BREAKINGVIEWS-US Bretton Woods stance is wiser, but still flawed

By Afiq Fitri Alias

LONDON, May 1 (Reuters Breakingviews) - The United States may be reverting to a saner Bretton Woods strategy. Treasury Secretary Scott Bessent last week appeared to rule out a U.S. withdrawal from the World Bank and International Monetary Fund, currently the subject of a State Department review. Yet President Donald Trump’s tariff onslaught militates against reform ideas Bessent also floated.

While a self-defeating exit from the Bretton Woods institutions never looked that likely, the World Bank and IMF’s biggest shareholder’s ongoing participation isn’t guaranteed. A day before Bessent’s Washington speech the government shuttered the Millennium Challenge Corporation, another foreign aid agency. Still, his main objective appeared to be to drag China, while urging the institutions to “refocus” their attention on economic stability.

He’s hardly the first treasury secretary to cry foul. Janet Yellen and Steven Mnuchin called out Beijing’s trade surplus and “currency manipulation”. Separately, Bessent questioned China’s status as a developing country eligible for foreign aid and accused it of unfair lending practices.

It’s not clear how the World Bank and IMF can lean on Beijing. The People’s Republic is in any case expected to transition to a high-income country by next year, and will graduate from the list of Official Development Assistance (ODA) eligible countries in 2029. U.S. critiques of China’s “debt-trap diplomacy” have less force now Washington has slashed its overseas aid budget.

The White House is admittedly shaking things up. Last month, World Bank employees were told to refer to climate finance as “smarter development finance that has climate co-benefits”, according to an internal memo seen by Breakingviews. In June, shareholders will discuss lifting bans on financing nuclear energy and natural gas projects. Yet President Ajay Banga still aims to focus 45% of the bank’s resources on climate change, even if he calls it something else.

What Bessent could do is deploy the U.S.’s 16% shareholding in the World Bank and IMF, by pressuring countries receiving bailouts to stop delaying economic reforms that should be a quid pro quo. The IMF has lent the Egyptian government more than $20 billion since 2016, making it its third-largest debtor, despite the lack of serious reform in the country’s military economy. But Cairo is a strategic ally – Egypt and Israel were the only two countries spared from U.S. aid cuts, making future action unlikely.

In a way, it doesn’t really matter that Bessent’s Bretton Woods reform ideas are light on specifics. Any structural reforms require an 85% supermajority to pass. That means getting China onboard, along with traditional allies Japan, Germany, France, and the United Kingdom – a big ask after Trump levied huge reciprocal tariffs on April 2. Bessent may find out Washington’s “Liberation Day” is anything but.

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CONTEXT NEWS

U.S. Treasury Secretary Scott Bessent said on April 23 that the Trump administration was committed to maintaining and expanding U.S. economic leadership in the world through the International Monetary Fund and World Bank, during a speech at the institutions’ annual Spring Meetings in Washington, D.C.

Bessent also urged the World Bank and IMF to refocus on their core missions of macroeconomic stability and development, arguing that projects related to climate change, diversity and social issues have reduced their effectiveness.

In February, the White House issued an Executive Order to conduct a 180-day review of all international intergovernmental organisations of which the U.S. is a member and provides any type of funding or support.