Here’s a look inside the numbers that will frame the summit.

The G7 was formed fifty years ago so the world’s advanced-economy democracies could align on shared economic and geopolitical challenges. But what happens when the cause of instability is coming from inside the G7? That’s the question confronting the leaders as they assemble this week in Kananaskis. 

US President Donald Trump is still getting to know some of his new colleagues, including German Chancellor Friedrich Merz, UK Prime Minister Keir Starmer, Japanese Prime Minister Shigeru Ishiba, and the summit’s host, Canadian Prime Minister Mark Carney. Trump will try to coordinate the group against China’s economic coercion. But the rest of the leaders may turn back to Trump and say that this kind of coordination, which is at the heart of why the G7 works, would be easier if he weren’t imposing tariffs on his allies. The chart above shows the friction points heading into one of the most consequential G7 summits in the organization’s history.

—Josh Lipsky is the chair of international economics at the Atlantic Council, senior director of the GeoEconomics Center, and a former adviser to the International Monetary Fund (IMF). 

Originally created as an economic coordination body, the G7 began to put foreign policy and national security on its agenda in the 1980s, as the Soviet Union’s political influence was waning. Soon after, Russia attended its first G7 Summit as a guest in 1991, formally joined in 1998, creating the Group of Eight (G8), and then was suspended in 2014 due to its annexation of Crimea. 

In the years since, new geopolitical rivals have entered the fray: Since the COVID-19 pandemic, G7 summits and declarations have attempted to address China’s role in the global economy. Last year’s leaders’ communiqué was especially harsh on China—which was mentioned twenty-nine times—on everything from its material support to Russia’s war against Ukraine to Beijing’s malicious cyber activities. But China was once a guest at the forum, first joining in this capacity in 2003.

Other members of the G7+5, an unofficial grouping of large emerging markets—India, Mexico, Brazil, and South Africa—have been invited as guests in recent years. If that sounds familiar, it is because India, Brazil, and South Africa, along with Russia and China, are the founding members of the BRICS group of emerging economies, which some would consider a representation of the geopolitical and economic competition the G7 faces today. 

This year, Australia, Ukraine, South Korea, Brazil, Mexico, and India were invited to attend as guests. These invitations are a signal of broad alignment among the G7 and its guests. These invitations demonstrate the importance of the guests’ economic might on the global stage, even though India has shifted away from the G7 quite significantly in the last fifty years, as seen in the graph above. In 1992, when Russia first attended the G7 as a guest, its gross domestic product (GDP) was less than 1 percent of the world’s GDP, and the combined economies of the five founding BRICS countries made up less than 9 percent of global GDP. At the time, the G7 represented 63 percent of the world’s GDP. Today, the G7’s share is now 44 percent of the world’s GDP and the founding BRICS members’ share has more than doubled to almost 25 percent. 

—Ananya Kumar is the deputy director for future of money at the Atlantic Council’s GeoEconomics Center.

In 2024, G7 countries attracted over 80 percent of global private artificial intelligence (AI) investments, led primarily by the United States. In ten years, private AI investments have grown almost fifteen-fold. This month, the US Department of Commerce rebranded its AI Safety Institute as the Center for AI Standards and Innovation (CAISI)—shifting away from an emphasis on “safety” and toward promoting rapid commercial development.

Carney has said that he plans to put AI at the top of his agenda at the upcoming G7 Leaders’ Summit. He has been a long-standing advocate of AI—dating back to his 2018 presentation on AI and the global economy while he was governor of the Bank of England.

But while the United States leads in AI innovation and investment, Europe continues to set the pace on regulation, and China strategically develops its own AI models. All this leaves Canada asking where it fits in.

That may be why Carney hopes to lead on this issue. The G7 presidency offers Canada a unique opportunity to convene democracies to work together on AI. Rather than trying to outspend the United States or out-regulate Europe, Canada can focus on building connections—creating shared standards, developing trusted public-private data hubs, coordinating strategic investments, and outlining guidelines for common learning and collaboration across borders.

—Alisha Chhangani is an assistant director at the Atlantic Council’s GeoEconomics Center.

Ten years after the first G6 meeting took place in France, another landmark meeting took place at the Plaza Hotel in New York, in September 1985. At the meeting, then US Treasury Secretary James Baker convinced his counterparts from West Germany, France, the United Kingdom, and Japan to support a significant devaluation of the US dollar—what became known as the Plaza Accord.

Today, the dollar’s value relative to its G7 counterparts is on the rise again, fueled by tight monetary policy and expansionary fiscal spending. Although the current appreciation is milder than the surge seen in the early 1980s, the Trump administration may use the G7 Summit to raise concerns about the burden of being the world’s reserve currency, especially when it comes to export competitiveness. In late 2024, the current chair of Trump’s Council of Economic Advisers, Stephen Miran, proposed a “Mar-a-Lago Accord” as an updated version of the Plaza Accord, though no real progress on this is apparent. Moreover, this time a key global player is absent from the conversation—China.

—Bart Piasecki is an assistant director at the Atlantic Council’s GeoEconomics Center.

The finance ministers and central bank governors of the G7 already held their meeting last month in the Canadian Rockies, emerging with a consensus on tackling “excessive imbalances” and nonmarket policies. While the G7’s finance ministers and central bank governors’ communiqué didn’t call out China by name, it’s clear that’s who they were referring to. Simultaneously, the US-UK trade deal called for the United Kingdom to meet US requirements on the security of supply chains, which infuriated Beijing.

Washington wants coordinated economic security partnerships to help counter China and encourage more investment in the United States. But the United States has been calling for allies to divest from China for a while now. In response, G7 counterparts could point to the data above and ask: How much more do we need to give?

Over the past five years, nearly every G7 country, with the exception of Canada, has scaled down their investments in China and scaled up their investments in the United States. For example, Japan has reduced foreign direct investment in China by 60 percent over the past decade, including shuttering a major Honda plant in Guangzhou. Meanwhile, the Japanese carmaker pledged to put $300 million into a plant outside of Columbus, Ohio. This has been the trend as the United States’ G7 partners reassess their economic dependencies on China. But amid ongoing trade wars, how much are they willing to coordinate more closely with the United States?

—Jessie Yin is an assistant director with the Atlantic Council’s GeoEconomics Center.

Foreign aid, or official development assistance (ODA), from G7 countries dropped sharply in 2024, and early projections through 2025 and 2026 suggest even steeper declines ahead for most nations. The United States has exhibited the most drastic retreat, following the effective dismantling of the US Agency for International Development. But European countries have also scaled back development budgets and are redirecting funds toward defense and domestic economic issues. While ODA briefly surged in response to the COVID-19 pandemic and the war in Ukraine, that uptick masked a longer-term downward trend in traditional development funding as a percentage of G7 countries’ economies.

Most G7 nations have failed for years to meet the United Nations Sustainable Development Goals Target 17.2, which called for allocating 0.7 percent of gross national income to ODA. As of 2024, none of them has reached this benchmark. This retreat is particularly troubling given today’s fractured geopolitical and economic landscape. In such times, investing in global partnerships and life-saving aid through ODA is not just a moral imperative—it’s also a strategic one.

—Lize de Kruijf is a program assistant at the Atlantic Council’s Economic Statecraft Initiative. 

A major focus heading into the G7 Summit will be how Carney handles his latest meeting with Trump. The two managed to have a cordial meeting in May, and Carney’s announcement this week that Canada will increase its defense spending could help to placate Trump, who has long complained about Canada’s lagging defense spending.

But Canada is also looking beyond its southern neighbor. Carney has invited the leaders of Australia, Brazil, India, Indonesia, Mexico, South Korea, South Africa, Ukraine, and Saudi Arabia to join him in Alberta. Under former Prime Minister Justin Trudeau, Canada’s relationships with both Saudi Arabia and India reached diplomatic low points. By inviting these leaders, Carney is demonstrating a willingness to reengage partners. In no area is Carney more likely to pursue new partnerships than in the defense sector. Canada stated its desire to join the ReArm Europe Initiative and has signed a major deal for an Australian radar system. Expect Carney to seek new partners as Canada rebuilds its defense capacity, potentially with some of the countries invited to this year’s G7.

—Imran Bayoumi is an associate director at the Atlantic Council’s Scowcroft Center for Strategy and Security.

Canada’s hosting of the G7 Summit in Alberta carries exceptional significance amid escalating tensions with the United States. Trump’s attendance, which will mark his first G7 Summit since 2019, signals renewed engagement with Canada. This could spark talks on renegotiating the United States-Mexico-Canada Agreement (USMCA) ahead of the trade deal’s first joint review in July 2026. The timing of the G7 Summit coincides with heightened Canadian nationalism and intense public focus on Canada-US relations, particularly around tariff disputes affecting sectors such as steel.

The Trump-Carney relationship differs markedly from previous dynamics between Trudeau and Trump, potentially enabling more productive G7 cooperation when US foreign policy dominates global conversations. The trilateral presence of Mexican President Claudia Sheinbaum, Trump, and Carney creates an opportunity for preliminary USMCA discussions. However, critical questions emerge: Will Mexico and Canada align against the Trump administration? Will Canada prioritize repairing bilateral US relations over Mexico-Canada ties? The summit’s outcome is likely to significantly shape hemispheric trade relationships and regional diplomatic strategies.

—Maite Gonzalez Latorre is a program assistant at the Adrienne Arsht Latin America Center and Caribbean Initiative.

Sophia Busch, Ella Wiss Mencke, Ethan Garcia, and Miguel Sanders contributed to the data visualizations in this article. The data visualization titled “US jobs rely on Mexico and Canada more than any other trade partner” originally appeared in an article by Sophia Busch published on January 16, 2025.

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Click to jump to an expert analysis:

Melanie Hart: It looks like China has the upper hand in trade talks with the US 

Josh Lipsky: Treating US-China trade like a light switch will cause it to short circuit

Barbara C. Matthews: The tariff suspension creates a powerful incentive for third countries to choose a side

L. Daniel Mullaney: Whatever the outcome of talks, tariff unpredictability will reduce US trade dependence on China 

Hung Tran: The agreement is overshadowed by the possibility of abrupt change

It looks like China has the upper hand in trade talks with the US

The big takeaway from the weekend’s US-China meetings: Washington blinked, and Beijing decided to take the easy offramp on offer. 

It is no accident that these talks occurred just as Walmart and other major US retailers ramped up their warnings to the administration to prepare for COVID-19 pandemic-level shortages. Shortages were already showing up in shipping and port data. Consumer retail shelves were coming up next. And there is zero indication that US consumers are willing to experience shortages reminiscent of the Great Depression to accommodate a trade war with unclear aims.  

Meanwhile, Beijing was managing the economic fallout on the other side of the Pacific. Exports pivoted from the United States to Southeast Asia (likely the first step in a route designed to circumvent US tariffs). Many Chinese citizens praised President Xi Jinping for standing up to US bullying. Those that did not were censored. 

From Beijing’s perspective, China now has what it wants with all US administrations: a negotiation process. And it didn’t give up anything of value to get it. At home, Xi secured strongman bona fides for standing up to US President Donald Trump and a new boogeyman to blame for China’s domestic economic woes. Globally, Xi gains points for looking like the rational actor willing to come to the table and seek a deal. Beijing has been trying to engage the United States in talks over fentanyl for months. China issued a white paper back in March laying out its efforts to crack down on fentanyl. Politically, as of May, we are now back where we started at the beginning of the second Trump administration, with one major change: the United States and China are now actively engaged in trade negotiations, and it feels like China has the upper hand. 

—Melanie Hart is the senior director of the Atlantic Council’s Global China Hub and a former senior advisor for China at the US Department of State. 

Treating US-China trade like a light switch will cause some short-circuiting

This was a massive, unexpected, and very welcome de-escalation. We can cite gross domestic product statistics and market reactions, but the real driver from the US side was the prospect of missing backpacks, sneakers, and T-shirts at Walmart and Target just as parents start back-to-school shopping. 

China had a similar sense of urgency. Layoffs across ports and factories in southern China were becoming widespread. Apparently, the Chinese came into the negotiations ready to address nearly all the complaints the United States had raised and did so in a way that made US Treasury Secretary Bessent and US Trade Representative Jamieson Greer believe it was a genuine show of good faith.

Now the hard part starts—getting to a Phase Two trade deal. Inside the Trump administration, there is confidence that it can happen in ninety days. But the US-China trade deal signed during Trump’s first term took two years to negotiate—from 2018 to 2020—and this one is more complex and will address fentanyl, technology, semiconductors, and more. In the meantime, the Trump administration is going to introduce new tariffs, including on pharmaceuticals.  

Treating the relationship between the world’s two largest economies like a light switch is going to cause some short-circuiting. Expect a new surge of imports in June and July as retailers try to get ahead of whatever the fall may bring—it’s very difficult to run a global economy with this kind of uncertainty.  

The deal may be especially concerning for Europe. While Europe avoided the onslaught of cheap Chinese goods redirected to their shores, the United States is still on the hunt for revenue generators to offset the cost of Trump’s domestic priorities, including tax cuts. With China’s tariffs at least temporarily slashed and the negotiations with the European Union (EU) not gaining any traction, this puts Brussels in the hot seat.  

—Josh Lipsky is the chair of international economics at the Atlantic Council, senior director of the GeoEconomics Center, and a former adviser to the International Monetary Fund (IMF). 

The tariff suspension creates a powerful incentive for third countries to choose a side

The great global trade rebalancing of 2025 continues to gather momentum, illustrating that asymmetric negotiation is effective for counterparts seeking strategic shifts. The time horizon for tariff policy uncertainty has now extended to mid-August, aligning neatly but unfortunately with likely US fiscal policy constraints and the US budget process. The concessions by both China and the United States this weekend extend far beyond the headline temporary tariff reductions.   

Both parties have now publicly acknowledged that the Bretton Woods structure for creating economic interdependence continues to create powerful incentives for de-escalation; neither China nor the United States (much less the rest of the world) can afford to pursue long-term decoupling and trade diversion. This is the most positive signal that emerged from Switzerland over the weekend. 

Both parties also now tacitly agree that the trade imbalances created over the course of the last few decades must be addressed. China effectively had no choice: the last sixty days have seen a range of entities (the EU, the World Trade Organization, and the United Kingdom) publicly agreeing with the United States’ list of grievances against the multilateral trading system articulated in Trump’s executive order establishing high reciprocal tariffs. 

The ninety-day reprieve creates incentives for both the United States and China to build new bilateral trade arrangements with third countries to solidify their respective bargaining positions.   

The tariff suspension also creates powerful incentives for those third countries to choose a side. The recently concluded US-UK framework agreement and ongoing US negotiations with other large trading partners (including India, Japan, Canada, Mexico, and the EU) is mirrored by ongoing Chinese efforts to solidify the economic heft and geoeconomic stature of the BRICS economies. South Africa, as president of the Group of Twenty (G20) this year, has maintained a studious silence. India’s negotiations with the United States display potential fissures within BRICS, even as Brazil and Russia increase their economic ties with China. 

The current global trade policy volatility thus ironically replicates the parallel structure of negotiations that occurred in Bretton Woods, New Hampshire, eighty years ago. The great powers of the day gathered in the Gold Room to strike what we today would call “plurilateral” deals that set the boundaries of the possible even as broader negotiations in plenary sessions proceeded in the ballroom. Both then and now, the great powers of the day engaged in straight talk and struck difficult bargains for the purpose of setting a new economic equilibrium. The composition of participants in today’s Gold Room may be different, but the negotiating dynamic remains the same. The outcome will also achieve the same overall purpose: to restructure the geoeconomic balance of power. One can only hope that the deals struck over the next few months prove to be as durable as the original Bretton Woods agreement. 

— Barbara C. Matthews is a nonresident senior fellow with the Atlantic Council. She is also CEO and founder of BCMstrategy, Inc and a former US Treasury attaché to the European Union. 

Whatever the outcome of talks, tariff unpredictability will reduce US trade dependence on China

There are three major takeaways from this morning’s announcement of a temporary agreement between the United States and China: First, it is added proof that the Trump administration’s trade policy is less about the tariffs per se (or decoupling, in the case of China) than it is about achieving the objectives behind the tariffs. These objectives include curbing nonmarket excess capacity and other nonmarket policies and practices, unfair trade barriers abroad, and the goods trade deficit. Broad tariffs are ready and powerful tools for achieving these objectives, but they are also crude ones that inflict self-harm and are therefore less desirable than other arrangements with equivalent effect.   

Second, trading partners that immediately started negotiations over these objectives instead of retaliating are in as good a position as, if not better than, China, which chose a hardline retaliatory stance. The former are in negotiations with the United States, as China is now, but without the severe economic harm inflicted by the retaliation in the interim.   

Third, the United States and China are now in a position similar to that before China received “permanent normal trade relations” status and joined the World Trade Organization, when the trading relationship was subject to the uncertainty of yearly most favored nation status renewal. There was significant trade between the United States and China in this period, but it was hobbled by the unpredictability of the tariff regime. Regardless of the ultimate outcome of this morning’s agreement in terms of tariff levels, the unpredictability in the tariff regime will continue to serve the Trump administration’s objective of reducing trade dependence on China. 

—L. Daniel Mullaney is a nonresident senior fellow with the Atlantic Council’s Europe Center and GeoEconomics Center. He previously served as assistant US trade representative for Europe and the Middle East. 

The agreement is overshadowed by the possibility of abrupt change

The United States and China have agreed to reduce their respective bilateral tariffs on each other for the next ninety days, buying time to negotiate a trade deal. Essentially, the 145 percent tariffs the United States levied on China will be cut to 30 percent, and China’s 125 percent tariffs on US goods will be cut to 10 percent. The agreement has eased tension between the two countries and triggered major rallies in international equities, as well as the dollar, which had been under selling pressure.  

While the reduction of tariffs and commitment to negotiate a trade deal between the world’s two largest economies is to be welcomed, these steps have raised important questions for the international trading system. First, this deal together with the recent US-UK trade agreement have confirmed that the world has moved into a bilaterally managed trading system based on reciprocity—with no references to previously agreed multilateral rules nor the World Trade Organization. Second, the agreements were made in a rather casual manner, without being codified into trade treaties or national laws. This adds to the uncertainty about how robust and sustainable those agreements can be, as they are overshadowed by the possibility of abrupt change. Finally, even with those agreements, US tariffs on other trading counterparts will likely remain higher than before April 2025. It appears that the global 10 percent tariff rate will become the floor tariff rate on imports by the United States.  

Taken together, these developments elevate uncertainty, unpredictability, and complexity in the world trading order. They are likely to reduce trade volumes, especially shipments to the United States, which aims to cut its trade deficit. If trade among the rest of the world doesn’t increase enough to compensate, the decline in global trade will contribute to a weakening of global growth prospects. 

—Hung Tran is a nonresident senior fellow at the GeoEconomics Center and former IMF official. 

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In her traditional Global Policy Agenda speech, the IMF managing director, Kristalina Georgieva, sought to temper market anxieties and reassure member countries. She struck a tone of cautious optimism and underscored the Fund’s institutional preparedness while candidly acknowledging a range of serious global risks. She outlined three interlocking priorities to frame the week’s deliberations: (1) resolving trade tensions and restoring confidence, (2) safeguarding economic and financial stability, and (3) reviving medium-term growth through structural reforms.

Acknowledging the gravity of the moment, Georgieva stated, “We’re not in Kansas anymore,” a metaphor underscoring the unfamiliar and turbulent terrain the global economy now faces. She advocated for a comprehensive and coordinated settlement among major economies aimed at rolling back trade barriers, reducing policy uncertainty, and restoring the openness of global trade flows. She warned that prolonged ambiguity was already suppressing investment and eroding consumer confidence.

In this context, the IMF reiterated its longstanding position that both tariff and non-tariff barriers must be lowered to preserve multilateralism. However, the challenge extends beyond immediate trade disputes. Structural imbalances—including China’s elevated savings and weak domestic consumption, the United States’ sustained fiscal deficits, and the European Union’s incomplete economic integration—are increasingly viewed as drivers of systemic strain. To correct these asymmetries, the IMF recommended: (1) stimulating domestic demand in China, (2) advancing infrastructure investment and market integration in Europe, and (3) embarking on credible fiscal consolidation in the United States. The IMF portrayed these national adjustments as preconditions for global macroeconomic rebalancing and long-term resilience.

The second thematic pillar—economic and financial stability—highlighted the narrowing margin for error after years of policy stimulus in response to the pandemic, inflationary shocks, and geopolitical disruptions. Georgieva’s appeal to “get your house in order” captured the moment’s urgency. She urged countries to reinforce their fiscal foundations by implementing credible and transparent medium-term frameworks.

While she broadly encouraged gradual deficit reduction, Georgieva gave particular attention to low-income and emerging economies, which are confronting acute debt vulnerabilities amid tightening global financial conditions. For these nations, the policy agenda emphasized enhanced domestic revenue mobilization, improved public financial management, and proactive engagement with debt restructuring mechanisms. On the monetary front, Georgieva advised central banks to remain guided by incoming data and preserve their operational independence, while continuing to focus on price stability. The meetings also addressed mounting concerns over the stability of the financial system, including the risks posed by non-bank financial intermediaries, and called for more robust regulatory oversight and international coordination.

Finally, the IMF’s managing director placed renewed emphasis on the structural transformation needed to revive medium-term growth. As Georgieva declared, “Now is the time for long needed but often delayed reforms.” With global potential growth trending downward, she plainly acknowledged the limitations of monetary and fiscal policy.

Instead, discussions centered on national reform agendas tailored to each country’s specific institutional context. These included measures to improve the business climate, enhance governance and the rule of law, modernize labor and product markets, and strengthen innovation ecosystems and digital capacity. For emerging and developing economies, the imperative to expand access to finance, invest in human capital, and build sustainable infrastructure was seen as crucial to catalyzing private sector participation. Climate resilience and inclusive growth were integrated into the broader reform discourse, reflecting the growing consensus that sustainability must be embedded in long-term economic strategy. The IMF committed to supporting member countries in these efforts through targeted instruments—such as the Resilience and Sustainability Trust—alongside bespoke policy advice and capacity development.

A pivotal intervention during the meetings came from US Secretary of the Treasury Scott Bessent, who addressed the Institute of International Finance with a call for the IMF to return to its original mandate. He criticized the Fund’s perceived “mission creep” into areas such as climate, gender, and inequality. He acknowledged these issues as important, but potentially distracting from the IMF’s core objectives of macroeconomic stability, balance of payments support, and monetary cooperation. Bessent reaffirmed US support for the Fund and the World Bank, while clarifying that continued engagement would hinge on institutional discipline, rigorous program conditionality, and a sharper focus on correcting global imbalances. His remarks signaled not just a recalibration of US expectations, but a broader ideological debate over the role of multilateral financial institutions in a fragmenting global order.

Georgieva’s response the following day was diplomatically calibrated. In an April 24 press briefing, she welcomed continued US engagement and described Bessent’s comments as constructive. “The United States is our largest shareholder… of course, we greatly value the voice of the United States,” she remarked, interpreting the speech as a reaffirmation of US commitment at a time when political rhetoric had raised fears of disengagement. She acknowledged the legitimacy of US concerns and noted that ongoing institutional reviews—including the Comprehensive Surveillance Review and the Review of Program Design and Conditionality—would serve as venues for deeper discussions. These mechanisms, she suggested, provide space to reexamine priorities, refine programs, and ensure alignment between the Fund and its major stakeholders.

But what do US concerns about the IMF’s direction truly entail, and how might they be addressed in the upcoming policy reviews? It is crucial to recognize that, despite holding over 16 percent of the Fund’s voting power, the United States cannot unilaterally block the IMF executive board’s approval of the regular Comprehensive Surveillance Review. This implies that the most consequential negotiations will, as is customary, occur informally and behind closed doors. We can anticipate that the US executive director’s office will try to shape a draft document that aligns with Washington’s preferences.

However, the United States is not the only influential voice at the table. Other member states—many of whom have divergent priorities, particularly on issues such as climate integration, social inclusion, and the future scope of macroeconomic surveillance—will also seek to assert their positions. The previous surveillance review in May 2021 introduced climate macro-criticality into Article IV consultations for the twenty largest greenhouse gas emitters. Whether the United States can successfully build a broad coalition to revise the surveillance framework in line with its renewed emphasis on “core” macroeconomic fundamentals remains to be seen.

