Following Treasury Secretary Scott Bessent’s interventions during the World Bank and IMF Spring Meetings and the White House submission of the “skinny” budget to Congress last week, we now have some clarity around the Trump administration’s policy agenda for the international financial institutions (IFIs). Bessent affirmed that the administration intends to remain engaged with the IFIs and outlined a set of policies underpinning this engagement, most of which mirror Trump’s first term. While there was pushback on the climate and gender agendas, Bessent’s rhetoric did not match the anti-DEI and anti-climate fervor that has featured prominently in other domestic and international agendas. He also embraced some policy positions from the Biden administration, especially at the IMF. The president’s budget submission included $3.2 billion for IDA, 80 percent of the Biden administration’s IDA pledge, a better outcome than many of us had feared. But the funding picture elsewhere is bleak, with the decision not to fulfill the US pledge to the African Development Fund an especially cruel blow.
The “balance” agenda
Secretary Bessent has framed his vision for the IFIs as an exercise in rebalancing, claiming that the original purpose of the IMF and the World Bank was to bring “stability to an unstable world” or “restore and preserve balance.” Noting signs of global imbalance “everywhere,” Bessent outlined his blueprint for restoring equilibrium in the global financial system during remarks delivered at the Institute of International Finance on April 23. This largely boiled down to a defense of the Trump tariff regime and critiques of mission creep at both institutions with repeated swipes at China thrown in for good measure. While many of the policy prescriptions are standard Treasury fare, the focus on balance is incongruous with the administration’s trade policy agenda, which is sowing global chaos, instability, and polarization.
It came as no surprise that Bessent criticized the IMF for spending too much time on climate change and gender, crowding out work on critical macro issues. He urged the IMF to be a “brutal truth teller,” and “call out countries like China that have pursued globally distortive policies and opaque currency practices for many decades,” as well as “unsustainable lending practices by certain creditor countries.” There is real irony here, as the IMF was at the same time tempering its own commentary about the ramifications of US trade policy, which should have been franker and more direct.
But putting that aside, Bessent’s speech was not so different from the remarks that former Treasury Under Secretary Jay Shambaugh made at CGD in 2023. He too emphasized the need for greater candor, calling on the IMF “to have difficult conversations with member countries.… and to provide unwelcome advice,” like “calling out harmful external sector policies and exchange rate regimes that distort the domestic economy and push the cost of adjustment onto trading partners.”
Bessent also accused the World Bank of straying from its core mission, noting that it should “no longer expect blank checks for vapid, buzzword-centric marketing accompanied by half-hearted commitments to reform.” Because Bessent offered no examples, the basis for this statement is not clear. There are ample examples of “buzzword” marketing—around the Sustainable Development Goals for example—but I don’t see this as an especially compelling example of mission creep. Bessent also urged “stronger focus on investments in infrastructure, health, education, and agriculture, and work to strengthen governance, including debt sustainability and transparency,” all areas where the World Bank is deeply engaged.
As expected, Bessent criticized the World Bank’s energy policy, calling for it to be “tech neutral and prioritize affordability in energy investment” and urged openness to financing fossil fuel-based energy production. The World Bank’s board of directors will soon be voting on a new energy strategy that will remove prohibitions on support for nuclear energy—a change welcomed by Bessent—but is not going to turn back the clock on fossil fuel funding. I don’t see the US haranguing the World Bank on this issue, which other shareholders consider settled.
Bessent also called for more robust enforcement of the World Bank’s graduation policy and an end to lending to China. These are not new asks, and indeed the Biden administration was the exception in softening its stance towards middle-income country borrowing as part of its climate mitigation agenda. Because IBRD graduation is voluntary, Bessent’s call for strict timelines is unlikely to gain much traction. Thanks to commitments in the context of the 2018 general capital increase negotiations, the IBRD has directed more resources at countries on the lower end of the income spectrum, including new IDA graduates. A 2023 report by the independent evaluation office found that IBRD had increased funding for countries below the graduation threshold from 60 to 76 percent.
The imbalanced budget outcome of the balance agenda
During the Spring Meetings, shareholders were hoping for some sign from Secretary Bessent of whether the US would honor the Biden administration’s $4 billion pledge to IDA. In his official statement, Bessent made the vague assertion that IDA should be “upgraded” to ensure a focus on “maximizing the benefits of donor resources for recipients,” but was mum on funding. We have since learned that the Trump administration intends to seek $3.2 billion of the original $4 billion pledge made by the Biden administration last November. Because of IDA’s leveraging model (i.e., using donor funds to back market debt issuances), the impact of the reduction is not 1:1 but 1:3.5, so this will translate into a $2.8 billion reduction over the three-year cycle. While disappointing, the outcome could have been far worse.
The real blow is to the African Development Fund (ADF), which as my colleague and I wrote last month is facing a bleak donor environment in the context of enormous need. The administration indicated it will not seek funding for the final allocation of the ADF-16 replenishment because it is “not currently aligned to Administration priorities.” As there is substantial alignment between IDA and the ADF, this is patently absurd. In fact, the ADF prioritizes infrastructure and agriculture, in line with the sectors that Bessent has called the World Bank to focus on. The funding decision suggests that the US will not pledge to ADF-17, which is currently under negotiation. The US was the third largest contributor to ADF16, accounting for nearly 25 percent of total pledges, so failure to pledge this year will have a big impact.
Fit for what purpose?
Bessent’s core message was that the IFIs “must be made fit for purpose again.” Making the IFIs fit for purpose was also a Biden administration priority, but the focus was on whether they were fit to address the new challenges of the 21st century. In her Spring Meeting speech last year, then Secretary Yellen recapped her “evolution” agenda designed to help the multilateral development banks better respond to global challenges like climate change and pandemics. Bessent is less explicit in his vision, but one can infer that he is not a fan of this expanded mandate.
The summary released after the latest meeting of the Development Committee, which is composed of World Bank governors, suggests that the US is isolated in its “back to basics” vision for the bank. For example, the statement commended the World Bank for its efforts to expand economic opportunities and elevate human capital for women and girls, while supporting “further efforts to enhance participation and leadership from all voices to promote equality in line with the WBG Gender Strategy and implementation plan.” The document noted the 45 percent commitment for climate finance while encouraging more investment in resilience, including sustainable infrastructure, smart agriculture, efficient water management, and disaster-risk management. While “note” is a tepid word, the commitment remains intact.
One can debate what constitutes macro-criticality at the IMF, but Bessent’s vision was largely an exercise in reverse engineering. The Trump administration has fixated on US trade imbalances as a form of economic exploitation and Bessent’s vision for the IMF was a way to rationalize that perspective. Moreover, a myopic focus on trade is not going to restore global balance. The correct barometer is the current account balance, which includes trade in goods and services, as well as investment income and financial transfers (e.g., remittances). Drivers of current account balances reflect a complex mix of monetary and fiscal policy, and the best way to manage them is through coordinated global action, not unilateral measures.
Finally, as my former Treasury colleague argues here, narrowing the focus of the IFIs denies a simple truth: challenges like climate change represent major threats to development, stability, and balance. Bessent’s most-quoted line during the Spring Meetings was “America First does not mean America alone,” but as long as his agenda denies basic economic realities, the US will find itself alone and its influence diminished.
