The IMF Faces an Identity Crisis amid Global Challenges and China’s Rise as a Creditor

Bad times for the International Monetary Fund. The institution, which held its spring meeting from April 11 to 16, noted a “bumpy” recovery, in a context “characterized by disruptions in the financial sector, the high level of inflation, the effects of Russia’s invasion of Ukraine and the legacy of three years of the Covid-19 pandemic.”

But to face these colossal challenges, she is handicapped by an unprecedented identity crisis. The Fund is meant to provide a financial safety net for countries in distress. But as the poor world grapples with the worst debt crisis in decades, it seems unable to release funds. Its loan portfolio only grew by a meager $51 billion.

Chinese alternative, American retreat

This paralysis can be explained in particular because it is a multilateral institution which aspires to represent the whole world, while being a club controlled by theAmerica and its Western allies. It worked when America ruled the world and wanted to spread liberal globalization.

Today, China is trying to build an alternative order and America is turning in on itself. If the IMF does not act quickly, its ability to fulfill its role as a lender in the event of a crisis will be called into question. The main problem is that China has become a big creditor to the poorest countries, whose needs are small but urgent.

Due to rising interest rates and the pandemic, at least 21 countries are in default or are looking to restructure their debt, and many more look fragile. However, China is reluctant to agree to debt reductions, in particular because the IMF does not take its share of the losses. The latter has not supervised a single debt reduction involving China since the beginning of the crisis.

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These deadlocks risk rendering the IMF useless, just like the World Trade Organization, which was sabotaged this time by America. The Fund does not need a new mission. It must give itself the means to crack down on rogue creditors. In this new configuration, totally excluding China would be a mistake.

This would be contrary to the spirit of its mission, and some countries, forced to choose once and for all, could well opt for China. The sooner the IMF gets around the current blockages, the better. Helping countries in crisis is more difficult and less prestigious than before. But it remains essential.