Will Trump Finally Kill the Bretton Woods System?
This week, world leaders and central bankers will convene in Washington D.C. for the annual spring meetings of the International Monetary Fund (IMF) and World Bank. Both the chaos coursing through the global economy and another, related, prospect will loom over the week’s proceedings: whether the U.S. will decide to exit both these bodies.
The Trump administration is currently conducting a review of its membership in international institutions, expected to produce its first findings this summer. Project 2025—which the administration has been alarmingly faithful to—called for the U.S. to withdraw from the IMF and World Bank on the grounds that they “espouse economic theories and policies that are inimical to American free market and limited government principles.”
The U.S. treasury secretary traditionally offers an opening salvo to kick-off these events. Should he continue that tradition, it’ll be the international community’s first chance to hear an official Trump 2.0 position on the IMF and World Bank. The White House’s recent posturing toward international institutions hasn’t offered many reasons for optimism. Speaking out against a proposed “Day of Hope” at the United Nations, career U.S. diplomat Edward Heartney—serving as the administration’s voice in that body—recently railed against the UN’s “globalist” Sustainable Development Goals as “a program of soft global governance that is inconsistent with U.S. sovereignty and adverse to the rights and interests of Americans,” praising Trump for setting a “clear and overdue course correction on ‘gender’ and climate ideology.”
The IMF and World Bank were created in the ashes of World War II with the aim of stabilizing a global order steered by the steady hand of the United States. Together they’re known as the Bretton Woods institutions, for the bucolic New Hampshire mountain town that hosted the 1944 meeting which gave birth to them. Their budgets are made up of proportional contributions from member governments, and the United States is the largest shareholder of each. A longstanding gentleman’s agreement between the U.S. and Europe further means that they leverage their considerable shared voting power in such a way as the U.S. typically picks the World Bank chief, while the EU decides who gets to helm the IMF. The IMF acts as lender of last resort for poorer governments, and the terms of its debt restructuring agreements have been criticized for decades for demanding painful austerity and privatization from borrower countries.
That situation is especially dire for the world’s most climate-vulnerable countries. A study released last year by the International Institute for Environment and Development (IIED) found that 58 small-island developing states and least-developed countries paid $33 billion on debt servicing in 2021 and received just $20 billion in climate finance. “Resources that should be going to mitigation or adaptation are going to debt repayment,” says Ivana Vasic-Lalovic, senior research associate at the Center for Economic and Policy Research. “They don’t have the capacity to respond to climate disasters, and so they have to take on more debt.” Among the countries IIED analyzed, more than half of the climate finance they received in 2022 was provided as loans rather than grants.
Modest reforms over the last several years—pushed for by debtor nations and civil society groups—have led the IMF to disperse funds and reduce the considerable surcharges paid by borrowers. Although it remains to be seen what role the U.S. will play, building on and expanding such efforts is unlikely so long as Trump is in office.
The current heads of the IMF and World Bank institutions—previously outspoken about their commitment to confronting the climate crisis—have changed their tunes since Trump’s election. In last year’s remarks kicking off the spring meeting, IMF head Kristalina Georgieva spoke at length about the “existential threat of climate change,” noting that the “shift to a climate friendly economy goes beyond managing risks. It also offers tremendous opportunities for investment, jobs, and growth.” In the same speech this year Georgieva declined to mention climate change at all, warning that “trade policy uncertainty” would deal a blow to global growth.
Joe Biden nominated longtime Mastercard executive Ajay Banga as president of the World Bank in 2023. Congratulating him on his confirmation, Biden said that Banga would “help steer the institution as it evolves and expands to address global challenges that directly affect its core mission of poverty reduction—including climate change.” Banga has certainly talked plenty about climate change since then, but steered clear of the topic in a Financial Times op-ed last month that many saw as a bid to stay in Trump’s good graces. “Our ultimate goal is to help countries build dynamic private sectors,” he wrote. “That means strengthening sectors like energy, infrastructure, agribusiness, healthcare, tourism and manufacturing in mineral-rich nations to fuel a more vibrant, homegrown economy.”
Banga’s about-face to appease Trump isn’t surprising, say those familiar with the World Bank. “They’ve tried to present themselves as this archetype of multilateralism, but these institutions remain completely hide-bound to Washington,” says SOAS economist Richard Kozul-Wright, a senior fellow with the Global Economic Governance Initiative at the Boston University Global Development Policy Center, who previously served as the director of the Globalisation and Development Strategies Division in the UN Conference on Trade and Development. Whether or not the U.S. decides to leave the IMF and World Bank, Kozul-Wright hopes that uncertainty over that question—and the United States’ role in the global economy more generally—can prompt world leaders to consider alternatives to the U.S.-centric Bretton Woods framework.
A recent report co-authored by Kozul-Wright, Chiara Mariotti, Rishikesh Ram Bhandary and Kevin P. Gallagher examines the growing role of development finance institutions like the Asian Development Bank and Interamerican Development Bank, which collectively control upwards of $23 trillion worth of combined assets.
While these multilateral development banks to-date have often focused on partnerships with and appeals to the private sector, the report looks at promising examples of them instead partnering with national development banks. That kind of coordination, the authors argue, “can play a critical role in mobilizing additional capital and linking political ambition with policy action. Working as an ecosystem, they can shift investment horizons away from debt-dependent, short-term (often speculative) financial instruments, towards the productive investments and public goods needed to meet development and climate goals.”
Whereas climate finance initiatives at the IMF and World Bank have likewise prioritized “leveraging” public finance as a means to “mobilize” private investment, the track record of that approach—especially in the world’s poorest countries—hasn’t been promising. Report authors cite one study which found that every $1 spent by multilateral development banks and development finance institutions (DFIs) mobilized an average of $0.75 of private finance for developing countries, and just $0.37 for the world’s least-developed countries. Unlike the commercial banks that DFIs attempt to win over to climate and infrastructure projects, national development banks (NDBs) “are not driven by profit maximization. Projects undertaken by NDBs are usually characterized by long maturity, large scale, high risk and positive externalities,” the report adds.
As Kozul-Wright explains, the ultimate goal of development finance is to mobilize domestic resources. “The IMF and World Bank have damaged the options and possibilities for improving domestic resource mobilization domestically,” he says. “We need to tackle that side of the multilateral agenda, and now is the time to do it.”
The Bretton Woods institutions have tended to be long on pledges and short on delivery when it comes to tackling the climate crisis. It’s too soon to tell how the U.S. will relate to them moving forward. So long as Trump is in power, though, it stands to reason that climate finance won’t be a priority—rhetorically or otherwise. The current administration’s commitment to chaos of all kinds may well push other countries to consider building a new multilateral system that doesn’t orbit around its mess.