and restructure debt more quickly. Its policy solutions to boost growth and reduce debt must also be more in tune with the political realities on the ground.
The world facing the World Bank and the IMF may look different today, but the spirit in which they were forged at Bretton Woods remains as important as ever. As US Treasury Secretary Henry Morgenthau Jr. said in his closing speech at the 1944 conference: “We have come to recognize that the wisest and most effective way to protect our national interests is through international cooperation.”