Two former United States Department of the Treasury under secretaries for international affairs have called for strong continued U.S. support for multilateral development institutions and especially the International Monetary Fund and the World Bank.
The comments come amid fears President Donald Trump’s administration is less supportive of such institutions as it seeks to cut overseas aid and development spending, and prioritize an “America First” foreign policy.
Speaking at a recent event hosted by the Center for Global Development in Washington, D.C., Nathan Sheets and Tim Adams, who both advised Treasury secretaries on international economic affairs including working with MDBs, said the institutions are a key tool in boosting the global economy and ensuring stability, while also representing good value for money for American taxpayers.
The former officials — who have worked for both Democratic and Republican presidents — called on the development community to champion the MDBs in the face of the Trump administration’s budget proposal which calls for 35 percent cuts to all MDBs and related funds compared to 2016, and overall cuts of 32 percent to foreign assistance spending.
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Several of Trump’s proposed picks for the Treasury positions which would deal with international finance and development institutions have done little to calm fears within the MDBs. David Malpass, who is set to become under secretary of international affairs, has been a vocal critic of the IMF in the past.
Meanwhile, Adam Lerrick who is earmarked to be assistant under secretary for international finance, helped draft a 1990s congressional commission, known as the “Meltzer Commission,” which called for more limited roles for the IMF and World Bank.
Sheets, who stepped down as under secretary at the beginning of the year, described why he thinks the MDBs should be viewed as an asset, not a drain, by the U.S.
“These institutions [MDBs] augment and leverage the resources of U.S. taxpayers. And there are some policy objectives, such as cutting off the flow of terrorist financing, that require global cooperation to be fully effective,” he said.
As the largest economy in the world, and a leading shareholder in these institutions, “the United States is the natural and credible leader,” Sheets added.
However, in order to convince the Trump administration to maintain that leadership position, the development community needs to make the case for the MDBs “more clearly and we need to make it more passionately,” said Sheets, who is now a visiting fellow at the Peterson Institute for International Economics.
Similarly, Adams, who is chief executive officer of the Institute of International Finance and was Treasury under secretary under former President George W. Bush, called on the development community to defend the Bretton Woods Institutions — the IMF, the World Bank and the World Trade Organization — which he said were experiencing declining support.
“I fear that there is a retreat from the support of the post-war architecture of the liberal order … [but] we have a role of defending them because I think they work,” he said.
U.S. funding is the main issue at stake for the World Bank, as a disinterested Trump administration would likely put an end to hopes of the capital increase that the bank’s President Jim Kim announced the institution was seeking at the annual meetings in October 2016.
But six months later, at the IMF and World Bank Spring Meetings, Trump’s Treasury secretary, Steve Mnuchin, declined to discuss upping the Bank’s funding, as Devex reported.
However, Sheets and Adams also saw more positive trends at work. While the amount the U.S. puts into the International Development Association account, the World Bank’s fund for poor countries, is also at stake, the U.S. contribution has not been cut too severely. The recent budget proposal includes $1.1 billion for IDA, which observers see as a relatively small reduction from the $1.3 billion agreed under the Obama administration.
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Some experts believe this mostly intact IDA pledge could point towards a more positive relationship between the World Bank and the White House than might have been expected, considering Trump’s picks for the Treasury and his earlier anti-multilateral stance.
And this could be linked to the fact that Kim has been actively cultivating a relationship with the administration, a fact both Adams and Sheets pointed to.
The budding relationship appears to have developed out of Ivanka Trump’s interest in women’s economic empowerment, which led Kim to start a fund on the issue at the Bank. The MDB has also begun informally advising the Trump administration on its infrastructure plans, according to the Financial Times.
“The [World Bank] president appears to have a relationship with the White House — whether that translates into a capital increase, I don’t know,” Adams said.
Similarly, Sheets said that despite the “mixed messages” coming from the Trump administration concerning the MDBs, he now felt “some optimism” that the U.S. would be supportive.
For the IMF, a more skeptical Treasury team than was seen under the previous Obama administration could impact IMF policy — for example, regarding bailouts to countries such as Greece. Some U.S. politicians are reportedly urging the U.S. president to oppose any further IMF bailouts.
But a harder line is not always a bad thing, Adams said. While he broadly supports the work of the IMF, Adams does see valuable a role for the U.S. in holding it more accountable.
“I think it’s the role of the U.S. to occasionally walk up on the stage and say ‘you’re not doing a good job …’ We need to force [MDBs] to evolve and be more accountable if they are to survive,” he said.