Yet despite the Spring Meetings attendees’ efforts to project cohesion and forward momentum, the underlying global outlook remains clouded by persistent uncertainty. Geopolitical tensions, rising debt burdens, and diverging monetary policy trajectories continue to weigh on policy coordination platformed by the IMF.

As attention shifts toward the 2025 annual meetings this October, critical questions will come into sharper focus. Can the IMF meaningfully recalibrate its surveillance priorities? Will members find the political will to realign quotas and governance structures? How will the Fund balance its evolving role with the demands for institutional discipline? These meetings will not merely be another milestone in the global economic calendar—they may well constitute a stress test for the resilience of the postwar international system and its ability to adapt in an increasingly complex, multipolar world.

Bart Piasecki is an assistant director at the Atlantic Council’s GeoEconomics Center.

The views and opinions expressed herein are those of the author and do not reflect or represent those of the US Government or any organization with which the author is or has been affiliated.

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Twelve years after his own surprise election, how much did Pope Francis actually succeed in reshaping the church’s leadership? Here’s one way to look at it.

To understand the Church’s shifting priorities amid an evolving Catholic demography, we compared the economic profiles of the cardinal electors who selected Pope Francis in 2013 and Pope Leo’s 2025 conclave. This time, around 32 percent of Cardinals in the conclave came from countries in the bottom half of world gross domestic product (GDP) per capita, a notable rise from around 22 percent in 2013. Under Francis’s pontificate, the profile of the “median cardinal elector” shifted towards lower GDP per capita nations by 12 percentage points. Still, the majority of electors hail from middle to higher-income countries, partly reflecting the geographic concentration of the world’s 1.4 billion Catholics.

This shift among the cardinal electors mirrors the broader trend: the Catholic Church’s growth, and thus its future, is increasingly in emerging economies. In Africa and Asia, the Catholic population has expanded faster than their overall population growth, while North America experiences slower growth and Europe a reversal. Pope Leo XIV will have to continue adjusting to the Church’s new demographic reality.

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April 23, 2025

Banque de France’s François Villeroy de Galhau on strengthening Europe

Banque de France Governor François Villeroy de Galhau discussed the challenges of safeguarding the euro amid global economic uncertainty with Charles Lichfield, deputy director of the Atlantic Council’s GeoEconomics Center.

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Transcript of remarks

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Thanks to all of you for welcoming me in the Atlantic Council. We sit just a few blocks from Franklin Park and Lafayette Square. And if necessary, Washington’s geography reminds us of the enduring bond between our two nations.

As the Marquis de Lafayette, probably as famous in the US as in France, hero of the two worlds, once wrote to George Washington, I quote him: “Humanity has won its battle. Liberty now has a country.” From the very start, the cause of liberty, of freedom, has been one we have carried together, across the Atlantic, and I strongly wish it is still today, despite very troubled waters we are sailing through.

Let me also remind you with gratitude that Dean Acheson, who played a key role in the creation of your Atlantic Council, was also instrumental in the early steps of European integration. This is perhaps less well known, but he urged the French government in 1949 and 1950 to take the bold step leading to the Schuman Declaration of 9th of May 1950, and hence of what would become the European Union.

For Dean Acheson, as for many Americans, the EU was not designed, and sorry for the quotation, was not designed to “screw the US,” on the contrary. And let me, by this opportunity, also pay tribute to his French counterpart, Robert Schuman, at that time French Foreign Affairs Minister. He came from the French-German border, Jenna, which you alluded to, and it’s a legacy I feel personally connected to, having grown up like him in that very region where our two nations meet.

Hence, I will highlight that the transatlantic partnership has been so far strong and balanced, as no other worldwide. Second, nevertheless, the US trade policy shift will harm the global economy, starting at home. Lastly, and more positively, I will trace out a path for this possible European moment you mentioned, if, I stress, if we seize the opportunity.

Let me try to state the obvious first, but telling the truth means sometimes reminding the obvious at present. The US and the EU are the world’s two largest economies, maintaining one of the largest bilateral economic relationships. Then there is this question of the trade surplus.

Let me give some figures. If I look at the surplus in goods, obviously, there is a European surplus of $234 billion. But there is a services deficit which has significantly widened in the last years and which is at the advantage of the US for $125 billion. If I add a third element, which is a net primary income flows in favor of US firms, this leads ultimately to a balanced current account.

Can I also add that the effective applied tariffs between the EU and the US were close before recent developments, 3.95 percent for the EU on US products, 3.5 percent for the US on European products. Let me remind also the obvious: Value-added tax, VAT, is not a customs duty. It is levied on the final value of imported and domestically produced goods equally like the sales tax in the US. And nobody would argue in Europe that the sales tax is a customs duty.

European majority-owned affiliates directly employed an estimated [5.3 million] US workers in 2023, and European-based investors represent close to 50 percent of all foreign holdings of US securities that same year.

Last figure, and I will stop there, but only to show how deep, old, and balanced our relationship is: Today, 120,000 European researchers are working in the US universities, labs, and firms.

I must unfortunately go to my second point about the US policy shift and its harmful consequences.

Let me be honest: I don’t mean that the latest globalization wave was a fairy tale. It had its problems. It had its imbalances, both social and financial. But the current lose-lose game will obviously increase these problems and in no way solve them. The new trade measures, tariffs announced, as well as the increasing unpredictability which affects confidence, constitute without any doubt a major negative shock, and self-indicted, to the global economy, but first and foremost, to the US economy. I say that with sadness.

According to all analyses by most US and international banks and yesterday by the IMF, the American economy could suffer this year from an average estimated loss of around 1 percentage point in annual growth less and a similar-sized, 1 point rise in underlying inflation. There could even be a US recession, which was unthinkable, unthinkable, three months ago. But bad news for the US is bad news for all, including for Europe.

According to our preliminary assessments, there could be a direct negative impact of 0.25 percent to euro area GDP growth this year. The impact on inflation remains more uncertain but could be as a whole on the downside. And this is a significant difference; our inflation would diminish while the US one would increase. That said, our baseline scenario for France and the euro area remains that of an exit from inflation without a recession.

Financial markets, as we all know, they reacted very negatively to these trade announcements with a very unusual combination—let me stress that—of a sharp drop in US equity indexes, a rise—very surprisingly—in US long term bond yields, and a broad-based decline in the US dollar. The economic uncertainty may possibly threaten financial stability. I say it with some gravity. And I add that such deeply disruptive effects would also result from attacks on the independence and credibility of central banks. Let me on this occasion express again my gratitude to Fed’s Chair Jay Powell, who admirably shows how a central banker must behave.

One word about monetary policy, if you allow me. Independent from political impatience, our monetary policies are also autonomous from one another across the Atlantic. This in no way precludes—and this is my commitment to you—this in no way precludes a continuous, trusted, and indispensable dialogue, which is more necessary than ever for global financial stability.

But this autonomy is precisely what allows each of us to fulfil our domestic price stability mandate. In Europe, this is made possible by one of the greatest institutional achievements of the [1990s]: the creation of the euro. I am old enough, I must confess, to have been personally in Maastricht thirty-three years ago, and much more recently, I was in Frankfurt last week, for our latest decision to cut interest rates.

There is currently, as I said, no inflationary risk in Europe. And we can almost say “mission accomplished” when it comes to bringing inflation back to our 2 percent target. The significant deceleration of wages is another proof thereof. It is therefore both fair and appropriate that, compared to the US Fed or the Bank of England, the ECB has started cutting rates earlier—last June—faster, and likely further this year.

While this supports activity in the short term, the key to strengthening European growth remains structural through a broader mobilization of our internal resources.

And this brings me to my last and more positive considerations about Europe. Can I first say hope that we use the ninety-day pause to seriously talk across the Atlantic.

The least economically harmful option would be indeed to negotiate and then deescalate the situation rather than setting off a transatlantic spiral of tariff hikes. So far, Europeans, and you could witness it, Europeans have reacted in a remarkably united and calm manner.

Furthermore, I strongly wish Europe and the US can still commit together to what I call a pragmatic multilateralism. I mean a pragmatic multilateralism that is focused on some practical themes of common interest.

Let me name just a few: financial stability, cross-border payments and crypto-assets, cybersecurity, or the fight against financial crime and the prevention of extreme climate events. I insist: Let us resolutely preserve and support the multilateral institutions such as the IMF and World Bank, born and hosted in this great country—and this great city of Washington.

Let me express one final hope. If this difficult current situation has a silver lining, it is to possibly usher the European moment: Europe, despite its limitations—and we are aware of these limitations—as a safe haven of economic predictability and confidence, of rule of law, of social cohesion. But this will not happen without bold moves.

We can already see the impressive shift of the next German government. And these moves are obvious on defense, but let me focus today on economy, as the other pillar of this European moment. We need what I would call a “general mobilization” focusing on three imperatives, three “I”s, taking the best of the impressive economic success of America—or if you prefer, rather than three “I”s, size multiplied by muscle multiplied by speed. What do I mean? And I will be very short, but this is a sum up of the Draghi report, so to say—four hundred pages.

First, we need to integrate, the first “I”, the single market more. This means making the most of its size—as large in GDP terms as the US—by removing internal barriers in several areas such as services and energy. We also need, second “I”, to invest better, giving priority to the most promising breakthrough innovations, particularly those related to AI. And to succeed there, we need to build financial muscle through a genuine Savings and Investments Union, fostering more our abundant private savings—we don’t lack private savings, no the contrary—but we must force them towards equity and venture capital, again, US type. And third “I”: We need to innovate faster. Europe needs simplification, obviously. Less bureaucracy, fewer procedures, and shorter deadlines, while stressing—and this is one of our messages—that simplification is not deregulation, and we will come back to that.

Can I add a general consideration on this European agenda and this European moment: To successfully implement these three “I”s, these three imperatives, we urgently need a binding, visible, and not too distant calendar: Such a calendar will mobilize all our political and economic forces, as did in the past the 1st of January 1993 for the single market, also 1st of January 1999 for the single currency.

Let me conclude, in quoting the great French writer Victor Hugo. He wrote, almost two centuries ago, “A day will come when there will be no other battlefields but markets opening to trade and minds. . .  A day will come when these two great groups, the United States of America and the United States of Europe, will stand face to face, reaching out across the seas, exchanging their products, their commerce, their industries, their arts, and their genius.”

That day, alas, has grown more distant in recent times, but we need such nice utopias. The transatlantic sky has darkened considerably. But even in the storm, we must not lose sight of our long-term course. You, the American people, will decide what must be said and what must be fought for on your side of the Atlantic, as loud and clear as necessary. As Europeans, our task is clear: to strengthen our own side of the ocean. Let us, in the very name of the Atlantic spirit this Council embodies, let us seize the European moment.

Watch the full event

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“America’s present need is not heroics but healing,” Harding said, “not nostrums but normalcy; not revolution but restoration; not agitation but adjustment; not surgery but serenity; not the dramatic, but the dispassionate . . . ” 

It was certainly unintentional, but I heard echoes of Harding when Valdis Dombrovskis, a Latvian who serves as an executive vice president for the European Commission, came to the Atlantic Council yesterday in defense of “boring” predictability.  While mentioning US President Donald Trump only once in his opening remarks, he underscored what Europe has long seen as its shared virtues with its American partners.  

“You see our fundamental values, individual liberties, democracy, and the rule of law often painted as weakness by authoritarian regimes to prey upon,” said Dombrovskis, who previously served as the European Union’s (EU’s) trade negotiator and is one of Europe’s longest-serving commissioners.* “However, in times of turmoil, predictability, the rule of law, and willingness to uphold the rules-based international order become Europe’s greatest assets. We are committed to doing whatever it takes to defend our ‘boring’ democracies, because boring brings certainty and a safe haven when a rules-based order is questioned elsewhere. Our processes allow for debates and consultations to take place, building buy-in from our key stakeholders and enabling us all to pull in the same direction.”

This week’s meetings of the International Monetary Fund (IMF) and World Bank in Washington, DC, are arguably the most important since the financial crisis of 2008-2009, because the Trump administration is seeking fundamental changes to the world trading and financial system not seen since the Bretton Woods agreement of 1944. In that year, the United States and its partners brought down protectionist trade barriers, established a new international monetary system, and laid a foundation for post-World War II global economic cooperation. One of the results was the creation of the IMF and the World Bank.

The last thing the Trump administration appears to want is a return to the normalcy of the eighty years that followed that agreement, arguing that the United States has been taken advantage of by its trading partners and that international system. One can say many things about Trump’s first hundred days in power, but “boring” certainly isn’t one of them.  

Many of the world’s economic elites in town for this week’s IMF-World Bank meetings appear to be yearning for the first Trump administration, during which the rhetoric was often more extreme than the policies that emerged. Investors appear to agree with them, driving up markets Tuesday when Trump said that he wasn’t planning on removing Federal Reserve Chair Jerome Powell from office and US Treasury Secretary Scott Bessent signaled that the United States wanted a trade deal with China.

Yesterday brought fresh reports, most notably in the Wall Street Journal, of Trump’s willingness to dial back China tariffs, while Bessent had harsh words for China’s export-driven economic model even as he hinted at a deal. “China needs to change,” he told the Institute of International Finance. “Everyone knows it needs to change. And we want to help it change—because we need rebalancing too.” 

As I’ve argued previously in Inflection Points, the Trump administration this time around is more determined to bring about lasting changes than most investors and trading partners recognize. “The revolution,” I wrote, “is about breaking what Trump administration officials believe needs to be fixed, whether it is foreign assistance or international trade, because previous experience has shown that reforms aren’t possible.”

In his Atlantic Council remarks, Dombrovskis showed that he understands the European status quo also needs to change, but that it should be achieved by building upon the rules-based system that has served it so well since World War II. 

He spoke of accelerating efforts to build European defense and about the need to support Ukraine against Russian aggression as “Ukraine is central to Europe’s security considerations.” He spoke about deepening the European single market (“our main economic asset”) of 450 million consumers and about tackling “a longstanding problem of bureaucracy and red tape” by reducing administrative costs for European companies by 25 percent.

He also spoke about expanding the EU’s growing network of economic partnerships and about tapping growing international demand for euro-denominated assets. First and foremost, he played up European predictability as a core strength. What was understood, but not said, was that the EU now sees its “boring” predictability as a competitive advantage when measured against the United States.

Make no mistake: the EU would much prefer to do a damage-reducing deal with the Trump administration, but Dombrovskis’s tone was that of someone who knows he’s entered a time of transatlantic uncertainty when that’s not an outcome he can bet on.

The wording Dombrovskis chose was telling, saying that the EU “isn’t giving up on our closest, deepest, and most important partnership,” with an economic and trade relationship of $9.5 trillion per year, including a services trade estimated at $475 billion in 2024.

He spoke about the EU’s readiness to buy more US liquefied natural gas and offered to negotiate down to zero tariffs on all industrial goods. At the same time, he reminded the audience that the EU would escalate, if necessary, and that a first, 21-billion-euro package of countertariffs was put on hold following the Trump administration’s ninety-day pause on its own “reciprocal” tariffs.

Dombrovskis’s message was a clear one: that the EU “is determined not to let this crisis go to waste,” and it wants to make “inroads to help shape new strands of the global economy.” As for how the EU can reach a deal with the country that was both the host and at the heart of the Bretton Woods agreement eighty years ago, he regretted that “so far we also don’t have clear responses” to EU offers on a path forward.  

It’s far too early to know whether “boring” can win the day and whether American voters will return to Warren Harding territory. That said, Dombrovskis yesterday laid out a sound—and even compelling—approach for a continent where rules-based international order has been an antidote to its bloody past.

Frederick Kempe is president and chief executive officer of the Atlantic Council. You can follow him on X: @FredKempe.

This edition is part of Frederick Kempe’s Inflection Points newsletter, a column of dispatches from a world in transition. To receive this newsletter throughout the week, sign up here.

Note: An earlier version of this article inaccurately referred to Dombrovskis as the EU’s current trade negotiator. This essay has been updated to note that he is a former EU trade negotiator, as Dombrovskis left that position in December 2024.

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Laissez-faire economics is out; less-than-it-was economics is in. On Tuesday, the International Monetary Fund (IMF) released its latest World Economic Outlook (WEO), which cut its projection for global growth in 2025 to 2.8 percent, down from 3.3 percent in its January forecast, with US growth now pegged at 1.8 percent, down from 2.7 percent. Driving a significant part of these downward revisions are US President Donald Trump’s tariff announcements, along with the associated policy uncertainty and push toward protectionism globally. “We are entering a new era,” the IMF’s chief economist said, as the “global economic system that has operated for the last eighty years is being reset.” Below, Atlantic Council experts at the IMF-World Bank meetings this week in Washington delve into the details and explore what it all means.

• Josh Lipsky (@joshualipsky): Senior director of the Atlantic Council’s GeoEconomics Center and former adviser to the IMF
• Jeremy Mark (@jedmark888): Nonresident senior fellow at the GeoEconomics Center and former IMF communications specialist
• Elizabeth Shortino: Nonresident senior fellow at the GeoEconomics Center and former US executive director at the IMF
• Martin Mühleisen (@muhleisen): Nonresident senior fellow at the GeoEconomics Center and former IMF official

Prediction problems

• Predicting the economic future is difficult any time; even more so now. Josh points out that just last week, US Federal Reserve Chair Jerome Powell said “there isn’t a modern experience of how to think about this,” underscoring the difficulty in modeling the global impacts of the Trump tariffs. The new WEO is important, Josh adds, because in effect “the IMF said, ‘We’ll give it a try.’”
• That said, the IMF does hedge somewhat by offering three scenarios. Jeremy notes that the IMF officials focused on WEO’s “reference forecast,” which sees a 0.5 percentage point reduction in global output for all of 2025 when calculating the impact of all of Trump’s tariffs this year through “Liberation Day,” without the subsequent pauses. And it could turn out to be even worse than that, Jeremy adds, since some economists see IMF projections as “too inclined to accentuate the positive”
• “The recent rapid trade and market developments make it next to impossible to produce a reliable baseline forecast for global growth,” says Elizabeth. “The IMF also had to walk a fine line in assessing the impacts of US actions without too overtly criticizing its largest shareholder. Not an easy task on both counts.”

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Certain about uncertainty

• The word “uncertainty” appears more than one hundred times across the WEO and its companion document, the Global Financial Stability Report, Elizabeth notes. “This message is on point, as uncertainty abounds and poses its own strains on the global economy.” 
• What does this uncertainty look like? In the United States, further stock market declines, higher interest rates, and exchange rate fluctuations have the potential to create “significant shocks that could destabilize financial markets,” Martin says. At the same time, the WEO states that a resolution of the tariff conflicts or an end to the war in Ukraine could provide a major boost to the global outlook. 
• And yet, Martin says, “there should be no illusion about the risks facing the world economy, reminiscent of the last financial crisis, and continued uncertainty on tariffs and other policies risks moving markets closer to the abyss.”
• Those risks come out even more when you dig below the headline numbers. Jeremy notes that the projections of 4 percent growth for China this year and next year “probably won’t go over well in Beijing,” since they are below official figures. Elizabeth points to “a more dire scenario” for global growth nestled in the WEO if the United States extends the Trump first term tax cuts, China’s domestic demand continues to lag, and Europe’s productivity does not grow.

A recession by any other name

• Could the world be headed for a recession? Josh points out that the IMF is not projecting a global recession this year, even though the risk has increased. Moreover, Josh adds, what would qualify as a global recession is different from a recession in a single country, which is generally two consecutive quarters of negative growth. 
• “When I was at the IMF, there was a debate about whether GDP growth under 2.5 percent would constitute a recession,” says Josh. “It seems like today the IMF has made a determination about what this looks like in the current situation—2 percent GDP growth—although they call it a global economic downturn.”
• Josh will be paying close attention to how IMF Managing Director Kristalina Georgieva answers the recession question in her Thursday press conference: “Just because the global economy isn’t in a recession by the IMF’s standards at the moment, it doesn’t mean in a few months we won’t cross the mysterious threshold.”

New Atlanticist

Apr 20, 2025

Inside the IMF-World Bank Spring Meetings as leaders navigate the global trade war

By Atlantic Council experts

Amid an economic climate of great uncertainty, we dispatched our experts to the center of the action in Foggy Bottom to share their biggest takeaways from a pivotal week for the global economy.

Inclusive Growth International Financial Institutions

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Those projections were released at the IMF-World Bank Spring Meetings, where central bank governors, finance ministers, and other economic leaders met. There, many sounded the alarm about the global economy’s trajectory and discussed their plans to cushion their countries from the blow of low growth and high inflation, which are expected to result from US President Donald Trump’s sweeping tariffs.

Amid an economic climate of great uncertainty, we dispatched our experts to the center of the action in Foggy Bottom to share their biggest takeaways from a pivotal week for the global economy. Read what they want you to know below.

This week’s expert contributors

APRIL 26 | 12:01 PM ET

“Those who seek to deconstruct the system… have an obligation to share the vision of what comes next”

Wrapping up the week, GeoEconomics Center Senior Director Josh Lipsky, who is also the chair of international economics at the Atlantic Council, reflects on the founding of the Bretton Woods institutions and calls for visionary leadership to shape what comes next.

Read the remarks

The US dollar has been the global reserve currency for approximately a century, and we can sit here as we did this week and talk about all the macroeconomic factors of why that is—liquidity and capital markets and all the ins and outs that make something a reserve currency or not.

But the fundamental reason something becomes a reserve currency, the world’s leading experts on currency will tell you, including at the Atlantic Council, is the rule of law.

But another way to say that is trust: Trust that, fundamentally, you will be treated fairly, there will be a process if there’s a dispute, that you understand the system, how it works, and how it doesn’t. That trust was hard fought for and hard won by the United States.

We often romanticize the three weeks in New Hampshire in 1944, as when the world came together and set out a new international economic order and created the dollar as the global reserve currency. But the truth is much more complicated. There was wrangling and backstabbing and negotiation and suspicion, countries not wanting to deal with each other, bilateral negotiations just like we see this week.

And what emerged from that meeting was not a consensus. It was a precarious and tenuous agreement to see if the United States, as the leader of an international economic system, could earn the trust of the world. And they did it.

The United States did something that no superpower in the history of the world had ever done before. They shared their power. They built a rules-based international system, and that system benefited the world, but it also benefited the United States. It generated enormous prosperity in this country.

We overlook that history at our own peril. Are there deep flaws in that system? Of course, there are. Have they built up, especially in the past twenty, thirty years to the detriment of American workers and workers around the world in advanced economies? There is no doubt. Is reform needed? Of course, there is absolute unity across the IMF and World Bank about the need for reform.

But those who seek to deconstruct the system that was built over nearly a century have an obligation to share the vision of what comes next.

This world that we have built, this economic order, is imperfect. But it represents the consensus of the citizens of the countries that these ministers and governors represent. And the brilliance of this system is that every country has a voice.

And working together, they build a stronger global economy. We may have forgotten those lessons as a century has moved on, and it may be painful for all of us as we seek to relearn them. But we have to come out of the other end of this, not just in a bilateral world, the way we operated before the Bretton Woods system, but a way that shows we have learned and not forgotten the lessons of history. That is what we will be committed to at the Atlantic Council, and that is what we will continue to work on in the days, weeks, and months ahead.

APRIL 26 | 11:24 AM ET

Thanksgiving in April

Last year at the Annual Meetings, my colleague Martin Mühleisen likened these gatherings to Thanksgiving, as both ‘sides’ of the family come together in good spirits—though there may be a kick under the table. On this, I agreed, noting there is meaningful cooperation, collaboration, and respect between the IMF and World Bank.

Despite the overarching sense of gloom at these Spring Meetings, as the trade war heightens economic uncertainty, there were encouraging signals that much-needed coordination and partnership between these two institutions and beyond can and is happening.

For example, take domestic revenue mobilization and debt, two connected challenges listed prominently on the agenda. That’s the case for good reason: Emerging market and developing economies collectively face a financing shortfall in the trillions. As I discussed on Tuesday with the French Treasury’s William Roos, who is also co-chair of the Paris Club, these countries lack fiscal space to invest in growth or climate resilience, mainly due to declining development assistance and hamstringing debt (at least half of these countries are in or at high risk of debt distress).

