Central bankers and finance ministers from around the world are gathering in Washington this week to discuss the state of the global economy and how to keep another post-crisis recovery from stalling.
But also hanging over this week’s spring meetings of the International Monetary Fund and World Bank is the shadow of uncertainty. The US is the largest shareholder of both institutions and last year’s election of Donald Trump put an outspoken critic of multilateralism and the US-led liberal economic order in the White House.
Just what the new US administration’s plans are for the institutions is unclear, especially amid signs that moderates within the White House are exerting more influence over economic policy. But Mr Trump’s arrival in Washington is already having consequences for both the IMF and the World Bank and forcing their leaderships to adapt.
The 2008 financial crisis and its aftermath gave new relevance to an IMF that for years had been facing question about its role in the global economy.
The fund has not only had a new raft of bailouts to administer but under the leadership of Christine Lagarde for the past five years it has also dived into subjects that might once have seemed taboo, such as inequality, the macroeconomics of gender equality and climate change. It has given emerging powers such as China a greater voice and, increasingly, a seal of approval.
Ms Lagarde and the IMF’s staff have also during the past year begun speaking more about the need to help those left behind by globalisation in the face of political earthquakes, such as the election of Mr Trump.
It all seemed easy when the Obama administration was on board. But in Mr Trump and his Republican administration the IMF now has a sceptic in the boardroom and there is plenty of potential for conflict.
Steven Mnuchin, the new Treasury secretary, has called for the IMF to step up its vigilance over currency manipulation, particularly in regard to China.
Though the Trump administration last week opted not to deliver on a campaign promise to label Beijing a currency manipulator, it has promised to scrutinise the topic more. In meetings with Ms Lagarde and other IMF officials, Mr Mnuchin and aides have focused on the currency issue so much that it has raised eyebrows at the fund, where the view is that there are more pressing concerns about the Chinese economy.
In response to the new administration’s other obsession — US bilateral trade deficits — some senior officials expect the IMF to give new emphasis to research on global imbalances.
Then there is the prickly question of Greece and its latest bailout, which Germany and other European shareholders want the IMF to join financially. A stand-off over what the IMF has labelled Athens’ “unsustainable” debt pile has consumed the relationship between the fund and its eurozone shareholders for the past two years.
It is unclear where the Trump administration will fall in the debate, though few expect it to block any IMF participation as some Republicans would like to see it do.
Some at the IMF have hopes that a $12bn bailout for Egypt, a strategically important country, may help the fund make its broader case to the Trump administration. Faced with questions about campaign links to Russia, those same people argue that Mr Trump will have to back the IMF’s bailout of Ukraine, though that too has been politically fraught for the fund.
The World Bank
If all had gone to plan, this week would be all about laying the groundwork for a capital increase and an expansive agenda for Jim Yong Kim, the World Bank’s president. But Mr Trump’s election has thrown that into doubt.
A surge in demand from ailing commodity exporters such as Nigeria drove lending at the bank’s main constituent part — the International Bank for Reconstruction and Development — to almost $30bn last year.
But officials say that unless the bank secures a capital increase from its shareholders, it will have to reduce lending. Few expect support for such a move from a Trump administration that has already announced its intention to cut funding to the World Bank and its sister regional development banks.
For that reason, the push for a capital increase is being put on hold at this week’s meetings, officials say.
“It is all about playing defence,” one senior official said of this week’s confab.
The need for that was made clear last month after Mr Trump nominated economist Adam Lerrick, who has called for the World Bank to stop lending to middle-income countries such as China, to a senior role at the US Treasury.
The answer for Mr Kim and others in the development arena lies in doubling down on a plan to focus on mobilising more private capital, something they clearly hope the new Republican administration can buy into.
“For every project we support, we have to ask the question, ‘Can the private sector finance this on commercial terms?’” the World Bank president told an audience in London last week.
But Mr Kim, who was nominated by the Obama administration and re-elected to a second five-year term last summer, has also pushed the World Bank into areas that may lead to clashes with the Trump administration. The bank is, for example, now the largest funder of climate-related investments in the world, Mr Kim boasted in the London speech — something that is unlikely to win points with a climate change sceptic such as the new US president.
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