The IMF and World Bank in a Multipolar World

A multipolar world economy is defined as a world order where major economic power does not lie in the hands of one single state but is instead divided between various centres of economic influence across the globe. Over the last few decades, global order and economic influence have shifted from a Western-centric polar model to a multipolar system through the formation of BRICS and the rise of Eastern economies such as China and India for a variety of reasons (such as their strong economic/industrial growth and strengthened global negotiating position). In this rapidly evolving and shifting world order, the World Bank and the International Monetary Fund (IMF), which are primarily Western institutions, often face questions of legitimacy and struggle to maintain their influence as power shifts away from the West. Therefore, the question at hand is, how will Western institutions and the West adapt going forward to remain in control of the global economy?

The World Bank: is reform needed?

The World Bank is a financial institution that was established in order to provide aid to emerging and recovering economies around the world to allow them to grow and flourish. It was founded towards the end of the Second World War in 1944 at the Bretton Woods conference and began operating effectively a few years later in 1946. The institution currently functions in a similar way to many independent financial corporations, issuing loans/grants, and providing technical assistance (in the case of the World Bank, to governments rather than to clients); it also researches policy strategies that could lead to better development and stability in growing markets. 

While the World Bank has been functioning adequately, there are many advocates proposing a restructuring of the system to account for a changing geoeconomic landscape in the world today. Some argue that the current structure of the World Bank underrepresents many emerging markets and nations outside of traditional Western economic powerhouses in the context of voting power and decision-making influence; voting power in the IBRD (the sector responsible for lending to middle and low-income states) is tied to a nation’s share in the capital stock which means that larger economies (and therefore typically larger shareholders) have more influence within the Bank. This means that many growing, now powerful economies, such as Brazil, lack adequate voting power as their shares are not adjusted to match their growing role in this new multipolar global economy. 

Furthermore, since the bank was established over half a century ago, many of its policies and regulations appear outdated in the current state of the global economy. The complexity of the multipolarity seen in the modern economic landscape means the protocols and responses the Bank typically employs are no longer as effective as they once were (such as the Bank’s policies surrounding conditionalities on things like macroeconomic policy and governance reform to lending support and assistance which are now seen by many as typically Western structures and policies, conflicting with many emerging economies’ policies), leading to a strong push for reform within the World Bank.

The International Monetary Fund (IMF)

Similar to the World Bank, the IMF lends money to sovereign states, but it also functions as a ‘last resort’ for countries facing issues such as a balance of payments crisis. Additionally, it tracks global economies and financial developments and aims to provide more generalised policy advice to maintain global stability and avoid major economic crises. Much of the IMF’s work is in identifying weak points and vulnerabilities in the economy of a certain state and then suggesting policy changes or restructuring to prevent said vulnerability from turning into a severe economic crisis, meaning the Fund functions both proactively and responsively in the world economy.

Power and influence in the IMF are linked to certain quotas, which, among other things, are linked to economic size and power. For example, nations classified as emerging markets and developing economies (EMDEs) account for approximately 60% of global GDP but hold only 40% of voting power within the IMF. This means that many emerging economies feel the structure of the IMF leads to swayed outcomes and policy decisions due to the larger amount of influence held by nations such as the USA, which hold a disproportionate amount of voting power; and this, in turn, leads to distrust and a loss of legitimacy in the IMF. This trend seems to indicate that reform is inevitable in the IMF as it will either lose credibility and be replaced naturally over time, or reform slowly to regain support from emerging and currently underrepresented economic powers. 

Furthermore, reform towards better representing various states in the IMF could actually increase its effectiveness globally, as diversified viewpoints and greater ownership by nations’ governments of economic policy could lead to more beneficial economic competition and collaboration across borders, boosting economic growth globally.  

Conclusion

Overall, while the IMF and World Bank have been relatively effective since their formation in the mid-20th century, their structure is more adapted to the world as it was when they were founded. In today’s global geoeconomic setting, adequate representation of emerging economies is essential to providing high-level financial services and policy advice and maintaining backing from member states across the world.