The implications for macro stability, economic development, and poverty alleviation give both the Bank and Fund a shared interest in prioritizing action. They have similar tools at their disposal—financing, concessional lending, trust funds, policy advice, and capacity building. But too often these tools are utilized in isolated, fragmented, and (at times) even counterproductive ways.

This is why joint efforts such as the IMF-World Bank Debt Sustainability Framework for Low-Income Countries and the Domestic Resource Mobilization Initiative are so critical. So is the new, much-anticipated “Playbook” for debt restructuring released on Wednesday by the Global Sovereign Debt Roundtable, which the Fund and Bank co-chair along with the Group of Twenty presidency. Ceyla Pazarbasioglu—the director of the Strategy, Policy, and Review department at the Fund—got giddy discussing these collaborations with Pablo Saavedra, vice president of Prosperity vertical at the Bank, and me.

As much as ongoing and strengthened coordination between these two institutions is important, I am even more encouraged by what I heard from them and others, on and off the 19th Street campus, and in front of cameras and behind the scenes. The people I spoke with acknowledged the need to revisit the broader international financial system for better cooperation (including with regional international financial institutions), improved ownership of national policies by and alignment with governments, and ultimately more effectiveness in an era when everyone has to do more with less. Keep an eye out for momentum that can and should enable progress, not only in the lead up to the Annual Meetings in October but also ahead of the fourth Financing for Development Conference in Seville this summer. If you’re curious about what that will entail, watch my conversation with United Nations Assistant Secretary General for Economic Development Navid Hanif and Ambassador of Zambia to the United Nations Chola Milambo.

APRIL 25 | 6:27 PM ET

Dispatch from IMF-World Bank Week: Success, in one underappreciated way

In the meetings and panels I attended this week, the air was thick with existential dread over the Bretton Woods institutions’ very future. Delegates came prepared for the worst, bracing for a difficult set of discussions with the new US administration.

Considering the expectations for these meetings were so low, I would say they wound up a qualified success. The mood had already improved after the United States supported an IMF deal with Argentina, struck the week before, and after US Treasury Secretary Scott Bessent delivered a speech providing reassurance that the United States values the Bretton Woods institutions—as long as major reforms are undertaken.

Even though most people focused on the gloomy outlook for the world economy over the course of the week, some gave in to guarded optimism as markets stabilized on the hope for a US stand-down on several trade fronts.

The shift in mood wasn’t the only sign of success; there were concrete deliverables. One came from the Global Sovereign Debt Roundtable, which issued a roadmap for debt restructuring negotiations, signaling important consensus among major creditor countries. Moreover, the IMF and World Bank announced that they will engage with the new Syrian government to help restore their country’s war-damaged economy.

In addition, the statement by the International Monetary and Financial Committee chair (issued in lieu of a communiqué) struck a tone that was clearly aimed at addressing the United States’ stringent demands—although it did not give any indication of how the IMF would do so, and the real work still lies ahead.

Despite these positive signals, the global financial system faces considerable uncertainty. The Argentina program is a risky bet, the Trump administration could switch its view on the Bretton Woods institutions, and there is now a bigger question mark attached to the dollar’s future as the world’s dominant currency.

This week proved the value of IMF-World Bank meetings in troubled times. In speaking at Atlantic Council headquarters on Thursday, Spanish Finance Minister Carlos Cuerpo told us that the most important deliverable this week, with difficult decisions looming over the next few months, was simply for people to keep “talking to each other.” I couldn’t agree with him more.

APRIL 25 | 3:48 PM ET

The actions needed to support those who are financially underserved in Africa

At World Bank headquarters, the Atlantic Council’s Ruth Goodwin-Groen sat down with Admassu Tadesse, president and managing director of the Trade and Development Bank Group, to talk about the absence of venture capital in Africa and the need to promote inclusive finance.

APRIL 25 | 3:02 PM ET

Egypt’s Rania Al-Mashat on navigating today’s global shocks

APRIL 25 | 1:57 PM ET

This week shifted our understanding of everything from dollar dominance to trade wars

This week’s IMF-World Bank Spring Meetings have only highlighted that no one is coming to save the global economy. There is no rescue committee, no stimulus plan, and no quick Fed cuts around the corner.

Most of the ministers knew this was the state of affairs coming in. But it’s one thing to talk about a trade war. It’s another to see the IMF cut the growth forecast for nearly every country in the world because of a single policy decision.

In the beginning of the week, I sensed gloominess and anxiety in the hallways and in our private conversations with finance chiefs. But by the end, I noticed something else, the same thing I remember back in 2008 during the financial crisis: a steely sense of resolve. These leaders understood that at some level, the tariffs are here to stay, trade deals would take months or longer, and the global economy is being restructured.  It would be, as one minister said privately, just something we have to weather.

That’s true, but how bad will the storm be? No one knows. That doesn’t mean this week didn’t offer clarity, however. Our team walked away from these meetings with a transformed understanding of three issues:

1. There’s a difference between wanting dollars and needing dollars. The dollar’s status as a reserve currency is safe for the time being. That’s what Bloomberg’s Saleha Mohsin told me in our conversation, and she brought the data to back it up. But while the world still needs dollars for a functioning global economy, there were many people this week who wouldn’t mind finding some plan Bs. Do they exist? Not exactly. The European finance chiefs we spoke to were skeptical that a move to the euro would stick—and some, such as the Banque de France governor, weren’t sure it was a good thing given it was a result of instability in the United States, not a vote of confidence in the euro area.
2. The Trump administration is as focused on the IMF as it is on the World Bank. There was chatter going into the week that the administration was more focused on putting pressure on the World Bank than the IMF. But US Treasury Secretary Scott Bessent, in a speech on Wednesday, spent as much time—if not more—talking about the Fund going beyond its mandate than he did on the Bank lending to China. That surprised many, and it means there are fights ahead as the IMF—and the Bank—tries to respond to its largest shareholder in the months ahead without alienating the other 190. Considering the Trump administration has an end-of-July review deadline to decide its policy on US involvement in international organizations, the eighty-first anniversary of the creation of Bretton Woods institutions (July 22) could be one of the most significant since their founding.
3. Emerging markets and developing economies are already getting hit hard. Our conversations made it clear that a range of countries across regions is already feeling the impact of the trade war and economic slowdown in the form of job loss and increased poverty rates. These countries are going to need assistance from the IMF and World Bank in the near future. Even if the US president reversed his policy and slashed tariffs back down as soon as tonight, that wouldn’t fix the problem. It’s the volatility that feeds the uncertainty that pulls back investments. As the old saying goes, trust arrives on foot but it leaves on horseback.

APRIL 25 | 11:03 AM ET

The Bank of England’s Megan Greene: On tariffs, the “risk is now on the disinflationary side”

APRIL 25 | 10:15 AM ET

Slow progress on debt restructuring

Amid the week’s focus on trade tensions and economic uncertainty, the lingering issue of developing country debt has received little attention. However, reports released on Wednesday by the IMF and World Bank’s Global Sovereign Debt Roundtable (GSDR) suggest that the frustratingly slow process of restructuring unsustainable debts—a problem that took center stage amid the economic dislocations of the COVID-19 pandemic—has made important, albeit incremental, gains over the past few years.

A handful of countries have passed through the restructuring process, most of them low-income economies whose debts were supposed to be addressed by the Group of Twenty governments’ Common Framework for debt “treatment.” But some other nations—notably Sri Lanka—did not fit within that framework. What has emerged has been a case-by-case process in which government and private-sector lenders have worked through complex roadblocks, many of which were posed by the world’s largest sovereign lender, China.

The GSDR co-chairs’ Progress Report lays out many of the nuts-and-bolts issues that have been addressed, ranging from “comparability of treatment” across different creditor groups to the restructuring of “non-bonded commercial debt,” which generally means bank loans. It also lists several areas that need to be addressed going forward, including how to enhance coordination of private-sector creditors.

While the reports are careful not to point fingers at any specific lenders, the reality is that many of the issues before the roundtable have been posed by China, which is loath to take write-downs on its massive portfolio of loans. Beijing’s position on these issues has at times been opaque, but a recent paper put out by the Harvard Kennedy School usefully illuminates much of the back and forth that has taken place during the recent restructurings—as well as the work that remains to be done.

APRIL 25 | 9:17 AM ET

Catch up with everything happening at the Atlantic Council on day five

Dispatch from IMF World Bank Week: Why surveillance matters

Why Europe being a “safe haven” for the world is “good news for everyone,” according to Spanish Finance Minister Carlos Cuerpo

Greece’s Kyriakos Pierrakakis: “Unless you create positive tailwinds, you cannot counter the negative headwinds”

Experts and leaders focusing on Central and Southeastern Europe discuss the challenges facing the region

Catch up with everything happening at the Atlantic Council on day four

A common tone among key leaders is a sign for optimism

In defense of “boring”: A European leader’s message to Trump

Read day three analysis

APRIL 24 | 7:57 PM ET

Dispatch from IMF World Bank Week: Why surveillance matters

This morning, I watched as IMF Managing Director Kristalina Georgieva unveiled her Global Policy Agenda (GPA), a biannual document that outlines the managing director’s vision for the IMF’s work over the coming year.

 The most notable part of this year’s GPA is its focus on surveillance—in other words, the IMF’s work to assess the economic health of its members. As part of that focus, the GPA discusses the Comprehensive Surveillance Review, the IMF’s way of setting priorities and updating its processes for conducting bilateral and multilateral surveillance. There are some things to applaud in the outline for the upcoming review, including the emphasis on the IMF’s core areas of expertise: fiscal, monetary, and financial issues—and, most importantly, the persistent theme of external imbalances. 

However, some will not applaud the fact that there were few passing references to climate and no mentions of gender, despite the IMF having increased its budget for these and other emerging topics within the past few years. The GPA proposes instead “adapting surveillance” by setting principles around the topics to be covered. This approach aligns well with US Treasury Secretary Scott Bessent’s remarks from yesterday that the IMF has suffered from “mission creep.” But European partners will no doubt have concerns that the Fund is abandoning its climate strategy, approved just four years ago.  

My own view is that the GPA’s focus on surveillance is a welcome departure from the past. Surveillance may not get as many headlines as the IMF’s lending programs, but it provides an enormously valuable public good, particularly in those countries that do not receive regular market coverage. The IMF’s policy advice can also steer bilateral and multilateral donors and their efforts to prioritize assistance.

Watch this space closely to see whether the Comprehensive Surveillance Review delivers concrete reforms and real modernization efforts to help serve both advanced and developing economies.

APRIL 24 | 4:38 PM ET

Why Europe being a “safe haven” for the world is “good news for everyone,” according to Spanish Finance Minister Carlos Cuerpo

APRIL 24 | 2:56 PM ET

Greece’s Kyriakos Pierrakakis: “Unless you create positive tailwinds, you cannot counter the negative headwinds”

APRIL 24 | 1:42 PM ET

Experts and leaders focusing on Central and Southeastern Europe discuss the challenges facing the region

APRIL 24 | 9:22 AM ET

Catch up with everything happening at the Atlantic Council on day four

APRIL 24 | 8:43 AM ET

A common tone among key leaders is a sign for optimism

All things considered, the IMF-World Bank Spring Meetings are generating surprisingly optimistic and positive messages. 

Weeks of policy volatility, market volatility, and much hand-wringing over the Trump administration’s stated effort to reconsider the multilateral arrangements laid the groundwork for a tempestuous set of meetings. Yet we are just past halftime with no existential crisis (yet) at the IMF or the World Bank.

At this point, the European Commission, World Trade Organization (WTO), and US Treasury have all spoken publicly. They may not have been singing from the same sheet music, but they were all certainly singing in harmony.

EU Commissioner Valdis Dombrovskis, speaking at the Atlantic Council, said that the EU “is not giving up on our closest, deepest, and most important partnership, with the United States… And we will need each other even more in tomorrow’s increasingly conflictual and competitive world.”

His tone matches that of European Commission President Ursula Von der Leyen earlier this month, who declared that “we know that the global trading system has serious deficiencies. I agree with President Trump that others are taking unfair advantage of the current rules. And I am ready to support any efforts to make the global trading system fit for the realities of the global economy. But I also want to be clear: Reaching for tariffs as your first and last tool will not fix it.“

WTO Director-General Ngozi Okonjo-Iweala, speaking at the Council on Foreign Relations, highlighted how there are promising overlaps in looking at the administration’s unilateral objectives and the objectives of multilateral organizations. “In every crisis, there is an opportunity between multilateral objectives and unilateral objectives,” she said. “I do agree with the administration now… when they say there needs to be dynamism in the system, I share that. Some of the criticisms they make, I agree with because I have said the same. We need to get more results. We need to re-dynamize the system. We don’t need to have things cast in cement that may not be relevant to twenty-first-century issues anymore.” 

She also agreed with the White House’s complaint, as stated in an April 2 executive order, that the economic framework supported by the Bretton Woods system “did not result in reciprocity or generally increase domestic consumption in foreign economies relative to domestic consumption in the United States.” In addition, Okonjo-Iweala urged resource-rich African nations to focus more on building value-added enrichment and employment within the region to increase domestic demand, even as she urged China also to increase domestic demand.

US Treasury Secretary Scott Bessent, speaking at the Institute of International Finance, said, “China can start by moving its economy away from export overcapacity and toward supporting its own consumers and domestic demand.” In addition, he said that “the IMF and the World Bank serve critical roles in the international system. And the Trump administration is eager to work with them—so long as they can stay true to their missions.”

Bessent also said that the IMF will need “to call out countries like China that have pursued globally distortive policies and opaque currency practices for many decades” and “call out unsustainable lending practices by certain creditor countries,” adding that “a more sustainable international economic system will be one that better serves the interests of the United States and all other participants in the system.”

In his IMFC-DC Statement, released yesterday, Bessent said, “we need to restore the foundations of the IMF and World Bank. The United States continues to appreciate the value the Bretton Woods Institutions can provide, but they must step back from the expansive policy agendas that stifle their ability to deliver on their core missions.” He added that “for low-income countries in particular, both the IMF and World Bank should promote policy discipline for countries to strengthen their institutions, tackle corruption, and ultimately lay the foundation for sound investment so that they see a future that no longer relies on donor assistance.“

These leaders this week are sending a clear signal that they are not walking away from decades of established relationships and structures that have served the world well. Of course on the other hand, there is no guarantee that China and other countries will agree with the policy trajectory previewed on various stages in Foggy Bottom. Policy volatility will remain a reality for the next few years. But the initial messaging from the first days of the 2025 IMF-World Bank Spring Meetings gives reason for optimism.

APRIL 24 | 8:00 AM ET

In defense of “boring”: A European leader’s message to Trump

Warren Harding, a genial but bland Republican senator from Ohio, won the US presidential election of 1920 behind the campaign slogan “Return to normalcy.” It was a salve for an American electorate, giving him more than 60 percent of the vote, following US President Theodore Roosevelt’s adventurism, American engagement in World War I, then the failed postwar idealism of US President Woodrow Wilson.

“America’s present need is not heroics but healing,” Harding said, “not nostrums but normalcy; not revolution but restoration; not agitation but adjustment; not surgery but serenity; not the dramatic, but the dispassionate…” 

It was certainly unintentional, but I heard echoes of Harding when Valdis Dombrovskis, a Latvian who serves as an executive vice president for the European Commission, came to the Atlantic Council yesterday in defense of “boring” predictability.  While mentioning US President Donald Trump only once in his opening remarks, he underscored what Europe has long seen as its shared virtues with its American partners.  

“You see our fundamental values, individual liberties, democracy, and the rule of law often painted as weakness by authoritarian regimes to prey upon,” said Dombrovskis, who previously served as the European Union’s (EU’s) trade negotiator and is one of Europe’s longest-serving commissioners. “However, in times of turmoil, predictability, the rule of law, and willingness to uphold the rules-based international order become Europe’s greatest assets. We are committed to doing whatever it takes to defend our “boring” democracies, because boring brings certainty and a safe haven when a rules-based order is questioned elsewhere. Our processes allow for debates and consultations to take place, building buy-in from our key stakeholders and enabling us all to pull in the same direction.”

This week’s meetings of the International Monetary Fund (IMF) and World Bank in Washington, DC, are arguably the most important since the financial crisis of 2008-2009, because the Trump administration is seeking fundamental changes to the world trading and financial system not seen since the Bretton Woods agreement of 1944. In that year, the United States and its partners brought down protectionist trade barriers, established a new international monetary system, and laid a foundation for post-World War II global economic cooperation. One of the results was the creation of the IMF and the World Bank.

The last thing the Trump administration appears to want is a return to the normalcy of the eighty years that followed that agreement, arguing that the United States has been taken advantage of by its trading partners and that international system. One can say many things about Trump’s first hundred days in power, but “boring” certainly isn’t one of them. 

Read more

Inflection Points Today

Apr 24, 2025

In defense of ‘boring’: A European leader’s message to Trump

By Frederick Kempe

EU Commissioner for Economy and Productivity Valdis Dombrovskis spoke at the Atlantic Council in Washington on April 23, making the case for greater predictability.

European Union International Financial Institutions

Dispatch from IMF-World Bank Week: Don’t forget the real theme of the week

These meetings mark a milestone for Syria. But more political engagement will be necessary.

How can the IMF return to its core mandate in a vastly different global economy?

Banque de France Governor François Villeroy de Galhau says further rate cuts likely this year

Treasury Secretary Scott Bessent signals conditional support for the IMF and World Bank

Scott Bessent’s calls for reform are reasonable. The IMF should deliver on them.

What ever happened to climate change?

Bloomberg’s Saleha Mohsin: “Everyone wants to talk about the dollar’s reign ending, but no one wants to claim the crown”

EU Commissioner Valdis Dombrovskis on why the EU is “not giving up” on the United States

Catch up with everything happening at the Atlantic Council on day three

Read our day two analysis

APRIL 23 | 6:04 PM ET

Dispatch from IMF-World Bank Week: Don’t forget the real theme of the week

With tariffs and trade continuing to dominate conversations taking place in the halls of these Spring Meetings, it would be easy to forget that there is an official theme, and it isn’t trade: It’s jobs.

That is fitting, in my view. Here’s why:

There are two numbers that I’ve seen over and over again as I dash from building to building on 19th Street. One, of course, is the 2.8 percent global growth forecast, down from 3.3 percent as projected in January. But the other is 1.2 billion: That’s the number of young people set to enter the labor force in emerging markets and developing economies over the next decade. I often see it alongside the number 420 million, which is the estimated number of jobs to be created. Even if the models are way off, the math will not add up.

Beyond this jobs gap equation, jobs are being discussed (including at yesterday’s World Bank flagship event) as a factor, if not a multiplier, in the broader economic growth equation. Jobs are linked to trade and, in many ways, to other dynamics of the global economy. That includes the challenges that many emerging markets and developing economies face, such as debt, demographic pressures, domestic-resource and private-capital mobilization, and facilitating the digital transformation.

You could say we have heard this all before. We have. But in this era of geopolitical fragmentation and geoeconomic tension (some might say “turmoil”), it’s helpful to drive attention and meaningful action toward an agenda that leaders and investors from all regions and income groups can and should rally behind. And job creation is apt for that.

That’s even the case for the United States. US Treasury Secretary Scott Bessent acknowledged as much in his speech this morning, noting that job creation and promoting prosperity are key US interests.

Watch more

APRIL 23 | 4:48 PM ET

These meetings mark a milestone for Syria. But more political engagement will be necessary.

The participation of a Syrian government delegation in the 2025 IMF-World Bank Spring Meetings in Washington, DC, marks a significant milestone in Syria’s efforts to reintegrate into the global economic community. Led by Finance Minister Mohammed Yosr Bernieh and Central Bank Governor Abdelkader Husrieh, this visit represents Syria’s first high-level engagement with these institutions in over two decades.

At the Spring Meetings, Syrian officials are participating in discussions focused on restoring financial support and aid to Syria. Notably, a roundtable hosted by the Saudi Finance Minister Mohammed Al-Jadaan and the World Bank garnered strong international interest in Syria’s reconstruction efforts. Additionally, the United Nations Development Programme (UNDP) has announced plans to deliver $1.3 billion in aid over the next three years to support Syria’s rebuilding initiatives.

One of the critical challenges facing Syria is the existing US sanctions against the country, which have hindered reconstruction efforts. Recent developments indicate a small shift in this dynamic. The UNDP has received a sanctions waiver from the US Treasury Department to raise fifty million dollars for repairing the Deir Ali power plant south of Damascus. Furthermore, Saudi Arabia’s commitment to pay approximately fifteen million dollars in Syria’s arrears to the World Bank is a significant step toward enabling Syria to access funds through the International Development Association, which provides grants to low-income countries.​ Following Syria’s engagements in Washington, the IMF appointed Ron van Rooden as its first mission chief to Syria in fourteen years, signaling a potential revival of economic cooperation aimed at supporting Syria’s recovery.

Despite these steps, more political engagement is necessary to achieve substantive progress. Washington has signaled its hesitancy for more engagement by reportedly limiting Syrian Foreign Minister Asaad Al-Shaibani’s travel visa to New York only and restricting his ability to participate more broadly in meetings in Washington. However, a bipartisan letter issued on Monday by Senators Jeanne Shaheen (D-NH) and Jim Risch (R-ID) of the Senate Foreign Relations Committee reflects a growing bipartisan recognition among US policymakers of the potential benefits of reengaging with Syria under carefully considered conditions. The letter advocates for a strategic approach to US-Syria relations, emphasizing the importance of facilitating dialogue and cooperation to support Syria’s reconstruction and regional stability.

But for momentum to build, both Washington and Damascus must explore more robust diplomatic channels, including incremental confidence-building measures and expanded humanitarian coordination. This could create a framework conducive to deeper economic collaboration, ultimately serving US national security interests while fostering stability in Syria and the region.​ 

APRIL 23 | 3:55 PM ET

How can the IMF return to its core mandate in a vastly different global economy?

At the Institute of International Finance conference today, US Treasury Secretary Scott Bessent said that the United States will exercise strong leadership in the IMF and World Bank to push those institutions to refocus on their core mandates after years of “mission creep.” For the IMF, this means promoting members’ policies that are conducive to sustained and balanced trade. And when trade imbalances occur, the adjustment should be symmetrical for surplus and deficit countries, not aimed only at deficit ones. The IMF’s other critical mission is to provide short-term, temporary assistance to member states in balance-of-payment crises—provided the member in question changes the policies that led to the crisis.

While the push for the Bretton Woods institutions to focus on their core mandates is necessary and timely, many questions remain on how the IMF, in particular, will do that under international conditions drastically different from the ones eighty years ago.

The Bretton Woods Conference in 1944 produced a fixed but adjustable exchange rate system with largely closed capital accounts. Now, many countries want free trade, free capital flows, free exchange rate markets, and monetary sovereignty—even though not all of these can sustainably coexist without tension. So the question is, how can the IMF, with its current toolkit, rectify today’s persistent trade imbalances and prevent them from happening again? It would be a missed opportunity if delegates to this week’s meetings fail to come up with some ideas for how the IMF can accomplish this.

It is also important to clarify the line between the core mandate of short-term temporary assistance and longer-term, structural lending. How should the IMF approach the mandate of giving short-term financing to help members in balance-of-payment crises, given the reality that it can take a long time for countries to make the structural reforms necessary to avoid falling into further crises? At the same time, lending to support structural reforms is a longer and more intrusive process than short-term financing, opening up the IMF to criticisms of mission creep and interfering with borrowing nations’ sovereignty. As the IMF-World Bank Spring Meetings delegates discuss how to best return the IMF to its core mandate, such important issues need to be clarified as soon as possible.

APRIL 23 | 3:39 PM ET

Banque de France Governor François Villeroy de Galhau says further rate cuts likely this year

Read his remarks

Transcript

Apr 24, 2025

France’s François Villeroy de Galhau on a US recession: ‘Bad news for the US is bad news for all, including for Europe’

By Atlantic Council

The governor of the Banque de France, speaking at the Atlantic Council, said that the European Central Bank would likely cut interest rates further this year.

Europe & Eurasia European Union

APRIL 23 | 2:43 PM ET

Treasury Secretary Scott Bessent signals conditional support for the IMF and World Bank

One might be tempted to think—after Treasury Secretary Bessent’s remarks at the Institute of International Finance today—“another US administration, another call for Bretton Woods reforms.” On the surface, the speech does not seem fundamentally different from ones heard during previous administrations, with remarks that reminisce about the original Bretton Woods Conference, convey support for the mission of the institutions, and call upon the institutions to focus on their core mandate.

But it would be wrong to understand these remarks as a signal that the role of the IMF and World Bank will remain unchanged over the coming years. Instead, the secretary’s speech opens up fundamental challenges for the IMF and World Bank, both to their identity and their futures as global multilateral organizations.

First, it is not clear that the continued support of the Bretton Woods institutions expressed today will be the final word of the US administration. The White House is conducting a review of US membership in international organizations, and there are voices in the administration that would prefer the United States withdraw from the IMF and World Bank. While Bessent’s speech is an important opening statement, he will need to be able to point to concrete deliverables in order to win the internal debate against the isolationist wing in the US government.

Second, a return of each institution to its “core mandate” would involve a significant change in activities, running counter to the objectives of a large part of the IMF and World Bank’s membership. Eliminating workstreams on climate policies and social issues would imply a 180-degree turn for the current management of the institutions and the climate-conscious governments that have supported them in recent years; it would also mark such a turn for the constituency of developing countries that benefited from subsidized lending with relatively easy conditionality in recent years.

Third, for the IMF, the Treasury secretary’s missive to “call out countries like China that have pursued globally distortive policies and opaque currency practices” is reminiscent of an episode in the late 2000s, when the IMF was called upon to speak out more forcefully against Beijing’s exchange-rate practices. The result then was a refusal by China to meet its Article IV obligations, a standoff that was only resolved after the IMF softened its stance a few years later.

This is not to say that the United States does not have a valid point. The IMF has been reluctant to call out China for its distorting trade practices and could have been more attentive in looking into accusations that China has also been unduly managing its exchange rate. Given the lack of an explicit mandate on trade policy issues, and the need to work with government-provided data, the IMF will have to think carefully how it can accommodate the demands of the US government, and it will likely run into bitter resistance from Chinese authorities along the way. The ensuing confrontation could well lead to a breakdown of the IMF’s consensus-based way of operating and perhaps a deeper split in the membership of the institution.

Fourth, Bessent also called on the IMF to be tougher in enforcing conditionality for its loans and for the World Bank to cease lending to countries that no longer meet its eligibility criteria. Again, the United States has a valid point here, but it will result in a conflict with European countries that will worry about economic development in African partner countries (due in part to migration pressures across the Mediterranean). And China would, of course, benefit if development lending from multilateral institutions shrinks at a time when official development assistance is already on the decline.

In sum, the secretary’s speech, while providing much welcome support for the IMF and World Bank, has raised a host of issues that will require tough decisions within a relatively short timeframe. Expect intense meetings of financial diplomats to continue long after the flags in front of the IMF building have been put back into storage, awaiting the next formal gathering of the IMF and World Bank in October.

APRIL 23 | 2:11 PM ET

Scott Bessent’s calls for reform are reasonable. The IMF should deliver on them.

Today’s remarks by Treasury Secretary Scott Bessent at the Institute of International Finance were probably more closely watched than many of the IMF-World Bank official events. The remarks represented the first real statement of the Trump administration’s priorities for the Bretton Woods institutions. 

Bessent made clear that the Trump administration remains committed to maintaining its economic leadership in the world and in the international financial institutions. You could almost hear the huge sigh of relief coming from the institutions on 19th Street following this comment. Bessent also steered clear of grandiose proposals to reform the core mandates of the World Bank and IMF. Instead, his remarks made clear that both institutions have “enduring value,” and the focus should instead be on limiting “mission creep.” Another good sign that the Trump administration wants to work with, rather than step back from, the Bretton Woods institutions.

Some of Bessent’s key messages echo points delivered in the IMF managing director’s curtain-raiser last week, another welcome sign of potential alignment between the IMF and its largest shareholder. In short, the current global economic model is not sustainable, and large and persistent external imbalances need to be addressed. Bessent’s call on China to stop relying on overcapacity and exports to grow its economy could have been lifted straight from a speech by former Treasury Secretary Janet Yellen. But Bessent did something more novel by emphasizing that the United States also needs to rebalance and by calling on the IMF to critique both the United States and surplus economies. I could not agree more that the IMF’s External Sector Report needs to be more direct on what countries can do to address unsustainable imbalances. 

Other reforms called for in the speech urge the IMF to execute its mandate of temporary lending, call out unsustainable lending practices, and hold countries to account for not delivering on reforms. Again, these are not new messages from the United States. My question is whether IMF management, alongside its executive board, will feel more urgency to fulfill these types of reforms. I certainly hope so.

APRIL 23 | 1:37 PM ET

What ever happened to climate change?

At the 2024 Annual Meetings, climate change appeared to be front and center on the IMF agenda. Before the gatherings, the Fund released papers with provocative titles such as “Destination net zero: The urgent need for a global carbon tax on aviation and shipping” and “Sleepwalking to the cliff edge?: A wake-up call for global climate action.” The World Economic Outlook (WEO) elevated “combating climate change” to equal status with the task of promoting medium-term global growth.

But at these spring meetings, climate change is not to be seen—no recent papers and only six brief mentions in the first chapter of the WEO, including a single paragraph at the very end of the section on medium-term growth.

The IMF certainly has no hard and fast rules on what should be addressed in the WEO. With global economic and financial uncertainty demanding the attention of world leaders, other pressing issues also get short shrift this spring. For example, “poverty” gets few mentions. But downgrading attention on climate change appears to reflect a conscious decision at a moment when the United States, the Fund’s largest shareholder, is rejecting policies intended to address climate-related issues.

Speaking at the Institute of International Finance today, US Treasury Secretary Scott Bessent made clear the Trump administration’s view of climate issues on the agenda of the IMF. “Now I know ‘sustainability’ is a popular term around here. But I’m not talking about climate change or carbon footprints,” he said. “I’m talking about economic and financial sustainability… International financial institutions must be singularly focused on upholding this kind of sustainability if they are to succeed in their missions.”

The obvious question then is whether the IMF will respond by shifting away from climate-change mitigation in its core work of advising governments and lending.

APRIL 23 | 1:21 PM ET

Bloomberg’s Saleha Mohsin: “Everyone wants to talk about the dollar’s reign ending, but no one wants to claim the crown”

APRIL 23 | 11:10 AM ET

EU Commissioner Valdis Dombrovskis on why the EU is “not giving up” on the United States

Read the full transcript

Transcript

Apr 23, 2025

EU Commissioner Valdis Dombrovskis: With the rules-based order in question, Europe’s ‘boring democracies’ offer ‘certainty and a safe haven’

By Atlantic Council

At an Atlantic Council event on the sidelines of the IMF-World Bank Spring Meetings, the commissioner talked about the EU-US relationship, saying the bloc won’t give up on its transatlantic partner.

European Union Ukraine

APRIL 23 | 9:10 AM ET

Catch up with everything happening at the Atlantic Council on day three

Turkish Minister of Treasury and Finance Mehmet Şimşek: “Global trade fragmentation cannot be good for anyone”

Economy and Finance Minister Felipe Chapman on Panama’s relationship with the United States

Mapping Washington’s and Beijing’s next moves in the trade war

The Global Financial Stability Report highlights strains in the US Treasury bond market

Dispatch from IMF-World Bank Week: Behind the World Economic Outlook’s new call for “rebalancing”

The flagship reports walk a fine line

Ukraine’s Serhiy Marchenko: Why not discuss the seizure of Russian assets?

We’ve seen these risks before

Pakistan’s Muhammad Aurangzeb: Working with the US on commerce and trade is an “opportunity” for constructive engagement

What to know as China’s and the IMF’s forecasts continue to diverge

The IMF released its World Economic Outlook. Let the debate begin.

No recession, says IMF. That’s good news—but perhaps not as good as it sounds.

Catch up with everything happening at the Atlantic Council on day two

Read our day one analysis

APRIL 22 | 9:06 PM ET

Turkish Minister of Treasury and Finance Mehmet Şimşek: “Global trade fragmentation cannot be good for anyone”

APRIL 22 | 6:03 PM ET

Economy and Finance Minister Felipe Chapman on Panama’s relationship with the United States

APRIL 22 | 5:17 PM ET

Mapping Washington’s and Beijing’s next moves in the trade war

APRIL 22 | 5:01 PM ET

The Global Financial Stability Report highlights strains in the US Treasury bond market

The IMF’s Global Financial Stability Report (GFSR), released today, comprehensively describes the market turmoil triggered by the tariff war. So far, financial market conditions have been orderly, but risks of further asset price losses remain elevated.

Yields on US Treasury bonds have risen, lowering bond prices, contrary to their usual behavior when investors have flocked to them as safe haven assets like in previous bouts of market turmoil. The GFSR highlights the growing strains in the intermediation capacity of broker-dealers—which bid for Treasury securities at issuance to distribute to investors—in the Treasury market. In particular, the holding of Treasury securities has overburdened the balance sheets of broker-dealers—rising from just above 100 percent in 2008 to more than 400 percent in 2024. Repo rates’ heightened sensitivity to the volume of issuance also suggests that broker-dealers’ intermediation capacity may approach its limit. This has contributed to the growing illiquidity observed in the Treasury bond market, which will eventually make it less efficient and raise US financing costs.

Moreover, hedge funds have significantly piled into highly leveraged basis trades—taking long positions in Treasury futures contracts while shorting the cash market. Rising bond yields (or falling bond prices) have caused losses, forcing many hedge funds to liquidate their positions, amplifying bond price declines.

Many US banks have attributed the strains on broker-dealers’ balance sheets to regulatory constraints—especially the Supplementary Leverage Ratio (SLR)—and have argued for a relaxation or even removal of the SLR. At present, it looks like banks are making headway in their deregulation push under the Trump administration against a full implementation of Basel III, a proposed international banking regulatory framework. Similar demands have been made by bankers and some officials in the European Union as well.

However, banks’ deregulation efforts, which are enjoying political tailwinds in the United States, are at odds with the GFSR’s recommendations that member countries fully implement international prudential standards, including Basel III and the SLR. It will be interesting to see how the IMF reconciles these differences.

APRIL 22 | 3:19 PM ET

Dispatch from IMF-World Bank Week: Behind the World Economic Outlook’s new call for “rebalancing”

The IMF released its latest World Economic Outlook (WEO) today, downgrading its estimates for global economic growth this year and next, following the beginning of the tariff war and the considerable policy uncertainty surrounding it. Global growth projections for 2025 dropped 0.5 percentage points; US growth estimates are down 0.9 percentage points, while China’s have dropped 0.6 percentage points.

As Managing Director Kristalina Georgieva put it in her curtain-raiser speech last week: “Uncertainty is costly.”

Here at IMF HQ2, people are abuzz with worry about these downgrades. But those downgrades are old news, soft-launched at Georgieva’s speech last week.

Instead, here’s what I’m focused on: To deal with the tariff war and its negative impacts, the IMF—in the WEO—recommends that member countries “reform and rebalance,” sorting out imbalances between saving and investment at home (looking at you, United States) and imbalances between domestic consumption and production (what China needs to work on). It also calls on developing countries to more effectively mobilize domestic resources. Such reforms would balance out trade relationships and make them more sustainable, benefiting all.

Those recommendations are all well and good, but the IMF has not explained how it expects countries to be able to make these reforms. These countries have failed to make recommended reforms in the past when the international environment was much more benign, including during previous eras of low interest rates.

By highlighting the importance of balanced trade, the IMF has harkened back to its original mandate, formulated at the Bretton Woods Conference in 1944. And that is a good thing: Persistent trade imbalances (mainly with countries such as China and Germany posting surpluses while others, mainly the United States, incur deficits) have made the trading system unsustainable, both practically and—as the United States’ unilateral tariff moves show—politically.

Watch more

APRIL 22 | 3:07 PM ET

The flagship reports walk a fine line

The IMF faced some unique challenges in drafting this April’s World Economic Outlook (WEO) and Global Financial Stability Report (GFSR). The recent rapid trade and market developments make it next to impossible to produce a reliable baseline forecast for global growth. The IMF also had to walk a fine line in assessing the impacts of US actions without too overtly criticizing its largest shareholder—not an easy task on both counts. 

In this context, the IMF’s flagship reports do an admirable job of striking a balance between highlighting significant risks to the global economy from recent trade actions while also noting that markets have remained broadly resilient. The WEO’s “reference forecast” downgrades global growth 0.8 percent across 2025 and 2026, and growth forecasts for almost every country are also downgraded. But the WEO does not go so far as to forecast a global recession, and the IMF’s Pierre-Olivier Gourinchas stated in his remarks that financial markets have largely been resilient in the face of recent shocks. Likewise, the GFSR highlights recent volatility and elevated financial-stability risks without declaring a financial crisis to be imminent.

But the flagships do not shy away from laying out risks should trade tensions persist. Scrolling down in the WEO to page 33 (Box 1.1), the IMF lays out a more dire scenario from an extension of the US Tax Cuts and Jobs Act, continued weak domestic demand in China, and the lack of productivity growth in Europe. The GFSR highlights forward-looking vulnerabilities from a correction of asset prices and turbulence in sovereign bond markets.

The real message from both documents is heightened uncertainty. In fact, across the WEO and GFSR, the word “uncertainty” appears more than one hundred times. This message is on point, as uncertainty abounds and poses its own strains on the global economy.  But how countries, including advanced economies, deal with this uncertainty will be the real determinant for future global growth.

APRIL 22 | 2:34 PM ET

Ukraine’s Serhiy Marchenko: Why not discuss the seizure of Russian assets?

APRIL 22 | 2:02 PM ET

We’ve seen these risks before

The IMF’s flagship reports have achieved a remarkable feat—bringing a clear-eyed view to what recent tariff announcements and financial volatility in recent weeks imply for the global economy, without pretending to know much about what will happen in the near future.

The 0.5 percentage-point drop in projections for global growth was expected, following a slowing in the global economy in recent months and the April 2 US tariff announcements. Interestingly, the suspension of many US tariffs, increases in the US tariff rate on China, and Chinese tariff increases in response have not led to a forecast upgrade but rather changed the composition of growth away from the United States and China and toward other countries.

Focusing on specific numbers does not yield much insight, however, as both the World Economic Outlook (WEO) and Global Financial Stability Report are clear on the uncertainty that still prevails. Further asset price corrections in the United States (where share prices still look expensive), coupled with higher interest rates (due to impending fiscal stimulus) and exchange rate fluctuations, have the potential to create significant shocks that could destabilize financial markets. Emerging markets could be in for a rude shock, but the prospects for advanced economies with high debt are not much better, given leveraged balance sheets and strong interlinkages between financial institutions and other market participants that could quickly propagate shocks throughout the system.

Hence, there should be no illusion about the risks facing the world economy. Such risks are reminiscent of the 2008 financial crisis, and continued uncertainty about tariffs and other policies could move markets closer to the abyss. Uncertainty goes in both directions, however. The WEO rightly points out that a resolution of the tariff issue and an end to the Ukraine war, however improbable right now, could provide a major boost for the global outlook. Whether global projections become reality, therefore, depends largely on actions being taken by the White House over the coming months.

APRIL 22 | 1:55 PM ET

Pakistan’s Muhammad Aurangzeb: Working with the US on commerce and trade is an “opportunity” for constructive engagement

APRIL 22 | 1:52 PM ET

What to know as China’s and the IMF’s forecasts continue to diverge

The IMF forecast of 4 percent growth for China both this year and in 2026 probably won’t go over well in Beijing.

The IMF’s World Economic Outlook (WEO) number for China’s projected growth is down from its January forecast of 4.6 percent. That puts the IMF more at odds with China’s official forecast of “about 5 percent” growth, released last month. It also contrasts with last week’s announcement out of Beijing that the Chinese economy grew 5.4 percent during the first quarter as exporters tried to get ahead of US tariffs (a result that was released after the WEO’s drafting ended). The IMF now puts China’s growth last year at five percent, which accords with the government’s figure.

IMF Economic Counsellor Pierre-Olivier Gourinchas told reporters that US tariffs actually will take a 1.3 percentage-point bite out of China’s growth this year, but that fiscal expansion announced by Beijing last month will offset some of that loss in momentum. However, the WEO says that China is still struggling to shift away from export-driven growth: “The rebalancing of growth drivers from investment and net exports toward consumption has paused amid continuing deflationary pressures and high household saving.” Small wonder then that the IMF is now forecasting that “stronger deflationary forces” will result in zero inflation this year, down from the IMF’s earlier forecast of 0.8 percent inflation. The IMF’s China growth forecast is at the midpoint of projections from foreign investment banks. Goldman Sachs and Nomura forecast 4 percent, Citi and Morgan Stanley predict 4.2 percent, while UBS projects 3.4 percent. By contrast, the Rhodium Group is seeing the possibility of China’s growth being stronger than last year’s 2.4 to 2.8 percent growth (according to Rhodium Group’s own estimates).

APRIL 22 | 11:40 AM ET

The IMF released its World Economic Outlook. Let the debate begin.

The latest IMF World Economic Outlook (WEO), released today, has three separate projections for global growth, each based on different outcomes for the Trump administration’s tariffs. The projection the WEO’s authors emphasized in their press conference this morning (which they call a “reference forecast”) is based on the impact of the tariff increases announced between February 1 and April 4 and sees global growth of between 2.8 percent and 3 percent this year. Overall, that represents about a 0.5 percentage point cut in the IMF’s growth forecast from its last WEO update released in January.

There is a cottage industry of economists who dissect WEO forecasts, many of whom view their IMF brethren as being too inclined to accentuate the positive. The latest of these critiques came last weekend from Alex Isakov and Adriana Dupita at Bloomberg Economics. “In the four large crises we studied,” they wrote, “the fund’s initial assessment of the immediate impact on global growth understated it by 0.5 percentage points. However much the IMF may downgrade the growth forecasts to start, history suggests the ultimate blow will be worse.”

That said, the IMF’s take hardly falls into the realm of Pollyannaish forecasting. IMF Economic Counsellor Pierre-Olivier Gourinchas made it clear at the press conference this morning that the risks facing the global economy lean “firmly to the downside,” with the risk of a worldwide recession currently at 30 percent, up from 17 percent at the time of the WEO released in October 2024.

APRIL 22 | 10:03 AM ET

No recession, says IMF. That’s good news—but perhaps not as good as it sounds.

This morning, while launching the new World Economic Outlook, IMF Chief Economist Pierre-Olivier Gourinchas said that “while we are not projecting a global downturn, the risk it may happen this year [has] increased substantially.”

But what is a global downturn or, to use a more ominous term, a global recession?

In an advanced economy, such as the United States, a recession is usually defined as two successive quarters of negative gross domestic product (GDP) growth. Not all countries use that standard, but most include negative GDP growth as part of the definition of a recession. But it’s different when you are talking about the global economy. Because many developing and emerging markets can grow at 5 percent or more during a given year, a global recession can occur even when overall global GDP growth is positive. Think of it like this—if your car only goes 20 mph, going to 0 mph is a major problem.

But it’s also a problem if your car is going 40 mph and you suddenly can only drive at 20 mph.

The IMF has a broad range of criteria it uses to try to determine a global recession, including a “deterioration” in macroeconomic indicators such as trade, capital flows, and employment. Translation? They know it when they see it. When I was at the IMF, there was a debate about whether GDP growth under 2.5 percent would constitute a recession. It seems like today the IMF has made a determination about what this looks like in the current situation—2 percent GDP growth—although they call it a global economic downturn.

Pay close attention to how Georgieva answers this question in her press conference later this week. And just because the global economy isn’t in a recession (or global downturn) by the IMF’s standards at the moment, it doesn’t mean in a few months we won’t cross the threshold.

This post was updated at 1:20 p.m. to clarify the IMF’s position on a global economic downturn.

APRIL 22 | 8:58 AM ET

Catch up with everything happening at the Atlantic Council on day two

How countries are reacting to the trade war

Dispatch from IMF-World Bank Week: The “stealth meetings” kick off

Our experts outline the debates and topics on the minds of global finance leaders this week

Read earlier analysis

APRIL 21 | 8:52 PM ET

How countries are reacting to the trade war

As central bank governors and finance ministers gather in Washington, DC, for the IMF-World Bank Spring Meetings, they will be engaging in some of the most important trade negotiations since the creation of the Bretton Woods institutions in 1944.

History offers some perspective: In July 1930, after US President Herbert Hoover signed the Smoot-Hawley Tariff Act, a range of countries immediately retaliated against the United States, including France, Mexico, Spain, Japan, Italy, and Canada. Others, such as the United Kingdom, chose negotiation instead. 

Today, the GeoEconomics Center has a Trade War Index, tracking countries’ policy actions and rhetoric in response to the Trump administration’s tariffs as central bank governors and finance ministers prepare to meet their US counterparts.

In this index, countries receive scores from -1 to +1 based on their responses. Take Vietnam, for example: It scored a +1 on policy after the country’s officials sent Trump a letter offering to eliminate tariffs on US imports (though this offer has already been rejected by the United States) and followed up by dispatching a special envoy to Washington to keep talks moving.

On the rhetorical front, Vietnamese trade officials called the tariffs “unfair” but focused their comments on domestic impacts rather than directly criticizing the United States—earning the country a -0.5 on the communication scale.

Separating policy from rhetoric reveals how these governors and finance ministers are approaching the negotiation table. Are they feeling domestic pressure to respond? Do they believe they have leverage over the United States? How much economic pain can they withstand?

Countries such as India and Mexico know there is an enormous amount at stake. Their leaders have thus far proven willing to make both conciliatory statements and concessions to Trump in the hopes of securing a deal. Global markets are watching nervously. The outcome of the sideline negotiations at these Spring Meetings will signal whether the White House is truly in deal-making mode or whether, as we have argued at the GeoEconomics Center, many of these tariffs are in fact here to stay.

APRIL 21 | 4:57 PM ET

Dispatch from IMF-World Bank Week: The “stealth meetings” kick off

The IMF-World Bank Spring Meetings have long been marked by pageantry. The Washington headquarters are normally draped with banners. Cultural events have competed with panel discussions on headline economic issues featuring government ministers, captains of finance, and Nobel laureates. Over the years, the event has earned the moniker “Davos on the Potomac” among jaded staffers.

But this year’s gathering is very different. Call it the “stealth meetings.” The signage is gone from outside the building, and inside is a bare-bones schedule of panels. 

The tone is somber—and small wonder why. Just blocks away from the meetings sits the White House, where US President Donald Trump has spent his first one hundred days in office disrupting the global economy with tariffs unseen for a century. The United States is pulling back from international organizations, and its support for issues such as climate-change mitigation and poverty reduction is in question. Its position on the role of the IMF and World Bank in a rapidly changing international economy is unknown.

With the outlook for global growth clouded by the tariffs, all eyes turn to tomorrow’s release of the IMF’s World Economic Outlook (WEO). In last week’s curtain-raiser speech for the meetings, IMF Managing Director Kristalina Georgieva said that the WEO’s growth projections “will include notable markdowns, but not recession,” along with increases in the inflation forecast for “some countries.” Global recessions are relatively rare; the last occurred in the aftermath of the 2008 Global Financial Crisis. But there is plenty of room in a forecast of slower growth for individual countries to fall into recession—including some of the world’s largest economies. 

To break down the WEO and all the other news from the week, keep checking out our analysis throughout the week.

APRIL 21 | 4:31 PM ET

Our experts outline the debates and topics on the minds of global finance leaders this week

Spring Meetings unlike others—and not just because of trade

Why these meetings are existential for the IMF and World Bank

Dispatch from IMF-World Bank Week: A fractured foundation

Three ways to think about Trump’s tariffs

What to make of Argentina’s new $20 billion financial rescue

The true impact of Trump’s tariff war, beyond the stock market

No one is coming to save the global economy

Trump can make the IMF more effective

APRIL 20 | 5:15 PM ET

Spring Meetings unlike others—and not just because of trade

In Washington, DC, the flowers are blooming, the skies are blue, and the streets are filled with finance ministers and central bank governors from around the world.

The scene at the start of this year’s IMF-World Bank Spring Meetings is familiar, but the context could not be more different. Questions about tariffs, trade wars, and the Trump administration’s broader stance on multilateralism abound. IMF Managing Director Kristalina Georgieva kicked off the Spring Meetings with her curtain raiser last week, and she did not shy away from making clear that trade tensions and the on-again, off-again tariff increases generate significant risks for growth and productivity. She rightly pointed out that smaller countries will be caught in the crosshairs and need to put their own houses in order to withstand trade shocks.

But what was more notable was Georgieva’s focus on macroeconomic imbalances, shorthand for the disparity seen between, for example, the massive current account deficits of the United States and the surpluses of China, the European Union, and Japan. These imbalances have gotten scant attention from the IMF in recent years, despite being a persistent issue for decades. The IMF’s latest External Sector Report declared that imbalances were receding.

Yet macroeconomic imbalances represent a key element of US complaints about the unfairness of the international trading system. Surplus countries have relied on US import demand to fuel growth for years, and the United States has played its part by sustaining large fiscal deficits. Last week’s speech rightly brought this issue back to the forefront.

For a sense of how far the IMF will take this message, pay close attention to the World Economic Outlook, Global Policy Agenda, and International Monetary Fund Committee (IMFC) communiqué, which will all be released later this week.

APRIL 20 | 4:52 PM ET

Why these meetings are existential for the IMF and World Bank

While the trade war is top of mind for delegates at the IMF-WB 2025 Spring Meetings, there is also concern about US policy towards the two Bretton Woods institutions.

It isn’t yet clear what that policy will be—it will depend on the conclusions of the review of US participation in multilateral organizations, the findings of which are due in August. From my discussions with individuals who will be participating in the IMF-World Bank meetings this week, I could sense worry about a number of possible US policy stances, ranging from insistence that the two institutions strictly focus on their core mandates (reversing a perceived mission creep going on for some time) to US withdrawal from one or both institutions.

Since the United States is the largest economy in the world and the biggest shareholder of the IMF and World Bank, these institutions can only function effectively with the constructive engagement and leadership of the United States. Thus, this year’s spring meetings are of existential importance to the IMF and World Bank. While going through the public agenda, delegates should spend time to discuss and find ways to address the concerns raised by the US administration with minimal negative spillovers for the rest of the world: including the US concern about persistent trade imbalances, which it attributes to unfair trade practices, including high tariffs and other non-tariff measures, implemented by other countries. Progress in these discussions will be important to retain active US involvement in the two institutions.

For example, as a part of such progress, the IMF could put greater emphasis on its recommendations to countries running persistent current-account surpluses to make adjustments, including by strengthening their currencies, to promote more balanced trade relations over time, instead of putting the burden of adjustment solely on deficit countries.

The open, rules-based trading system—which has promoted aggregate world economic growth but failed to equitably distribute the fruits of free trade—is unraveling. Usual calls for member countries to lower tariffs and walk back other protectionist measures won’t be sufficient to stop it.

APRIL 20 | 3:16 PM ET

Dispatch from IMF-World Bank Week: A fractured foundation

If you’re at Dulles Airport this evening, look around. You might see one of the world’s finance ministers and central bank governors, representing over 190 countries, who are arriving for the most important IMF-World Bank Meetings since the 2008 Global Financial Crisis.

They land in a very different Washington than the one they left in October. US President Donald Trump has launched a global trade war, and, as a consequence, the IMF is set to forecast a major downgrade for the entire global economy. Whether the countries these financial leaders represent end up in a recession—or worse—depends in part on what happens over the next five days.

Usually, delegates’ time at these meetings is focused on a wide range of topics, from sovereign debt to new lending arrangements to financial technology. But this spring, there’s no debate over attendees’ focus: Trade will dominate, as each country looks to meet with the Trump administration to see whether any trade negotiation is viable. The main event will be when senior US and Chinese officials meet, if they do. It would be their first meeting since their countries levied tariffs higher than 100 percent on each other.

But here’s the irony of the week ahead: By engaging in all the bilateral negotiations, these countries are unintentionally undercutting the case for multilateral economic coordination that is the foundation of the Bretton Woods system.

Each country will work to secure the best arrangement for itself and its citizens. None of this would be surprising to the creators of the IMF and World Bank; just look at the minutes from the original conference to see all the wrangling between the forty-four founding nations.

But this is a first: The world’s largest economy, and the one that created the Bretton Woods system in the first place, is trying to completely uproot it.

For every country, the challenge of this week is to not get trapped in the past. There will be time to consider all the successes and failures of the past eighty years. But right now, the international economic order is being reshaped in real time.

That’s what this week is about: not who has complaints about the system—nearly every country has its fair share—but who has the vision for what comes next.

Watch more

APRIL 18 | 2:16 PM ET

Three ways to think about Trump’s tariffs

The second Trump administration has embarked on a novel and aggressive tariff policy, citing a range of economic and national security concerns. Our GeoEconomics Center is monitoring the evolution of these tariffs and providing expert context on the economic conditions driving their creation—along with their real-world impact.

The Trump administration utilizes tariffs in three primary ways, depending on the objectives of any particular action.

1. Negotiation tool: The administration sees tariffs as a way to put pressure on trade partners during negotiations, as well as a potential bargaining chip. Used in this way, tariff rates can increase US leverage and result in new trade agreements, like the US-China Phase One trade deal signed during Trump’s first term.
2. Punitive tool: Trump administration officials have stated that they would like to avoid overuse of financial sanctions as a form of coercive economic statecraft, since they believe it can incentivize countries to reduce their reliance on the US dollar. As an alternative, the Trump administration is relying more on tariffs to “punish” or “sanction,” including for non-trade issues. The administration values the ability to easily escalate the tariff rate and, therefore, its punitive power.
3. Macroeconomic tool: The Trump administration also, more conventionally, wields tariffs in support of a wide range of macroeconomic goals:
   • Protecting domestic industries, such as steel, from unfair trading practices and encouraging domestic manufacturing.
   • Decreasing US trade deficits.
   • Increasing revenue from duties. Of course, the “Catch-22” is that if reshoring is successful, the United States will not be able to increase revenue from import duties.

Explore the full Trump Tariff Tracker

Trump Tariff Tracker

The second Trump administration has embarked on a novel and aggressive tariff policy to address a range of economic and national security concerns. This tracker monitors the evolution of these tariffs and provides expert context on the economic conditions driving their creation—along with their real-world impact.

APRIL 16 | 3:52 PM ET

Four questions (and expert answers) about Argentina’s new $20 billion financial rescue

Buenos Aires is getting a boost. On April 11, the International Monetary Fund (IMF) approved a twenty-billion-dollar, four-year loan to Argentina, with the first twelve billion dollars arriving on April 15. The Inter-American Development Bank (IDB) and World Bank followed up by releasing another $22 billion in financing. In response, Argentina lifted large elements of its currency and capital controls, known as the “cepo,” which had long stifled investment and growth. Marking the twenty-third IMF loan to Argentina since the 1950s, the deal comes as libertarian President Javier Milei has dramatically cut Argentina’s spending in an effort to stabilize government finances. Atlantic Council experts answered four pressing questions about Argentina’s latest financial rescue and the road ahead.

Read their answers

New Atlanticist

Apr 16, 2025

Four questions (and expert answers) about Argentina’s new $20 billion financial rescue

By Martin Mühleisen, Jason Marczak

What exactly did the IMF agree to, and what is required of Argentina? Our experts dive into the deal and map what comes next.

Fiscal and Structural Reform International Financial Institutions

APRIL 11 | 7:22 AM ET

To understand the impact of Trump’s tariff war, watch the bond market and the Fed—not just the stock market

The imposition of US tariffs and retaliatory tariffs by some trading partners, combined with a ninety-day pause of most “reciprocal” tariffs by US President Donald Trump, have led to extreme financial market volatility in recent days. While the equity market gyrations have occurred in relatively orderly market conditions so far, some recent developments have signaled that selling pressure may have spread to other markets—particularly US Treasury securities and short-term US dollar funding. 

To understand the financial stability impacts of the current market turmoil, it is important to monitor the pressure on these markets, which are crucial for the smooth functioning of the global financial system. Left unaddressed, these strains could trigger a freezing up of financial markets, raising the risk of a serious financial crisis.

Continue reading

New Atlanticist

Apr 11, 2025

To understand the impact of Trump’s tariff war, watch the bond market and the Fed—not just the stock market

By Hung Tran

The state of the US Treasuries and US dollar funding markets, as well as actions of the Federal Reserve, are where to focus attention.

Economy & Business Politics & Diplomacy

APRIL 8 | 11:46 AM ET

No one is coming to save the global economy

US President Donald Trump has launched a global economic war without any allies. That’s why—unlike previous economic crises in this century—there is no one coming to save the global economy if the situation starts to unravel.

There is a model to deal with economic and financial crises over the past two decades, and it requires activating the Group of Twenty (G20) and relying on the US Federal Reserve to provide liquidity to a financial system under stress. Neither option will be available in the current challenge.

First, the G20. The G20 was created by the United States and Canada in the late 1990s to bring rising economic powers such as China into the decision-making process and prevent another wave of debt crises like the Mexican peso crisis of 1994 and the Asian financial crisis of 1997. In 2008, as Lehman Brothers collapsed and financial markets around the world began to panic, then President George W. Bush called for an emergency summit of G20 leaders—the first time the heads of state and government from the world’s largest economies had convened.

What followed was one of the great successes of international economic coordination in the twenty-first century—the so-called London Moment, when the G20 agreed to inject five trillion dollars to stabilize the global economy. With this joint coordination, the leaders sent a powerful signal to the rest of the world that they would not let a recession turn into a worldwide depression.

Nearly twelve years later, at the outbreak of the COVID-19 pandemic, the same group of leaders convened to work on debt relief, fiscal stimulus, and—critically—access to vaccines.

Now we face the third major economic shock of the twenty-first century. But this one is fully man-made by one specific policy decision. It could, of course, be undone by a reversal of the decision to send US tariff rates to their highest level in a hundred years. But as I have said since November, Donald Trump is serious about tariffs, they are not only a negotiating tool, and that means many of them are likely here to stay.

There will be no “London Moment” this time around. The United States can’t call for a coordinated response to a trade war it initiated—one that is predicated on the idea that the rest of the world is taking advantage of the United States. 

Continue reading

New Atlanticist

Apr 8, 2025

No one is coming to save the global economy

By Josh Lipsky

Neither the Group of Twenty nor the Federal Reserve should be expected to use their playbook from previous economic crises to respond to economic shocks caused by US tariffs.

China Economy & Business

APRIL 8 | 10:15 AM ET

The IMF is a good deal for the US. Here’s how Trump can help make it even more effective.

US President Donald Trump’s stance on foreign aid has raised questions as to what approach he will take with regard to international financial institutions, and in particular the International Monetary Fund (IMF). But Trump also takes pride in recognizing a good deal when he sees one, and the IMF is indeed a good deal for the United States and the American people. The cost of US participation is low, but the role that the IMF plays in fighting financial crises is invaluable to supporting the US economy. 

After four years representing the United States at the IMF, I can attest that the United States plays an outsized role at the institution. As US executive director, I engaged regularly with counterparts in regions such as Africa, the Middle East, and Latin America to help shape and support IMF lending in a manner that helped advance US interests and reduced Chinese influence. In this era of heightened uncertainty, the IMF could benefit from refocusing on its core priorities and helping countries stand on their own feet. Fortunately, the United States is well positioned to push for such reforms from within the institution. Should the United States instead opt to step back from the IMF, it would not only squander one of its most valuable international economic tools but would also open the door for China to play a lead role in an institution that has long supported US interests. 

Continue reading

New Atlanticist

Apr 7, 2025

The IMF is a good deal for the US. Here’s how Trump can help make it even more effective.

By Elizabeth Shortino

The institution provides the United States a significant source of economic leverage, helps prevent financial crises, and serves as a counterweight to China’s influence.

Economy & Business International Financial Institutions

The post Inside the IMF-World Bank Spring Meetings as leaders navigate the global trade war appeared first on Atlantic Council.

The post McDowell interviewed by DW News on the Plaza Accord appeared first on Atlantic Council.

1. What did the IMF agree to and what is being asked of Argentina?

Argentina approached the IMF for a new program because it wanted to unwind strict controls on capital outflows that have been an obstacle for foreign investment over many years. Removing these controls could have led to a sharp depreciation in the exchange rate, which is why the government needed to bolster its foreign exchange reserves with IMF funds, both to instill confidence and to intervene, if necessary, to maintain orderly market conditions.

The IMF was willing to provide Argentina with another loan of twenty billion dollars, coming on top of the outstanding forty billion dollars that Argentina will still need to repay. About eleven billion dollars of the new loan will be used to cover loan repayments to the IMF over the next four years. However, given the substantial frontloading of the IMF’s disbursements, the IMF’s peak exposure to Argentina will increase to some $58 billion in 2026. The program is conditioned on the path of the government’s primary deficit, a halt on central bank financing of the government, and a floor under social expenditure, among other conditions. As a precondition for program approval, the government committed to let the exchange rate float within a band of 1,000 to 1,400 pesos per US dollar and to abandon current and capital account exchange rate restrictions.

—Martin Mühleisen is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and a former IMF official with decades of experience in economic crisis management and financial diplomacy.

What is striking is not only the scale of the program and disbursements, but that both parties have agreed to a plan that presents a roadmap with significant support from other multilaterals (the IDB and World Bank) as well as from the market. The accumulation of reserves and the continuation of Argentina’s fiscal consolidation, as well as the elimination of the cepo, are all objectives that the market and investors have been pushing for as the next step of the Milei administration’s impressive reform agenda, as we explained in December. Now, this new agreement appears to be a roadmap to assuage investor concerns and strengthen the country’s ability to deepen its reforms and respond to global uncertainty.

—Jason Marczak is vice president and senior director of the Atlantic Council’s Adrienne Arsht Latin America Center.

2. What does this mean for Argentina’s economy?

One of the key takeaways is that Argentina, and the Milei administration more specifically, now has the ability to think about the next chapter in its stabilization and reform agenda, with an emphasis on the latter. With the limitations that the agreement sets on the central bank’s ability to intervene in the foreign currency market (so long as there are no wild moves in the exchange rate) the bank should now be able to shore up its reserves by focusing on the acquisition, rather than the sale, of dollars. This will likely be done conservatively to prevent an upward pressure on the local dollar value, but it is good news in the medium term for Argentina’s reserves and for the sustainability of its debt.

Looking ahead into 2026, if the exchange rate holds within the agreed-to bands and the country acquires significant reserves, this will allow Argentina to reenter international capital markets and access private financing at lower rates (because of the lower risk that more reserves entail). This, in turn, would allow the country to meet its obligations with foreign creditors while seeing its country risk fall further, finally bringing down its sovereign risk premiums to levels closer to the regional average. This is a necessary condition to unleash the foreign investment that the country needs to fulfill its potential.

—Jason Marczak

The reforms of the Milei government have boosted confidence in its ability to lift Argentina’s economy on a durably higher growth path at lower inflation. To maintain public support after this past year’s painful but necessary budget-cutting exercise, it is essential that private investment now kicks in to support employment and growth over the coming years. The removal of capital controls is an important component of this plan, along with other structural reforms that are partly covered by the program.

However, the exchange rate is still overvalued, which by itself is reducing Argentina’s attractiveness as an investment destination, and a rapid exchange rate adjustment could lead to a resurgence in inflation. This could undermine economic as well as political sentiments, proving fatal for the overall reform effort. The IMF’s support could therefore be critical for the government to maintain its market-friendly policy course.

—Martin Mühleisen

3. Is this a vindication of Milei’s stabilization plan? What might this mean for Argentina’s politics?

The IMF has been in a difficult position. The loan will significantly increase its already large exposure to Argentina, which has a history of difficult and controversial programs with the IMF. In case of a global downturn, there is a risk that growth may again disappoint, leading to further peso depreciation and resurgent inflation. Given the political significance of the exchange rate, the government could then be tempted to use its reserves to artificially prop up the peso in the run-up to this year’s midterm elections, a strategy pursued with disastrous results by some previous governments.

On the other hand, the Milei government has successfully implemented a major fiscal adjustment effort, and it has a valid claim that its treatment by the IMF should at least be as favorable as that of the previous government, which was granted a de facto loan rollover without any serious reform commitments in exchange.

The stakes are therefore quite high. But if the IMF and the Milei government can implement a successful reform program that will meet with electoral and parliamentary approval, it could finally herald a departure from Argentina’s lost decades, both economically and politically.

—Martin Mühleisen

The compromise reached on monetary and reserves policy between the IMF and the government was greatly aided by the proven commitment of the administration with its own home-grown stabilization program. Few instances exist where a government has been as committed to fiscal consolidation as the Milei administration is. This commitment, which was essential to stabilize the economy and rein in triple-digit inflation, has been rewarded. The key now will be to see how the new phase of the stabilization program progresses. Particularly, if the administration succeeds in moving away from the foreign exchange rate anchor on inflation (via the now suspended currency controls) and toward a fiscal anchor that weakens inflation by controlling the scale of spending. If that mission succeeds, it will be great news for the economy and the administration.

—Jason Marczak

4. What are the wider implications, and what should we expect next?

If the program succeeds in its implementation and Argentina successfully navigates the current global uncertainty without stumbling back into currency or capital controls, the future may be much brighter, especially if the country can regain access to private finance and further investment flows. The visit by Treasury Secretary Scott Bessent to Buenos Aires and the clear support by US officials, including Bessent, Secretary of State Marco Rubio, and congressional leaders such as Representative Maria Elvira Salazar, is also promising and indicates US commitment in the days ahead.

It also remains to be seen what the political map will look like following Argentina’s October midterm elections. Will voters reward the government for its bold move toward liberalization or will an unexpected surge in inflation erode some of the administration’s support? Provincial elections between now and October will be a good thermometer for the market to gauge the political temperature ahead of the midterms, with potential effects on the market’s risk perception.

With the new deal and with the elimination of large elements of the cepo, Milei’s government has closed its opening, crisis-management chapter. It is now in a new moment of consolidation that may yet see the country move on to a period of stability and growth moving forward.

—Jason Marczak

The Argentina loan is a first test of the Trump administration’s dealings with the IMF. There has been a suggestion by the White House that Argentina should unwind its central bank swap line with the People’s Bank of China in exchange for US support at the IMF Executive Board. Argentina has since partially renewed this swap line, however, no doubt reflecting its dire need for foreign exchange reserves. Bessent’s visit to Buenos Aires on Monday provided a positive signal. But only the coming months will reveal the extent to which both Argentina and the IMF will be drawn into the US-China rivalry, and whether there is indeed some middle ground that a large emerging market economy and a multilateral lender can hold between these two geopolitical powerhouses.

—Martin Mühleisen

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There is a model to deal with economic and financial crises over the past two decades, and it requires activating the Group of Twenty (G20) and relying on the US Federal Reserve to provide liquidity to a financial system under stress. Neither option will be available in the current challenge.

First, the G20. The G20 was created by the United States and Canada in the late 1990s to bring rising economic powers such as China into the decision-making process and prevent another wave of debt crises like the Mexican peso crisis of 1994 and the Asian financial crisis of 1997. In 2008, as Lehman Brothers collapsed and financial markets around the world began to panic, then President George W. Bush called for an emergency summit of G20 leaders—the first time the heads of state and government from the world’s largest economies had convened.

What followed was one of the great successes of international economic coordination in the twenty-first century—the so-called London Moment, when the G20 agreed to inject five trillion dollars to stabilize the global economy. With this joint coordination, the leaders sent a powerful signal to the rest of the world that they would not let a recession turn into a worldwide depression.

Nearly twelve years later, at the outbreak of the COVID-19 pandemic, the same group of leaders convened to work on debt relief, fiscal stimulus, and—critically—access to vaccines.

Now we face the third major economic shock of the twenty-first century. But this one is fully man-made by one specific policy decision. It could, of course, be undone by a reversal of that decision, which if it kicks in at midnight tonight will send US tariff rates from 2.5 percent last year to over 20 percent this year—the highest in a hundred years. But as I have said since November, Donald Trump is serious about tariffs, they are not only a negotiating tool, and that means many of them are likely here to stay.

There will be no “London Moment” this time around. The United States can’t call for a coordinated response to a trade war it initiated—one that is predicated on the idea that the rest of the world is taking advantage of the United States. Some countries actually have an incentive to see the situation in financial markets worsen, in the hope that it puts pressure on the Trump administration to relent. Others may want to make bilateral deals, but a coordinated effort between China, Europe, Russia, and Brazil is off the table. This will make for an especially tense G20 finance ministers meeting in ten days, when Treasury Secretary Scott Bessent meets his colleagues for the first time at the International Monetary Fund-World Bank Spring Meetings in Washington, DC. Bessent can expect to face pointed questions from his counterparts on why the United States is reverting to the very protectionism that led to the creation of the Bretton Woods system eighty years ago.

The second—and more powerful—actor in the global economy has been the US Federal Reserve. In the global financial crisis and during the COVID-19 pandemic, the Federal Reserve slashed rates to zero, injected trillions into the US economy through quantitative easing, and issued swap lines around the world to help countries access dollars when they most needed it.

This time around, Chair Jerome Powell has signaled to the White House the so-called “Powell Put” is a long way off. On Friday, Trump posted on social media, “This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates.” This makes sense if you believe tariffs will indeed cause higher prices and put economic stress on millions of US citizens. But Powell said the same day that “we don’t need to be in a hurry.” He wants to see how the crisis unfolds. In a different situation, if the markets had fallen by 20 percent because of, say, a virus or a terrorist attack on the United States, then the Fed would likely have reacted very differently.

Powell, however, understands that a trade war built on high US tariffs could prove to be stagflationary—the dreaded combination of higher prices with slower growth. A stagflationary environment isn’t necessarily the time for pre-emptive rate cuts since lower rates might further fuel inflation. Powell also wants to send the signal that this policy could be undone by the White House—or, of course, by Congress—and show his colleagues in Washington that they can’t rely on the Fed to fix a problem of their own making.

The situation is going to become incredibly complicated for the Fed in the weeks ahead. Economic conditions in the United States could deteriorate quickly. Other central banks, including the European Central Bank, the Bank of England, and the Bank of Canada, may start cutting rates. That’s because they are primarily worried about weaker economic growth, not inflation from higher import costs.

This will leave the US Federal Reserve with higher rates than the rest of the world—and Trump will likely grow increasingly frustrated with a Fed chair whom he has clashed with over and over again since he appointed Powell back in 2017. Trump is likely to feel that the Fed is undercutting him in his trade war while other central banks are supporting their political leadership. The truth will be more nuanced.

Don’t expect the pressure to get to Powell.

Powell has exactly one year left on his term, and he appears committed to leave a legacy as a Federal Reserve chair who fiercely protected the institution’s dual mandate and independence. So, while there may be an economic pain point where the Fed has to step in—it’s further away than both Trump and the markets are hoping.

In the past week analysts have been trying, understandably, to compare the market reaction to what happened during the global financial crisis and the COVID-19 pandemic. But the reality is that these are both poor barometers for the situation. In both previous economic crises this century, the toolkit of international coordination and central-bank firepower were deployed to stabilize the situation. This time, the same tools won’t fix what’s being broken. 

Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser at the International Monetary Fund. 

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After four years representing the United States at the IMF, I can attest that the United States plays an outsized role at the institution. As US executive director, I engaged regularly with counterparts in regions such as Africa, the Middle East, and Latin America to help shape and support IMF lending in a manner that helped advance US interests and reduced Chinese influence. In this era of heightened uncertainty, the IMF could benefit from refocusing on its core priorities and helping countries stand on their own feet. Fortunately, the United States is well positioned to push for such reforms from within the institution. Should the United States instead opt to step back from the IMF, it would not only squander one of its most valuable international economic tools but would also open the door for China to play a lead role in an institution that has long supported US interests. 

US participation in the IMF comes with significant leverage and burden-sharing

The IMF’s large resources (approximately one trillion dollars in loanable resources), broad membership, and ability to apply robust economic conditions enable it to prevent and mitigate economic crises. IMF lending catalyzes other donor finance from the World Bank, regional development banks, and official lenders to support fundamental economic reforms. US participation in the IMF yields roughly four to five times the leverage in terms of IMF lending—and even more leverage if incorporating lending from other donors. Put simply, for every dollar the United States lends, others lend at least four.

Economic crises can be costly to the United States, and Republican and Democratic administrations alike have turned to the IMF to be a first responder. The institution has for many years helped ensure economic stability in countries of strategic importance to the United States. In Ukraine, for example, the IMF is providing a $15.5 billion loan alongside US and European economic assistance—lending that is conditioned on Ukraine undertaking responsible fiscal policies and addressing corruption. IMF lending to Egypt, Pakistan, and Jordan has promoted sound fiscal and external policies, which in turn have supported both US security and economic interests. IMF lending to small African countries comes with specific conditions that require measures to strengthen anti-corruption and good governance, which in turn protects US investments in these countries. And IMF economic conditions are, by their nature, aimed at helping countries stand on their own feet and reduce their reliance on donor finance.

The IMF is an important counterbalance to China

The IMF also serves as an important counterweight to China by providing an alternative to opaque, unsustainable Chinese lending. In countries such as Ghana, Zambia, and Sri Lanka, the IMF played a pivotal role in securing Chinese cooperation to restructure unsustainable loans. Further, IMF surveillance of the Chinese economy also sheds light on the Chinese economic model, which relies on overcapacity in key sectors to employ its people and drive global prices lower—although the institution’s recent surveillance reports have not gone far enough to call China out on these unsustainable practices. Importantly, US influence in the IMF, particularly with regard to borrowing countries that have been recipients of the Belt and Road Initiative, serves as an important tool for US soft power.

The cost of US participation is low

US participation in the IMF costs next to nothing. The United States’ quota, the US financial contribution held at the IMF, acts as an exchange of assets: when the IMF draws on US quota assets (i.e. US dollars) to extend a loan to a borrowing country, it pays interest on these drawings using its Special Drawing Rights (SDR) interest rate. Thus, the cost of these loans to the United States is simply the interest rate differential between the interest the Treasury Department would have earned on the Treasury bonds and the interest it instead earned on the SDR.

Likewise, the United States is required to hold a small amount of its quota subscription in SDRs, and the cost of holding these funds in SDRs can be quantified by the valuation changes of the SDR relative to the dollar. As a result, the cost of US participation in the IMF is driven by the interest rate and exchange rate differentials between the US dollar and the SDR. In most years, this differential is quite narrow, since the US dollar makes up 43 percent of the SDR basket. Indeed, in fiscal year 2023, the Treasury Department reported a $407 million gain in unrealized returns from net valuation and interest in US participation. 

Over the past twenty years, annual costs have netted out to roughly zero, with the exception of 2022, when large valuation effects generated a negative effect. Importantly, these annual gains and losses do not cost US taxpayer dollars; they simply represent an estimate of unrealized gains and losses from the use of the United States’ existing quota subscription.

In 2023, the United States negotiated an agreement at the IMF to raise overall quotas by 50 percent and eliminate bilateral borrowing credit lines. The quota agreement, if implemented, would be a boon for the United States. It would solidify the US majority share of 17.4 percent, which provides the United States with a veto over all major decisions at the IMF that require an 85 percent majority.  It would also help reduce the likelihood that China could get a substantial increase in its quota share in the future. And it would reduce the influence over the IMF of countries that hold borrowing credit lines. Further, once authorized by Congress, the overall cost to the US taxpayer from an increase in US quota shares should be zero since this is a simple exchange of financial claims, or a swap of assets. 

An agenda for Trump 2.0 at the IMF

When the United States speaks, the IMF listens, and when the United States pushes, the needle does move. The current administration should leverage US leadership to ensure the IMF is supporting US economic interests. The good news is that this does not require a wholesale reform of the IMF. But it does require the institution to evolve, and the current administration should actively press for some reforms.  

Specifically, the United States should reinforce the message that the IMF needs to focus on what it does best: support macroeconomic stabilization and growth by focusing on sound fiscal, monetary, financial, and external sector policies. Now more than ever, these sound economic fundamentals are what will enable countries to weather heightened political and economic uncertainty and transitions in global trade. The IMF should make “back to basics” priority number one and leverage others’ expertise when it comes to issues outside of these core policies. The next US chair should use next year’s review of IMF surveillance policies to reexamine how best to serve its membership on nontraditional issues, such as climate, digital finance, and gender.

The United States should also press the IMF to call out the need for countries to raise domestic demand so as to narrow global external imbalances. In his speech to the Economic Club of New York on March 6, Treasury Secretary Scott Bessent said that “access to cheap goods is not the essence of the American Dream . . . for too long the designers of multilateral trade deals have lost sight of this.” The roots of this issue stem from policies by countries that hold current account surpluses, such as China, that promote a reliance upon external demand and an excess of savings. Deficit countries, such as the United States, also have a responsibility to run prudent fiscal policies. These concerns are not new; the Treasury Department has been raising the red flag on imbalances for many years, across Republican and Democratic administrations. Yet, the IMF continues to shy away from tough language for those countries that run massive current account surpluses and deficits. The IMF’s next annual External Sector Report, typically released in July, needs to be much bolder to include a clear message on policies that surplus and deficit countries can take to ensure global economic balances are sustainable—economically and socially.

The United States should also support efforts to enhance the effectiveness of IMF lending and help countries exit from IMF assistance. Under its Articles of Agreement, an IMF loan program must demonstrate how a borrower will resolve its balance of payments issue by the end of the program. However, the reality has been that many countries return to the IMF for multiple programs because reforms fall short of addressing the underlying economic issues—sometimes due to weak program design but often due to weak implementation and lack of political ownership.

Admittedly, some countries, particularly those that are low income, may require more than one program to tackle longstanding structural issues, but for many this is not the case. The IMF needs a strategy to help reduce repeat borrowing by designing economic conditions that will raise growth and address excessive debt burdens, and it needs to hold countries to implementation through its regular program reviews. 

Finally, the Trump administration can solidify US leadership at the IMF by requesting that Congress approve a 50 percent quota increase in the upcoming fiscal year 2026 budget request. This would send a clear signal of US support and enhance the United States’ ability to achieve reforms. At the same time, the White House should signal to Congress a willingness to continue pressing the IMF to modernize and improve its operations and enhance efficiency.

The IMF provides the United States a significant source of economic leverage, helps prevent financial crises, and serves as a counterweight to China’s influence—all for a negligible cost. The most economical and effective move the Trump administration can play is to use US influence in the IMF to push for reforms that ensure the institution more effectively pursues its core mission in ways that are compatible with US interests.

Elizabeth Shortino is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and a former US executive director at the International Monetary Fund. 

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The appeal is part of a lively ongoing discussion on both sides of the Atlantic over the fate of hundreds of billions of dollars in Russian sovereign assets that have been frozen since Russia’s full-scale invasion of Ukraine began in February 2022. Over the past three years, many have advocated using the funds to back Ukraine’s defense or cover the costs of the country’s reconstruction, but a range of political, financial, and legal considerations have so far prevented any firm moves toward seizure.

Canada and the United States have both introduced legislation empowering governments to confiscate frozen Russian assets, while the French parliament recently passed a non-binding resolution on the use of frozen Russian funds to back Ukraine. Others such as Polish Prime Minister Donald Tusk have voiced their support for the initiative. For now, however, Ukraine’s international partners can only agree on using the interest from the frozen funds to cover loans for Kyiv.

As the world watches the Russian invasion of Ukraine unfold, UkraineAlert delivers the best Atlantic Council expert insight and analysis on Ukraine twice a week directly to your inbox.

Opponents say using Russia’s frozen assets to finance Ukraine’s defense and recovery could have far-reaching negative ramifications for the Western financial system that would outlast the current war. They warn that seizing Russia’s assets would undermine the international credibility of Western financial institutions, and may also lead to direct and indirect countermeasures from the Kremlin that could further fuel global instability.

Speaking at a gathering of EU leaders in Brussels in late March, Belgian Prime Minister Bart De Wever said any move to confiscate the Russian assets would be considered “an act of war.” The Belgian PM, whose country holds the largest share of the frozen Russian funds, warned that the proposed seizure would carry “systemic risks to the entire financial world system” and could spark retaliation, with any remaining Western assets located inside Russia likely to be targeted.

In addition to these considerations, the legal basis for the seizure of Russia’s frozen sovereign assets remains subject to considerable debate. Any court order commanding a government to seize Russian assets would be illegal under international law, Durham University professor of financial law Federico Luco Pasini told Euronews recently. However, if there was an executive decision by the government to seize the assets, “this could potentially bypass the issue,” Pasini stated. Others believe legal precedents exist, with some pointing to the use of frozen state assets to compensate victims of Iraq’s 1990 invasion of Kuwait.

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The idea of making Russia pay for the devastation it has caused in Ukraine has obvious appeal, with many seeing it as a form of international justice. Supporters believe the use of Russian funds would be particularly appropriate in this context, given the fact that few if any Kremlin officials are likely to be held legally accountable for war crimes committed in Ukraine. Using Russian money would also reduce the burden on taxpayers throughout the West and ease the political pressure on governments struggling to fund the largest European war since World War II.

Discussions over the possible transfer of frozen Russian assets to Ukraine have gained considerable momentum in recent months following the return of Donald Trump to the White House. The Trump administration’s decision to briefly pause military aid to Ukraine and the broader US foreign policy pivot away from Europe have highlighted the need to find alternatives to continued United States support for Ukraine.

The emergence of an axis of authoritarian regimes centered on Moscow is also now helping to convince many in the West that unprecedented measures are required. With North Korean soldiers fighting for Russia against Ukraine and Iran providing the Kremlin with large quantities of attack drones to bomb Ukrainian cities, there is a growing sense of insecurity in Western capitals. “Russia, China, Iran, and North Korea are hostile to democratic states’ interests and values. They are increasingly working together to undermine the international order,” noted former British Prime Minister Rishi Sunak in a recent article backing calls to hand Russia’s frozen assets to Ukraine.

Faced with the new geopolitical realities of an expansionist Russia and an isolationist United States, many policymakers across Europe may soon become more sympathetic to the idea of using Russia’s frozen sovereign assets to fund Ukraine’s ongoing fight for survival. However, there is still no consensus on the issue amid widespread reluctance to set what opponents believe would be a dangerous precedent. While supporters argue that the seizure of Russia’s assets could be legally justified, any decision will ultimately be a test of Western resolve and a matter of political will.

Mark Temnycky is a nonresident fellow at the Atlantic Council’s Eurasia Center and an accredited freelance journalist covering Eurasian affairs.

Further reading

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Any discussion on the future course of the war against Russia and the terms of any peace deal must take into account the fact that Ukraine is a now major military power in its own right, writes Serhii Kuzan.

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Weeks after Ukraine backed a US proposal for an unconditional ceasefire, Russia continues to stall and push for further concessions. If Trump wants to secure peace, he must increase the pressure on Putin, writes Doug Klain.

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The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

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That review could put the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO) in the crosshairs, raising doubts about the United States’ commitment to the stability and predictability these institutions were designed to uphold. The Trump administration reportedly paused contributions to the WTO this month, after targeting the organization in his first term. And though Trump engaged with the World Bank and IMF in his first term, he has not revealed his plans for these institutions in his second term. The Heritage Foundation’s Project 2025, from which Trump at times has distanced himself but which has formed a blueprint for much of the administration’s early agenda, calls for withdrawing from both.

Concerns are growing—particularly among policymakers and experts in “New South” countries in the Mediterranean and South Atlantic basins—about the direction in which the international financial system is heading. The coming months and years will reveal the consequences of these evolving dynamics for global economic governance.

Multilateral institutions under siege

The IMF, World Bank, and WTO have provided the backbone of post-World War II global financial stability. But if Trump’s review of multilateral organizations leads to the United States reducing its contributions or withdrawing its leadership entirely, that could render these institutions ineffective, leaving emerging markets vulnerable to soaring borrowing costs and financial instability.

The IMF’s effectiveness hinges on US backing. A disengaged Washington would severely weaken the institution’s ability to manage global financial shocks—or to see them coming in the first place. Without access to US fiscal data and financial support, the IMF’s early-warning system would be significantly impaired, leaving emerging economies particularly exposed to unforeseen economic crises. A diminished World Bank, meanwhile, could create space for alternative lenders, such as China’s Asian Infrastructure Investment Bank.

In the event of a US withdrawal from the Bretton Woods institutions, other major players such as China, India, and European countries may push for reforms, but any new framework would likely be marked by deep internal divisions and a departure from consensus-driven governance.

From rules-based to power-based trade

Even before the apparent pause in US funding, the WTO has suffered under US pressure, with its dispute-settlement mechanism effectively sidelined by Washington’s refusal to appoint appellate judges. The result? Global trade is increasingly governed by bilateral deals, where economic power, rather than rules, dictates outcomes.

At best, this shift accelerates the rise of plurilateral trade arrangements, where smaller groups of nations set the terms of trade outside the WTO framework. At worst, it heralds a chaotic trade environment where power politics replace consensus-driven rulemaking, fragmenting the global trading system into competing blocs.

If nations are forced to align with either a US-centric order or alternative economic blocs, that would heighten the risk of fragmentation and global instability.

A shattered order—or the dawn of a new system?

As the United States considers pulling back from the global financial system, countries in Latin America, Africa, and Asia are seeking greater financial independence and constructing alternative frameworks for trade, investment, and crisis management. These trends were evident before Trump’s return to the White House, and his approach is likely to only accelerate them. Among the key developments:

• De-dollarization initiatives: Nations from the BRICS grouping of emerging economies, including Brazil and India, are working to expand trade in local currencies, while China and Russia increasingly settle deals in yuan and rubles.
• New development banks: Institutions such as the African Export-Import Bank (Afreximbank) and the New Development Bank (commonly known as the BRICS bank) are emerging as real—albeit far from optimal—alternatives to the IMF and World Bank. They offer financing without the traditional Western-style conditionalities, reflecting a growing desire among some countries for options that align more closely with their own political and economic priorities.
• Alternative payment systems: Russia’s System for Transfer of Financial Messages (SPFS) and China’s Cross-Border Interbank Payments System (CIPS) platforms are attempting to serve as substitutes for the globally dominant, Belgium-based Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging service, though both SPFS and CIPS are still a long way from becoming true alternatives to SWIFT. Meanwhile Iran and India are exploring digital-payment linkages to bypass Western financial restrictions.
• Regional trade agreements: The African Continental Free Trade Area and Latin America’s growing Mercosur bloc are shifting economic dependencies away from Western-led structures.

These developments signal a significant and, in many ways, regrettable development: The world is moving beyond the dominance of Western financial institutions toward a more fragmented and less coordinated economic order. While this new landscape may be more regionally responsive, it also risks undermining the coherence, predictability, and standards that global institutions—however imperfect—once aimed to provide.

The road ahead

The coming months—particularly April’s IMF and World Bank Spring Meetings in Washington, DC—will provide crucial insights into the trajectory of global economic governance. The Trump administration’s review of US membership in international organizations also will be a defining moment: Will US actions and global reactions bring about a complete retreat from multilateralism, or will international financial institutions adapt to new geopolitical realities?

One thing is clear: The global financial order is at a tipping point, and the choices made today will shape the economic landscape for decades to come.

Ferid Belhaj is a senior fellow at the Policy Center for the New South. He served as World Bank vice president for Middle East and North Africa from 2018 to 2024.

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Earlier this month, Hong Kong-based CK Hutchison Holdings announced that it would sell a range of global port assets, including the ones operating in the Panama Canal, to the US private equity firm BlackRock. The deal stunned officials in Hong Kong and their counterparts on the mainland, and not just for the deal’s nearly twenty-three-billion-dollar price tag.

Daily front page headlines in the South China Morning Post detailed the latest twists and turns of the unfolding drama. At the center is the company’s founder, Li Ka-shing. The ninety-six-year-old billionaire began his career selling plastic flowers in the 1950s and helped turn Hong Kong into a hub of global finance. In 2000, he was knighted by Queen Elizabeth and, according to press reports at the time, was considered more powerful than China’s then president, Jiang Zemin. Li took that influence and made a series of brilliantly timed investments in the Chinese mainland, understanding where the economic opportunity would be in the years ahead.

So it’s understandable why Chinese authorities felt blindsided by his decision to sell the port operations to an American company, right after US President Donald Trump claimed in his inaugural address that China was operating the Panama Canal and “we’re taking it back.” But the level of anger is perhaps what is surprising. An op-ed in the pro-Beijing Ta Kung Pao newspaper (which was then republished by Beijing’s Hong Kong and Macau office) called the sale an act of “betrayal of all Chinese people.” More commentaries have followed, which have called it an act of “submission” and “spineless groveling.” The fact that the deal was announced on the eve of the “two sessions,” China’s most important economic and political event of the year, just added insult to injury for Chinese President Xi Jinping and the Chinese Communist Party.

The entire situation puts both Hong Kong authorities and Chinese officials in a difficult spot. If they make any moves to block the sale—and it’s not even clear whether they could—it would confirm some of the worst concerns about the way Western businesses will be treated in Hong Kong following the passage of the National Security Law in 2020. Right now, Hong Kong is working hard to convince the West that it is still one of the world’s most important financial hubs. As a newspaper report the day I left proudly touted, Hong Kong was “still” the number three financial city behind New York and London. That effort becomes more difficult if this sale is a blocked.

On the other hand, Hong Kong has to show that it’s responsive to Beijing’s concerns. That’s likely why Hong Kong’s chief executive, John Lee Ka-chiu, has taken a balanced approach so far, issuing a statement on the need to weigh the legitimate concerns of society and the importance for businesses to follow the legal process. One of his predecessors, Leung Chun-ying, was less diplomatic, saying: “Do merchants have no motherland?”

Now, Hutchison is working to ensure the deal doesn’t get torpedoed. A report in the South China Morning Post last week said Hutchison would offer twenty-five Hong Kong dollars (about three US dollars) per share as a bonus to shareholders if the deal goes through. The news, unsurprisingly, sent the stock soaring.

At stake here is more than just ports. The challenge facing Hutchison is a microcosm of the tension between finance and national security that is about to play out around the world. Consider the facts. After his inauguration in January, Trump made clear that Chinese companies’ ownership of portions of the Panama Canal was unacceptable. At the same time, he launched a trade war that threatened to slow down global commerce—and hurt the profitability of major port operators such as Hutchison. Weeks later, BlackRock negotiated a deal for a range of assets held by Hutchison. Chinese media have been keen to highlight the longstanding friendship between Trump and BlackRock CEO Larry Fink.

So, what is a veteran businessman like Li supposed to do in a situation like this? He can sell his operations at a profit or wait until the situation deteriorates and he has to sell at a potentially lower rate. He (or members of his family now overseeing the day-to-day operations) likely knew the sale would upset the Chinese authorities, but he also couldn’t ask for permission in advance—likely believing that it wouldn’t be given. If Beijing pushed Hutchison to reject the deal, it would only confirm the suspicions Trump has about the national security priority China puts on port operations. It is truly a tangled geoeconomic web. 

The predominant sense in our private conversations during the week was that BlackRock and Hutchison will find a way to seal the deal. There’s too much money at stake, too many aligned interests, and the risks of it failing are too high both for Hutchison and, more importantly, for Hong Kong’s future.

But expect China to find ways to tighten its grip on these kinds of deals going forward. Xi has stated that the world’s reliance on advanced technologies from China would give his country leverage in an economic conflict in the years ahead. Just as important as new technology is hard infrastructure—and Xi knows that, as well. Beijing does not want to be caught blindsided again. The outrage about the ports deal communicated from Beijing in both Chinese and Western media is meant in part to stop any other company from considering something similar. In Hong Kong last week, I could tell that message was being received loud and clear. 

Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.

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Today, Washington is once again chattering about the possibility of a currency deal. This time, the venue may move south for what Trump’s incoming chairman of the Council of Economic Advisers, Stephen Miran, described as a “Mar-a-Lago Accord.” In a September report, Miran declared the overvaluation of the US dollar responsible for the “roots of economic discontent.”

Several in Trump’s inner circle have expressed an interest in devaluing the dollar to address the US trade deficit. Weak-dollar advocates believe that the strong dollar creates international trade imbalances, handicapping US manufacturers. A weaker dollar would make US exports more competitive.

But there’s a key difference between the countries that would gather in Palm Beach today and the group that met in New York in the 1980s—the countries that comprise the US trade deficit.

How will this different constellation impact any potential negotiation? It makes a deal much more complicated.

Miran and others want to use tariffs to get countries to the negotiation table. If these countries are worried enough about the cost of tariffs, Miran thinks they will be willing to make major changes to their currencies that they’d never otherwise consider. But Miran doesn’t stop there. He knows tariffs alone aren’t enough of a stick, so he thinks it is time to put the US security umbrella up for debate.

Miran argues that the security zone should be financed by the beneficiaries, and this can be leveraged to both depreciate the dollar and to mitigate the inflation effect of tariffs. Countries in the security zone should “fund it by buying Treasuries,” especially century bonds, and “unless you swap your bills for bonds, tariffs will keep you out.” US Treasury Secretary Scott Bessent has also discussed the idea that countries can enjoy shared defense as long as there are shared currency goals, while tariffs can be used for negotiation of terms. This administration seems at least open to the idea of linking the US security umbrella with the restructuring of the global trade system to benefit the United States.

The problem, of course, is that the countries the United States has the highest trade deficits with are no longer allies dependent upon this security umbrella. In 1985, the United States provided the security guarantee for France, Germany, Japan, and the United Kingdom. These signatories of the Plaza Accord hosted nearly a fourth of all overseas US military bases in the ’80s. Neither China, nor Mexico, nor Vietnam rely on the US military in 2025.

Without the incentive of shared security, are tariffs enough to push non-allies towards a currency agreement? It doesn’t seem to be for China. A major reason for resistance is that Beijing sees Japan’s experience after the Plaza Accord as a cautionary tale.

The “Japanification” of China?

The Plaza Accord forever altered the trajectory of Japan’s economy. The appreciation of the Japanese yen contributed to bursting Tokyo’s asset bubble and the lost decades of economic stagnation. At least, that is the lingering impression of the 1985 currency agreement in China.

There are certain similarities between Japan’s economic slowdown in the ’90s and the one that China is currently experiencing, such as deflation, low consumer demand, and capital flight. In January, China’s thirty-year government bond fell below that of Japan’s for the first time, and over the weekend, China’s inflation dropped below zero again. China is willing to go to lengths to avoid a “Japanification” of its own economy, including refusing to appreciate the renminbi against the dollar, even if it means weathering a protracted trade war.

China has previously raised concerns about the US dollar’s role as the dominant reserve currency and wouldn’t necessarily complain if the dollar’s preferential position in foreign reserves and global finance weakened. But with persistently sluggish consumer demand, China is still counting on the export sector to help drive economic growth in 2025. Beijing won’t want to risk any changes to the renminbi that would decrease the competitiveness of its exports in the midst of a trade war.

The idea of a Mar-a-Lago Accord is going to appeal to Trump. After all, he was the man who bought the Plaza Hotel in 1988, right after the famous agreement. But getting there is going to require more than just tariffs and a threat to remove security guarantees. China is going to have to see what’s in it for them. And that, so far, remains a mystery.

Josh Lipsky is the senior director of the Atlantic Council GeoEconomics Center and a former adviser to the International Monetary Fund.

Jessie Yin is an Assistant Director with the Atlantic Council GeoEconomics Center.

This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email SBusch@atlanticcouncil.org

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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The post Meeting in Mar-a-Lago: Is a new currency deal plausible? appeared first on Atlantic Council.

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Now the United States begins a trade war with its three largest trading partners, and the costs could start piling up. 

Monday’s reaction—the worst trading day since Trump was elected—was Wall Street quickly trying to make up for lost time since the election. This is only the beginning. Markets could remain shaky if deteriorating consumer sentiment translates into less spending and price hikes on everything from gas to cell phones come into effect in the coming weeks.

Why did many on Wall Street seemingly miss the signs that Trump was going to pull the trigger on tariffs? Because they were stuck in a mindset based on the previous Trump administration. In his first term, Trump often used the threat of tariffs to negotiate—see the China Phase One deal, for example—and implemented tariffs on a wide range of products. But in Trump’s second term, the president and his senior trade adviser Peter Navarro are approaching changes to trade on an even more sweeping scale and accelerated timeline. 

Trump is now wielding tariffs in three distinct ways. Here’s how to think about them.

First, there’s “tariff as a negotiating tactic.” This is the kind of deal Wall Street thought Trump was trying to get with his threats against Mexico and Canada, mirroring what happened frequently in his first term. Those deals will still happen. China, for example, is a leading candidate for a renewed trade deal, despite Monday’s announcement. 

The second form is “tariff as tariff.” Trump and his team are approaching tariffs with the traditional view that a tariff can generate domestic manufacturing by raising costs on importers and therefore incentivizing production in the United States. The challenge with this plan is that for many products (such as laptops), it would take a much higher tariff than even 25 percent to make it cheaper to produce them in the United States. While some companies are announcing efforts to move production back to the United States, it will take years to reorient associated supply chains. In the meantime, it is US consumers and companies that will end up paying higher prices—at a moment when inflation is proving a little more sticky than Trump, or the Federal Reserve, anticipated. 

The other challenge is that Trump wants to use tariffs as a source of revenue. The Committee for a Responsible Federal Budget estimated in February that the Trump administration’s new tariffs could raise over one hundred billion dollars per year (and therefore possibly offset some of the cost of the coming extension of the Tax Cuts and Jobs Act). That still would only represent approximately 2 percent of total US revenue. And there’s a contradiction here. If the United States is collecting revenue on tariffs, that means the companies paying the tariffs aren’t actually reshoring. Instead, those companies are paying the higher cost for tariffed goods because doing so still makes the most sense for their businesses. The traditional use of tariffs can boost revenue or reshoring, but it’s very difficult to do both.

The third form of tariff is a new development in Trump’s second term. It is “tariff as punishment.” In Trump’s press conference on Monday, he specifically said several times that Canada and Mexico were going to be “punished.” What does tariff as punishment mean? It’s a form of sanction. Instead of financial sanctions, which Trump argued during the presidential campaign were causing countries to move away from the US dollar, expect the administration to use tariffs more as a tool of coercive economic statecraft. The benefit, from the Trump team’s view, is that unlike the on-and-off switch of sanctions, tariffs can be ratcheted up (5, 10, 15 percent) or ratcheted down. A recent example of this approach to tariffs came when Trump threatened a 150 percent tariff on any country from the BRICS grouping of emerging economies that was moving away from the dollar.

Trump’s second term is going to feature much more use of the latter two kinds of tariffs than his first term did. Trump told the public as much when he decided to leverage the International Emergency Economic Powers Act to give himself the authority to issue tariffs without any notice—an unprecedented use of the law. There will be negotiations, of course. It’s possible the new Canada and Mexico tariffs will only be temporary and become part of deal-making to renew the US-Mexico-Canada Agreement in 2026. But there will also be more tariffs for tariffs’ sake, more tariffs as punishment, and therefore more retaliation from other countries. It all adds up to the risk of a global trade war. In the coming weeks, deadlines are approaching for the next wave of steel and aluminum tariffs and a key report on reciprocal tariffs from the Office of the US Trade Representative and Commerce Department, which will provide the framework for possible actions against nearly every country in the world.

As of today, the United States has the highest effective tariff rate it has had at any time since 1943. Wall Street missed the early signs that Trump was serious about imposing tariffs. Now that investors have woken up, expect a bumpy ride ahead—in trade, in markets, and for the global economy.

Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.

Sophia Busch and Charles Wheelock contributed to the data visualization in this article.

The post Wall Street is finally waking up to Trump’s tariff policy appeared first on Atlantic Council.

The Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report paints a dire picture of the possibility of avoiding the 1.5 degrees Celsius (°C) rise in global surface temperature. According to this report, “global warming is more likely than not to reach 1.5°C even under the very low [greenhouse gas] emission scenario” and it will be “harder to limit warming below 2°C.” The report provides strong evidence that, based on the current trends of greenhouse gas (GHG) emissions around the world, 1.5°C will be reached before 2040, which is a bit more optimistic than a 2023 article published in the journal Nature, which estimated the world will reach 1.5°C by 2029, leaving the global community with a mere five-year runway. Yet, a recent report by the European Commission warns that we already passed the 1.5°C-mark in 2024. The IPCC report also highlights the fact that there is a massive shortfall in the level of financial flows needed to achieve climate targets in different countries and sectors.

The link between social and physical infrastructure and economic growth and stability is un-disputable. However, the scale of financing required to meet the Sustainable Development Goals (SDGs) and establish climate-resilient infrastructure for the future global economy is the subject of widespread estimation and debate. These projections differ significantly based on various factors, such as the target year (2030, 2040, or 2050), the specific areas of focus (whether traditional infrastructure, SDG priorities, or the energy transition), and the underlying assumptions shaping the analyses. Despite these variations, one undeniable truth emerges: the financing gap is projected to reach trillions of dollars annually over the next ten to thirty years. This gap has been growing wider with the rising population (and, hence, growing needs for new infrastructure and maintaining the existing ones) and the increasing frequency of severe climate, destroying current critical infrastructure in many countries and negatively impacting their operations in others. Hence, the world not only needs to bridge the financing gap for building and maintaining basic infrastructure—between 1–4 billion people lack dependable access to electricity, water, internet, and sanitation—but old infrastructure must be climate proofed and new infrastructure must be built with climate resiliency in mind. Without bridging this massive and growing SDG and infrastructure financing gap, global growth will come to an eventual halt in just a few decades. 

This presents the global economy with the enormous challenge of funding its sustainable development and infrastructure needs. Given the magnitude of these gaps, it is evident that states, multilateral development banks (MDBs), and international financial institutions (IFIs) alone cannot bridge them. Therefore, there is an urgent need for innovative alternative financing solutions, namely from private sources. 

This report aims to provide a nuanced analysis on this very topic. Section 2 provides a holistic review of the investment gaps in global infrastructure, energy transition, and achieving SDGs. Section 3 highlights several challenges as they relate to de-risking, leveraging ratios, and potential sources of financing. Section 4 presents the case for making infrastructure an asset class that would attract private investment. Section 5 concludes the report. 

Amin Mohseni-Cheraghlou is a Senior Lecturer at American University and a former Senior Advisor at IMF’s Office of Executive Directors.

Nisha Narayanan is a senior fellow at the Atlantic Council’s GeoEconomics Center and is the head of country risk at a global financial institution.

Hung Tran is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center and and senior fellow at the Policy Center for the New South.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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The post Financing the future: Unlocking private capital for global infrastructure and climate goals appeared first on Atlantic Council.

The limitations of the Group of Twenty (G20) “Common Framework” have been extensively discussed and actionable solutions have been put forward. Tackling those limitations of the Common Framework is crucial for countries currently in debt distress, which experienced “significant delays” in the obtention of debt relief. As stressed by Kristalina Georgieva, managing director of the International Monetary Fund, “The framework can and must deliver more quickly.”

What’s hampering progress? Coordination issues, for one thing, but numerous voices also point to China’s role in hindering progress toward resolving the global debt crisis. The People’s Republic of China—a member of the IMF—has not only lent significant sums to borrower nations but also has the capacity to slow down processes because of the preferential terms in its lending agreements.

Overall, 147 countries—representing two-thirds of the global population and 40 percent of the world’s gross domestic product (GDP)—have either benefited from China’s Belt and Road Initiative (BRI) projects or shown interest in joining the program. By 2023, Chinese investment had begun to rebound since China’s zero-COVID policies, but China’s resistance to debt relief for its low-income borrowers will fuel sovereign defaults for years to come. China has spent an estimated $1 trillion through the BRI, thereby considerably strengthening its influence across Asia, Africa, and Latin America. Laos, for instance, owes almost half of its external debt (65 percent of its GDP) and is struggling to repay the debt that financed infrastructure like the high-speed Laos-China railway. China’s ownership of around 17.6 percent of Zambia’s external debt also slowed down Zambia’s debt restructuring negotiations significantly, contributing to a lengthy negotiation of two and a half years.

This piece outlines how China’s lending practices harm low-income borrowers and hinder debt restructuring negotiations through the use of debt clauses giving it de facto seniority. It further outlines ways for the Bretton Woods institutions to collaborate to change these dynamics and improve financing prospects of borrower countries and a more level field for lenders.

Lili Vessereau is a Research Scholar, Teaching Fellow and Fulbright Scholar at Harvard University, where she focuses on sovereign debt and macroeconomic impact of climate change.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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Issue Brief Oct 9, 2023

How the IMF can navigate great power rivalry

By Hung Tran

Fragmentation resulting from geopolitical competition between large economies is posing a serious challenge to the fulfillment of IMF’s core missions. Here’s how it can respond.

China Economy & Business

Issue Brief Apr 16, 2024

Geoeconomic fragmentation and net-zero targets

By Shirin Hakim and Amin Mohseni-Cheraghlou

This report outlines how the Bretton Woods Institutions can mitigate the effects of growing geoeconomic fragmentation on global net-zero targets.

China Climate Change & Climate Action

The post Toward equitable debt contracts: Preventing de facto seniority-clause escalation in the sovereign lending space appeared first on Atlantic Council.

On March 3, Rob Murray, non-resident senior fellow at Forward Defense, appeared on Bloomberg News to discuss the Defence, Security and Resilience (DSR) Bank. As the founder of DSR, Murray emphasized the need for a global multilateral financial institution dedicated to defense funding, addressing the critical gap that is believed to be threatening Western security.

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Rob Murray

Nonresident Senior Fellow

Forward Defense Scowcroft Center for Strategy and Security

Defense Industry Defense Policy

Forward Defense, housed within the Scowcroft Center for Strategy and Security, generates ideas and connects stakeholders in the defense ecosystem to promote an enduring military advantage for the United States, its allies, and partners. Our work identifies the defense strategies, capabilities, and resources the United States needs to deter and, if necessary, prevail in future conflict.

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The post Murray on Bloomberg News on the Defence, Security, and Resilience Bank appeared first on Atlantic Council.

The global economy and international financial system have evolved dramatically since the founding of the Bretton Woods system in 1944. A trend toward greater trade openness defined the decades following the establishment of the system. And while the Bretton Woods arrangement of fixed exchange rates was abandoned in 1973, this new international economic order continued to facilitate global economic integration and financial liberalization. Yet the trend of ever-more globalization, which has largely defined the past fifty years, appears to have stalled. Trade openness has remained effectively flat since the global financial crisis (GFC) (figure 1a), while cross-border assets have trended down or sideways since the COVID-19 pandemic and Russia’s 2022 invasion of Ukraine (figure 1b).

By fostering financial stability and supporting economic growth, the International Monetary Fund (IMF) provided a stable foundation which supported this trend of increased cross-border trade and investment. The IMF, through its surveillance and lending operations, was established to act as an impartial referee to ensure that member countries pursued sound economic and financial policies. It also expanded the global financial safety net (GFSN) – which acts as an insurance mechanism to provide liquidity to countries facing economic crises. The IMF, as the lender of last resort to the global economy, acted as the primary provider of crisis support up until the GFC.

This postwar system, of which the IMF was a core component, supported decades of economic prosperity, broad-based increases in living standards, and a marked decline in global poverty rates. However, the global economy had no shortage of crises in the intervening years. Experiences ranging from the Latin American debt crisis to the Asian financial crisis have incrementally eroded the IMF’s credibility and led member countries to seek alternative insurance mechanisms that do not come with “strings attached” (e.g., IMF program conditionality), thereby reducing member countries’ reliance on the IMF.

The onset of the GFC led countries to double down on self-insurance mechanisms. It also led to a substantial diversification of the GFSN, as bilateral swap lines (BSL) and regional financing arrangements (RFA) overtook the size of IMF resources in the safety net. To safeguard economic stability and protect against external shocks in the wake of the GFC, country authorities enacted capital controls, referred to as capital flow management measures (CFMs) in IMF parlance, in addition to accumulating foreign exchange reserves. This use of CFMs and international reserves as a self-insurance mechanism was further amplified by the COVID-19 pandemic and its associated financial distress. 

Now, following the economic and financial disruptions stemming from Russia’s invasion of Ukraine and rising geopolitical tensions, countries are increasingly utilizing industrial policies and current account restrictions to direct and manage trade flows as well – a trend that is best illustrated by the broad threat (and imposition) of tariffs that President Trump has made during the first month of his second term. These restrictions on capital and trade flows have contributed to the stalling of global integration and will likely result in greater volatility across the global economy in the coming years. Moreover, the displacement of the IMF as the anchor of the GFSN calls into question whether the GFSN can and will provide equitable support to all countries facing economic crises. As the global economy and international financial system enter a new era—characterized by increasing fragmentation rather than integration—ensuring that the international system has an effective insurance mechanism is more important than ever. 

This report is organized as follows. In Section II, I document the rise in fragmentation across capital and trade flows. Section III discusses how the emergence of these fragmentary forces has coincided with changes in the size and composition of the GFSN. Section IV explores how these forces of fragmentation could affect global development prospects and financial stability at the country- and system-level. Section V concludes with policy recommendations to revitalize the IMF and preserve the core insurance mechanism which underpins global development and financial stability. 

Patrick Ryan is a Bretton Woods 2.0 Fellow with the Atlantic Council’s GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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Issue Brief Oct 9, 2023

How the IMF can navigate great power rivalry

By Hung Tran

Fragmentation resulting from geopolitical competition between large economies is posing a serious challenge to the fulfillment of IMF’s core missions. Here’s how it can respond.

China Economy & Business

Issue Brief Apr 16, 2024

Geoeconomic fragmentation and net-zero targets

By Shirin Hakim and Amin Mohseni-Cheraghlou

This report outlines how the Bretton Woods Institutions can mitigate the effects of growing geoeconomic fragmentation on global net-zero targets.

China Climate Change & Climate Action

The post Fragmentation and the role of the IMF appeared first on Atlantic Council.

Introduction

Mr. Chairman, Ranking Member Waters, and Members of the Committee, thank you for inviting me as a witness to today’s hearing.

My name is Martin Mühleisen. Before joining the Atlantic Council’s GeoEconomics Center as a Nonresident Senior Fellow, I retired from the International Monetary Fund (IMF) in 2021. I was Chief of Staff under Managing Director Christine Lagarde, and I served as Director for Strategy, Policy and Review between 2017 and 2020. The following are my personal views, not those of the Atlantic Council.

Multilateral financial institutions

International Financial Institutions (IFIs), such as the IMF, the World Bank, and regional Multilateral Development Banks (MDBs), have been important tools for the United States to exert its global leadership. Unlike the United Nations with its “one country, one vote” system, these institutions are shareholder-owned, and voting power is determined by shareholdings. The United States, in almost every circumstance, owns the largest share and, especially in the case of the IMF and World Bank, is the only country that holds a veto over changes to the institutions’ fundamental governance arrangements and lending capacity.

The institutions are chartered for specific, narrow purposes. The World Bank and MDBs borrow in global capital markets to finance economic development in emerging and developing countries. The IMF’s mandate, financed by issuing reserve assets to its member countries, is to preserve global economic stability by addressing external imbalances and serving as a lender of last resort to prevent balance of payments crises.

China’s role in the IFIs

The People’s Republic of China assumed China’s seat at the IMF and World Bank in 1980, and it joined other MDBs over the course of the following decades. It has broadly supported the mandates of these institutions and, like many other shareholders, contributed supplementary resources to help fund training, technical assistance, or interest rate subsidies for the poorest countries.

As China’s economy has grown to rival that of the United States, its voting share in the IMF and World Bank has not risen accordingly. Relative to its size, China is now significantly underrepresented in these institutions, along with a number of other emerging markets. This has been the subject of intense debates about IFI governance arrangements in recent years. Nevertheless, China joined a broad consensus last year to increase the IMF’s capital ( “quotas”) without any realignment of voting shares.

China As a Sovereign Lender

As it grew in size, China has also become the largest sovereign lender to emerging and developing countries over the past two decades, spurred on by President Xi’s Belt-Road Initiative (BRI) that started in 2013. China’s lending volume since 2000 is estimated at $1.3 trillion, approaching the total amount provided by the G7 over the same period.More recently, the People’s Bank of China has also acted as a lender of last resort, offering about $600 billion worth of bilateral renminbi swap lines to some 30 countries.

China did not grown its loan portfolio out of altruistic motives. It has used its creditor relationships with emerging markets and developing countries to export construction and other services; to obtain access to natural resources, ports, and other facilities; and to attract diplomatic support for its geopolitical objectives. For example, about 70 countries, many of them in the Western Hemisphere, have officially endorsed China’s sovereignty over Taiwan.

What This Committee Could Encourage

Hold China responsible for bad lending decisions

As a large and relatively new international lender, China has repeated many of the mistakes of other countries that went before it, including in the design of its lending programs and in the way that it manages relations with distressed borrowers.

BRI loans and the associated projects have been plagued by quality problems, lack of transparency, and quasi-commercial financial terms. Many loans have become distressed as a result, contributing to rising debt vulnerabilities in low-income countries. In a number of cases, this has put an effective stop to lending by multilateral lenders, who cannot lend to countries with an unsustainable debt burden.

A number of borrowers have remained in limbo for several years because China refused to participate in collective debt restructuring exercises, preferring instead to bilaterally extend maturities or modify interest rates rather than providing comprehensive debt relief.

Since China has joined the G20 Common Framework for Debt Restructuring in 2020, the speed of debt workouts has picked up somewhat. Nevertheless, there is still a lack of coordination among China’s state lenders, and there is a fundamental unwillingness to agree to loan write-downs that are sometimes necessary to restore countries’ solvency (not unlike under Chapter 11 of the US Bankruptcy Code), resulting in long workout periods that put an undue burden on debtor countries and other lenders.

The United States should use its voice in the IMF to adopt a more forward-leaning approach when it comes to the restructuring of Chinese loans. Besides insisting on improved transparency, the US Treasury should encourage the IMF to adopt a more forceful approach in cases where China’s reluctance to engage in meaningful restructuring effectively grants it a hold over IMF program loans.

For example, the IMF’s “Lending into Official Arrears“ (LIOA) policy allows the institution to resume lending to borrower countries that are in default to one of its members, provided they engage in good faith negotiations and other loan conditions are met. At the moment, the burden on countries to benefit from this policy is relatively high, given the risks for them to default on one of their largest lenders and trading partners. A more robust application of the LIOA policy, however, could strengthen the negotiation position of debtor countries and provide for more ambitious debt relief from China.

Focus on quality, not quantity, of IFI programs

Following the Covid epidemic, and in order to help countries respond to global climate, food, and energy crises in recent years, the World Bank and MDBs have been looking to leverage their capital base to step up climate and development loans, including with private capital, and the IMF issued $650 billion of Special Drawing Rights (SDRs) to its membership in 2021 to boost global liquidity. At the same time, the fund has channeled some of the newly created SDRs of its richer members into its concessional loan programs.

These efforts were intended to meet emergency financing needs of poorer countries, often involving little or relatively weak conditionality. There is a risk, however, that an increase in debt owed to multilateral institutions, who enjoy preferred creditor status, could worsen the overall debt situation of recipient countries as it may drive away private creditors. Moreover, the increase in global interest rates from the zero rate-environment a few years ago also implies that programs and projects need to meet a higher standard to help countries escape from debt distress.

To attract private capital and decrease their reliance on Chinese lenders, recipient countries need to improve their long-term growth prospects, which should be reinforced through strong loan conditionality focused on improving legal systems, streamlining regulations, and limiting government involvement in the economy, among others.

At the IMF, the United States should insist on prioritizing “upper-credit tranche” (UCT) programs, where a country must undertake necessary economic reforms to qualify for disbursements. At the World Bank, this could involve some rebalancing of its focus on global public goods toward more ambitious growth objectives.

Given the still strong demographics in Africa and Southeast Asia, investing in these regions will open up market opportunities for US exporters in the future. However, stepped-up lending by multilateral organizations alone will not be enough to win the struggle for hearts and minds in the Global South.

The United States and other large shareholders should therefore work with multilateral lenders to incentivize critical reforms and boost growth prospects in partner countries. If multilateral programs were flanked by bilateral co-financing, investment finance, specific trade preferences, or other forms of (geopolitical) incentives, they would have a larger chance to succeed.

Protect the dominant role of the dollar

I have so far focused mostly on low income and developing economies, in part because large emerging market (EM) countries exhibited a remarkable degree of macroeconomic stability in recent years. Many EMs tightened monetary policy early in 2021 in the face of inflationary pressures, and they were able to relax policies quickly after the shock receded.

In most cases, there was no need for full-fledged IMF/World Bank programs during this period, as there has not been for several years, although some countries in the Western Hemisphere made good use of the precautionary credit lines offered to IMF member countries with high-quality policies and a strong economic track record.

Two factors contributed to this positive outcome. First, many EMs acquired large foreign exchange reserves in the wake of the Asia and Global Financial Crises, making them more immune to speculative attacks; and second, countries pursued orthodox macroeconomic policies, with a focus on strong institutions, responsible fiscal policy, and flexible exchange rate management.

In principle, however, many EMs are still vulnerable to external shocks, especially under a combination of financial market volatility and rising tariffs and trade barriers. Most are not benefiting from dollar swap lines offered by the Federal Reserve, nor are they members of powerful regional currency arrangements (in South-East Asia, the Chiang Mai Initiative (CMIM) provides for some regional support, but this is largely tied to IMF programs). In case of a severe crisis, these countries would need access to US dollar sources to supplement their own reserves in order to avoid sharp currency devaluations.

In this case, the IMF could deploy its lending capacity of around $1 trillion to stabilize countries’ balance of payments, avoid wider contagion, and thereby preserve global financial stability. These funds are available through IMF programs or precautionary lines at relatively short notice, leveraging the United States’ financial contribution to the IMF by a factor of more than 5:1.

Absent the safety net provided by multilateral institutions, countries would only have two viable alternative to protect themselves against larger shocks. They would either have to acquire additional foreign exchange reserves, putting upward pressure on the US dollar, or they would need to seek help from China with its large currency reserves, which could in the long run be a factor in undermining the dominant role of the US dollar.

It would therefore be in the US interest if Congress were to ratify the IMF quota increase agreed last year, shifting a good part of the funds already contributed to the IMF’s New Arrangements to Borrow fully into its permanent capital.

A final word

When talking about the multilateral institutions, the focus usually lies on their finances and program activities. What is often overlooked is that these institutions are at the center of a worldwide network of country officials, financial market participants, and policy experts who are committed to market-based economics, global trade, free capital flows and responsible macroeconomic policies.

It is therefore no accident that emerging markets have become more stable in recent years. While this is an achievement on the part of each individual country, in many cases it has been spearheaded by officials that spent some years during their career working at multilateral institutions and/or continuing to benefit from close interaction with them. The transmission of knowledge through these contacts, as well as the large amount of technical assistance and training provided by multilateral institutions, are a public good that benefits the United States in many ways, and is unlike anything that China has to offer.

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Martin Mühleisen

Nonresident Senior Fellow

GeoEconomics Center

Digital Currencies Economy & Business

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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Click to jump to an expert analysis:

Josh Lipsky: Trump just put the world on notice

Dan Mullaney: This could be a game-changer for how the US imposes tariffs

Barbara Matthews: Reciprocal tariffs will hit Europe the hardest

Mark Linscott: India could be the first test case for negotiations under this plan

Trump just put the world on notice

Today’s action is not mere negotiating posture—this is the Trump administration putting nearly every country on notice. If you wanted to do widespread reciprocal tariffs across the world, you would ask the Office of the US Trade Representative and the Department of Commerce to come up with a list of recommendations and you would invoke all legal authorities at your disposal, including the International Emergency Economic Powers Act, to justify the action on national security grounds. That’s exactly what they’ve done today. 

So none of this should be dismissed as merely another Trump “wait and see” announcement. Will every country that tariffs the United States face reciprocal tariffs in April? No—several will find ways to delay, exempt, or negotiate. For example, it will be worth watching what Indian Prime Minister Narendra Modi brings to the table today as he visits the White House. But my bet is that many countries will not be so fortunate. Instead, they will face real and meaningful tariffs this spring, just as the world’s finance ministers gather in Washington for the International Monetary Fund-World Bank spring meetings. It’s the first time many of them will meet the Trump team, including Treasury Secretary Scott Bessent, and it is going to make for a very fraught first meeting. 

—Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.

This could be a game-changer for how the US imposes tariffs

Depending on exactly how it is implemented, the “Fair and Reciprocal Plan” could be a game-changer in terms of how the United States imposes general tariffs. Under the current most-favored-nation approach under the World Trade Organization (WTO), members have negotiated tariff rates among more than 160 countries that they apply without discrimination to other WTO members. This plan could mark a change to an approach where general tariffs are imposed and negotiated country by country on a bilateral reciprocal basis. It appears to upend how tariffs have been negotiated and imposed since the General Agreement on Tariffs and Trade came into existence. The most-favored-nation approach was designed to encourage a reduction in global tariffs; it’s fair to conclude that that has not happened since the initial negotiations, so some frustration is perhaps understandable. In some cases, the reduction in tariffs triggered other non-tariff barriers to trade, so the desire to calculate tariff equivalents of those barriers is perhaps also understandable.

The prospect of reciprocal tariffs can also be viewed as the ultimate bargaining tool, essentially saying: “Lower your tariffs to our current levels (and eliminate other barriers that may be identified and turned into tariff equivalents) and face no consequences.” The larger problem for WTO-focused members is that any reductions in tariffs would have to apply to all WTO members. So the European Union (EU) might be happy to lower its 10 percent tariff on autos to the United States’ 2.5 percent rate, given that the United States poses no threat to the EU’s auto business. But that rate would also apply to South Korea, Japan, and China, which do pose a real threat. 

—L. Daniel Mullaney is a nonresident senior fellow with the Atlantic Council’s Europe Center and GeoEconomics Center. He previously served as assistant US trade representative for Europe and the Middle East.

Reciprocal tariffs will hit Europe the hardest

European economies will be the most adversely impacted by the reciprocal tariff action. Within twenty-four hours, the Trump administration has articulated a broad-based pivot away from Europe, both with respect to NATO and with respect to trade. The US government has made clear its intention to revive the pre-World War II, pre-Bretton Woods trade paradigm, in which tariff policies are set reciprocally, without multilateral engagement. 

The global consequences will extend well past economics and trade. The great success of the EU project is that Europe is no longer a junior partner to the United States on the global stage. The great question for 2025 is whether European and US leaders can find a way to redefine their special, strategic relationship for mutual benefit. The great risk for 2025 is that, instead, European and US strategic interests diverge over trade, climate, and other policy priorities.

Divergence is not impossible. The transatlantic trade relationship is uneven. Imbalances do exist, particularly as Europeans impose higher import tariffs on US goods than the United States does on imports from Europe. Imbalances will grow once the EU’s Carbon Border Adjustment Mechanism is fully implemented and once Europe achieves its strategic goal of eliminating reliance on liquefied natural gas imports. The United States may view these imbalances as creating a bargaining opportunity to redefine the transatlantic relationship, particularly given the great power competition underway with China alongside Russia’s war against Ukraine.

Ironically, the good news is that the bilateral transatlantic trade relationship is not governed by a free trade agreement, so no treaties are being abrogated by the tariff action with respect to the EU. This leaves room for strategic engagement on both sides. Nevertheless, the economic impact in Europe may be considerable. Europe’s economies face considerable challenges: lackluster growth, increasing energy transition costs, and economic difficulties resulting from the war in Ukraine. Disruption in the transatlantic supply chain will create additional pressures and tensions at a delicate moment for Europe. 

—Barbara C. Matthews is a nonresident senior fellow with the Atlantic Council. She is also CEO and founder of BCMstrategy, Inc and a former US Treasury attaché to the European Union.

India could be the first test case for negotiations under this plan

The president’s announcement today of a “Fair and Reciprocal Trade Plan” appears to be a blueprint for a monumental restructuring of the international trading system. It appears that it will initiate a process that could lead to new bespoke tariff schedules for some of the major trading partners of the United States, namely those that are viewed as the worst offenders in having high tariffs and running large trade surpluses with the United States.

That said, no new reciprocal tariffs will be imposed immediately, and the process, led by the Office of the US Trade Representative (USTR) and the Department of Commerce, could take some time to run its course before final decisions are made on raising tariffs. What is clear is that this process will involve a comprehensive examination of all forms of trade restrictions applied by select countries, including the European Union, India, and Brazil, which were specifically called out in the White House fact sheet. USTR and the Department of Commerce will have to assess differential tariffs, all forms of non-tariff barriers, and discriminatory tax regimes—and quantify them so that new tariffs can be calculated on a country-by-country and product-by-product basis. That will be a huge undertaking.

What is only hinted at in the presidential memorandum and fact sheet is the possibility of negotiating new trade agreements with these countries to reduce their tariffs and other trade barriers. In fact, with the announcement coming on the day of Prime Minister Narendra Modi’s visit to Washington, India could be the first test case for negotiations that might mitigate the imposition of new tariffs. So we should all buckle up for what will be a wild ride as this plan is put into place.

—Mark Linscott is a nonresident senior fellow with the Atlantic Council’s South Asia Center. He was the assistant US trade representative for South and Central Asian Affairs from 2016 to 2018, and assistant US trade representative for the WTO and Multilateral Affairs from 2012 to 2016.

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This comes at a critical time for Syria following the collapse of the Assad regime late last year and the establishment of a new interim government led by Ahmed al-Shara, who headed the rebel group Hayat Tahrir al-Sham. Syria—and US regional and European partners—are relying on the United States to lead the way in sanctions relief efforts to allow trade and investment to flow into the country and bolster the state-building process. While limited sanctions relief was granted in the final weeks of the Biden administration, likely prompting the European Union (EU) to also recently ease economic restrictions, the Trump administration’s foreign assistance freeze has the potential to jeopardize Syria’s fragile recovery. 

In his confirmation hearing in January, US Secretary of State Marco Rubio previewed his priorities for an outcome in Syria that is favorable to US interests and, more importantly, for the people of Syria. Rubio described an endgame in which Syria is not a land bridge for Iranian proxies, a chessboard for foreign interventions, or an exporter of drugs and terrorism. On several fronts, the Trump administration should pick up where the Biden administration left off in helping Syrians to rebuild their country.

The United States should also use this critical opportunity in Syria to learn from the challenges of the past three administrations. While the strategic importance of Syria’s stability for the Middle East, European allies, and US adversaries has long been a point of bipartisan understanding, strategic outcomes in Syria have been ill-defined. US policy levers, from humanitarian aid and sanctions to military presence on the ground, were misaligned with US goals. Going forward, US humanitarian and economic assistance to the country should be better aligned with clearly identifiable goals that help the Syrian people while furthering US interests in a stable and peaceful Syria.

Reliance on foreign aid assistance in Syria

Humanitarian needs in Syria are at an all-time high—in 2024, 16.7 million people were estimated to require assistance, the largest number since the beginning of the civil war in 2011. Foreign assistance, particularly from the United States, has played a significant, lifesaving role in Syria in the last decade and a half. Despite this, the United Nations Office for the Coordination of Humanitarian Affairs recently reported ongoing and severe underfunding for the Syria Humanitarian Response Plan—with only 34.5 percent of its $4.1 billion funding requirements fulfilled as of the beginning of this year. 

The United States is the largest foreign aid provider to Syria, contributing more than $18 billion in humanitarian assistance since 2011, including $1.2 billion in 2024. Most of last year’s funding supported humanitarian and emergency response efforts, with $76.8 million for refugee and conflict victim support, $34.7 million for humanitarian aid like food and nutrition, and $20.2 million for emergency food assistance and related services.

US funding has been crucial in supporting humanitarian efforts on the ground in Syria. The White Helmets, an internationally-supported Syrian civil rescue organization, has received US support for critical operations across the country, including search and rescue missions, as well as health and protection programming. In the weeks since Bashar al-Assad’s fall, their critical work has included the clearing of unexploded ordnance across the country, which pose a severe threat to civilians, especially children, and have resulted in hundreds of deaths and injuries. The White Helmets have also prioritized securing and recovering chemical weapons stockpiles left by the Assad regime, activities which have since been halted by the recent pause, raising concerns over the ability to prevent the spread of chemical weapons in Syria and neighboring countries.

US aid has also played a critical role in managing Al-Hol and Al-Roj camps in northeast Syria, which house over 46,000 displaced individuals—primarily women and children—from former Islamic State of Islamic State of Iraq and al-Sham (ISIS) territories. Essential water and sanitation services managed by US-funded humanitarian staff were suddenly suspended, placing camp residents at greater risk of lack of access to safe drinking water, as well as water and vector-borne disease spread. Also alarming was the effect of the sudden pause on funding that contributes to the security and administrative management of major detention facilities holding close to ten thousand ISIS fighters in these areas, which raised concerns among counterterrorism officials about mass prison breaks and a potential ISIS resurgence. State Department officials quickly responded by granting exceptions for foreign aid cuts related to the management of these facilities. However, other sudden moves to withdraw aid in Syria or downsize the US military presence in the country could pose significant counterterrorism risks for the United States and its partners. It is in the United States’ broader interest to ensure security needs in Syria are met in order to prevent violent extremists from exploiting political vacuums.

What does the “stop-work” order mean for Syria?

The recent “stop-work” order has introduced significant uncertainty for ongoing aid and economic recovery efforts in Syria—and as a result poses risks to US interests in the region. While the order originally included a carve-out for emergency food aid, the exact scope and implementation of these exceptions remain unclear for Syria, raising concerns from the United Nations and aid groups about disruptions to critical forms of assistance globally. In response to this pressure, Rubio has since issued a waiver for “life-saving assistance,” which includes medical services, food, shelter, and subsistence assistance. Aid organizations, like the White Helmets and even US-based contractors and small businesses supporting US-funded programs abroad, are still navigating an unpredictable funding environment, making it difficult to plan for long-term relief and stabilization efforts.

This development comes in the context of previous US measures aimed at mitigating the impact of sanctions on humanitarian aid in Syria. The Biden administration had previously granted select sanctions relief to Syria for six months through the US Treasury Department to facilitate the provision of public services and humanitarian assistance. This relief applied to sanctions related to transactions with Syria’s government and the processing of personal remittances to the country through the Syrian Central Bank. This was followed promptly by a waiver to the Foreign Assistance Act relating to Syria’s designation as a state sponsor of terror for Bahrain, Iraq, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Turkey, the United Arab Emirates, and Ukraine. Not without its flaws, the move aimed to enable critical aid and development assistance in sectors ranging from energy and agriculture to technology and healthcare. Other countries, as well as the EU, are using a “step-by-step” approach to the lifting of sanctions on Syria as leverage to ensure the new government is meeting key indicators of a successful and sustainable political transition.

With the stop-work order now in effect, the future of US-backed humanitarian operations in Syria is now in question. The recent waiver issued by the State Department for this order notably does not include stabilization assistance—of which the United States has collectively contributed more than $1.3 billion since the start of the Syrian civil war in 2011—and is defined as multi-sectoral support to “local governance, essential services, and livelihoods and economic recovery.” Experts have noted that these efforts to promote stability in Syria in the coming months is contingent on indicators to the Syrian people that the economic conditions in the country are on the mend under the new government. It is therefore in the United States’ and its partners’ national security interests to aid postwar recovery in Syria to begin the process of improving US-Syria relations, facilitate the return of refugees and displaced Syrians around the globe, and ensure regional stability.

The Trump administration has also issued a series of executive orders on personnel at the State Department and USAID. The administration has placed senior career civil servants on administrative leave, fired institutional contractors, and pressured employees to resign. These include officials who have worked on Syria for over a decade and possess critical institutional knowledge on conflict stabilization, humanitarian assistance, and development in fragile economies.

Aid groups and policymakers are closely monitoring whether additional exemptions or funding adjustments will be made to prevent further disruptions to essential services. The potential consequences of prolonged aid suspensions could exacerbate existing humanitarian crises and create new security risks in a region already facing instability.

Ensuring a stable Syria

Syria is at a critical juncture in its history, and the next few months are essential for the country’s interim authorities to ensure national and regional stability. As Sinan Hatahet highlights in a piece for the Atlantic Council, the United States has an especially vital role to play in Syria’s recovery efforts as this “post-Assad honeymoon” phase fades. 

As other post-conflict contexts have demonstrated, foreign aid and stabilization programming—led out of the US State Department and USAID—will be instrumental in determining Syria’s trajectory. To facilitate a stable postwar recovery in Syria, the United States must ensure that US leadership in aid development is not in question. In addition to resuming existing aid programs, there are several steps the administration can take to improve its aid to Syria and better align it with US objectives.

• Evaluate how local programs fit into broader US policy and Syria’s evolving political situation.
• Ensure aid is aligned with local systems and development priorities as programs are renewed or new ones are developed.
• If unwilling for political reasons to increase US aid to Syria, continue Biden administration steps, including taking further actions to permanently roll back sanctions in Syria and to remove barriers for allies and partners to do so.

Postwar Syria faces a precarious economic and security situation and the United States’ assistance—or lack thereof—will play an outsize role in its outcome. For the sake of both the Syrian people and the United States’ interest in a stable and peaceful Syria that does not become a terrorist threat, it is imperative that US aid to Syria continue. 

Diana Rayes, PhD, is a nonresident fellow for the Syria Project in the Atlantic Council’s Middle East Programs.

Note: Some Atlantic Council work funded by the US government has been paused as a result of the Trump administration’s Stop Work Orders issued under the Executive Order “Reevaluating and Realigning US Foreign Aid.”

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The successes of the past twenty-five years are undeniable—since 2000, poverty has been cut in half and global gross domestic product (GDP) growth has more than tripled. However, the failures are real as well. The internet, for all the incredible ways it has reshaped trade and innovation, has also fueled long-simmering divisions within countries.

The world is searching for a new “Wright Brothers moment”—a transformational invention that not only enhances productivity but simultaneously inspires people to imagine what comes next. The internet made us look down at our phones; the Wright Brothers made us look up to the sky.

The question is, will the United States and its allies be able to reap the benefits of this century’s Wright Brothers moment? It will likely depend on the economics. From 1900 to 1925, the pound sterling lost its global reserve currency status, industrialization fueled the greatest period of globalization the world had known, and the United States emerged as an economic superpower.

Fast forward to 2025 and the United States has the strongest gross domestic product (GDP) growth of any advanced economy, its startups set the standards across the world, and its geopolitical rivals, including China, have shown since the COVID-19 pandemic that they are not, in fact, ten feet tall.

But the difference between success and failure will be decided in unexpected places. Below are five pressing questions about the global economy in the year ahead. The answers to each of these questions will help determine whether the next twenty-five years mark a supercharged quarter century or push the United States off its economic flight path. 

1. Will Trump try to fire the Federal Reserve chair?

For all the concerns about the future of the US dollar, one of the only real near-term threats would come from a lack of confidence in the Federal Reserve’s independence. What could trigger such a crisis? Check out our breakdown of how Group of Twenty (G20) countries handle the dismissal of their central bank chiefs: 

The good news is that President-elect Donald Trump has said he isn’t going to try to fire Federal Reserve Chair Jerome Powell before his term is up in 2026. The bad news is that he might be able to do it if he changes his mind. The closest the United States has come to testing the idea is probably President Lyndon Johnson asking his Justice Department if he could fire then Federal Reserve Chair William McChesney Martin in 1965.

If the US president proposes this idea, then expect markets to send a ferocious signal not to cross that line. A more likely outcome is that Trump will appoint a new Federal Reserve chair very early in his term, which will cause some confusion but not an outright crisis. 

2. What effects will new US tariffs on China have?

New year, new tariffs? New US tariffs on China are coming—that much is already clear. But to understand how they will impact the US economy, take a deeper look at the tariffs that Trump put on Chinese goods during his first administration. The chart shows how Mexico and Canada have now overtaken China as the top sources of goods covered under the previous Section 301 China tariffs (which included a range of agricultural and manufacturing products). 

If the goal of higher tariffs is friendshoring, or diversifying import sources to trusted partners, the data show that maybe there’s something to this whole strategy—even if it takes time. And it’s not just Mexico and Canada stepping up to replace Chinese exports—the next twenty top US trade partners have nearly all increased their exports to the United States regardless of geography, from South Korea to Germany, and from Vietnam to Brazil.

While the first wave of tariffs had to wait out a pandemic, the next wave may hit China faster and harder, and the rest of the world is ready to take advantage. 

3. Is China’s Belt and Road Initiative back in business?

It certainly looks that way. New data from 2023 show that it was the first year since 2016 that China’s loans to Africa increased compared to the year before. The analysis below shows how China’s economic slowdown, and the COVID-19 pandemic, conspired to curb spending over the past few years.

But now it appears that Chinese leader Xi Jinping is ramping the Belt and Road Initiative back up. And this time, the money that is being spent is in yuan, not US dollars. The focus has shifted to smaller projects and lower financing levels to avoid some of the defaults seen in earlier projects.

The question now is whether Trump tries to counter the Belt and Road Initiative with bilateral US spending or by organizing a Group of Seven (G7) alternative to Beijing. 

4. Will the Global South get more voting power in the IMF?

When the Atlantic Council hosted India’s finance minister, Nirmala Sitharaman, in Marrakesh in 2023, she said that India and the Global South would not accept another unfair arrangement at the Bretton Woods institutions on voting power. This year, her ultimatum will be put to the test. How would the distribution of power change if votes were finally reallocated in the International Monetary Fund? It’s not as clear as you might think: 

The United States would gain votes, as would China, if votes were distributed simply based on a country’s share of global GDP. The real formula is more complicated, but the chart above does help show how things could shift. India would gain a little, and most of the G7 would lose. Of course, Europe losing also costs the United States, as it would have fewer friends at the board.

There is, however, no clear path forward, and it’s hard to see Trump agreeing to anything that benefits China. But don’t expect Indian Prime Minister Narendra Modi or Xi to capitulate either. A new battle of Bretton Woods may be brewing.

5. What’s next for US dollar–backed stablecoins?

In 1971, US Treasury Secretary John Connally famously told a group of European finance ministers that the dollar was “our currency, but your problem.” Europe in particular is going to be thinking about that notion quite a bit in 2025. To understand why, see how dollar stablecoins are increasingly popular around the world: 

Last year was a big year for cryptocurrency; Bitcoin’s price reached one hundred thousand dollars in December, and the industry played a significant role in the US elections. But the focus in 2025 will shift to stablecoins. Today, $170 billion worth of stablecoins are in circulation worldwide, with 98 percent of those pegged to the dollar. 

But as the chart shows, about 80 percent of the flow of US dollar-backed stablecoins happens outside the United States. This is driven mainly by adoption in Europe (with Russia in the lead), in India, and in Southeast Asian countries, such as Vietnam, Singapore, and Indonesia, which are using stablecoins for remittance payments and as a way to access dollars. 

The result is that while the United States finally created a regulatory framework for these assets, other central banks and finance ministers are going to ask the incoming Trump Treasury department exactly what the plan is for all these new dollars floating around in their economies. 

Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.

Sophia Busch is an assistant director at the Atlantic Council’s GeoEconomics Center.

Research and data visualizations provided by Jessie Yin, Mrugank Bhusari, and Alisha Chhanganni.

This article is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in receiving this newsletter, email
SBusch@atlanticcouncil.org

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Much has changed a year on from Milei’s inaugural—and memorable—assertion that “no hay plata!” (there is no more money [for public spending]). As Milei made front-page news, catching the attention of the Financial Times and the Economist, he has also earned the praise of world leaders such as Trump and members of the president-elect’s inner circle, such as tech mogul Elon Musk. Meanwhile, financial markets have continued to celebrate as Argentina’s stocks have roared upward, providing the highest yearly returns of any other economy and doubling those of the second-best performing markets (as expressed through country exchange-traded funds).

The government has doubtless made much progress in areas in which it was expected to struggle, restoring significant levels of confidence to an embattled economy that just a few days ago was officially announced to be out of a severe recession. As Argentina heads into a critical year for the government’s economic strategy, Milei will need to maintain voters’ buy-in and market confidence for his policies while pursuing further economic reforms.

2024: A triumphant first quarter of a four-year term

As Guido Sandleris, former president of the Central Bank of Argentina (2018-2019), argued in our 2024 Atlas, before Milei’s inauguration the Argentine president had correctly identified the country’s “real problems”: inflation, high and inefficient public spending, political capture, and endemic corruption, among others. For Sandleris, the challenges for the Milei administration were clear: The country was on the verge of hyperinflation, the central bank had negative net foreign exchange reserves, the fiscal deficit was out of control, and utilities and prices were long outdated, forcefully frozen in place by the previous administration. Milei had also come into office with a limited political toolbox, holding a minority in congress that was not even impeachment-proof and relying on a small party structure.

Considering this initial outlook, the results of the past year are noteworthy. The government instituted aggressive budget cuts, spending freezes, and a deregulation campaign. It also passed significant legislation (which revealed the government’s ability to negotiate with the opposition) and successfully implemented a tax amnesty scheme to attract undeclared banking deposits. In the wake of these policies, Argentina’s economy has gained a more solid footing and is on track for normalization. Inflation has come down to pre-2023 crisis levels, the economy is showing signs of recovery, consumer and investor confidence are on the rise, and government bonds have regained much of their value.

Two figures illustrate this success: the drop in Argentina’s emerging markets bond index spreads, which is a key measure of sovereign risk, and the rise of projected investment as a share of gross domestic product, both of which we have analyzed. But perhaps the most notorious achievement has been its commitment to fiscal responsibility, a laudable effort in the context of Argentina’s chronic tendency to incur unsustainable public spending.

Optimism is perhaps the best way to describe the current moment in Argentina, and recent opinion polls illustrate this. Milei has succeeded even in outperforming President Mauricio Macri, his most ideologically proximate predecessor, in his approval rating at the end of his first year in office across social sectors, according to Gallup. As Milei put it in an interview with the Financial Times in October, “I have a 50 percent approval rating after carrying out the biggest austerity program in our history. It’s a miracle, isn’t it?”

How can Milei finish out a strong first half in 2025?

Milei, who played goalie in soccer in his youth, understands that it’s critical to finish out a strong first half to win a match, and restoring Argentina’s macroeconomic stability was never going to be accomplished overnight. The question now is whether the administration will be able to maintain support for its policies while deepening its reform agenda. Next year’s midterm elections in October, in which the government aims to strengthen its vulnerable position in congress, will play a large role in setting the agenda for Milei’s second year in office.

Although the outlook is much brighter than it was a year ago, challenges still loom in 2025. The main objective will be to deliver growth, estimated at 5 percent by the International Monetary Fund (IMF), following two years of consecutive drops (1.6 percent in 2023 and an estimated 3.5 percent in 2024) while continuing to reduce inflation. And the latter is far from over: Banks estimate that prices will rise over 30 percent in 2025, while the government’s own more optimistic estimates in the 2025 budget proposal predict that prices will rise by 18 percent (annualized inflation in the United States this past November was 2.7 percent). Markets will also be watching the elections closely. If the economy fails to deliver much-needed growth and inflation remains stubborn, it could cause a sudden deterioration in market confidence. However, the opposition’s fragmentation, itself the result of the 2023 economic crisis and the disruptive victory of an outsider like Milei, may ease the administration’s path to make significant gains.

Nevertheless, the government has taken steps to mitigate risks and open new opportunities to strengthen the country’s economic recovery in the new year—nowhere more prominently than on the world stage. Milei scored several major foreign policy wins, including the beginning of its Organisation for Economic Co-operation and Development accession process. And the South American economic bloc Mercosur, of which Argentina is a member, signed a historic trade deal with the European Union earlier this month.

Argentina’s stocks reacted positively to Trump’s election in November, a clear sign of the market’s belief that the next administration will yield net positive effects for Argentina. Milei has developed a close relationship with Trump. The Argentine president has openly stated that he thinks Trump will play a decisive role within the IMF’s board to push for a favorable renegotiation of Argentina’s outstanding program with the IMF. This could include the disbursement of new funds and a rollover of repayment deadlines, as Argentina owes the IMF over forty billion dollars at a time when its net international reserves stand at negative three billion dollars). Indeed, US Senator Marco Rubio, Trump’s nominee for secretary of state, has argued that the United States should use its influence at the IMF to help restructure Argentina’s debt, which he said would “create breathing room for Milei to enact much-needed reforms.” One of the major sticking points in Argentina’s negotiations with the IMF is the Fund’s belief that Argentina should end its outdated system of currency controls (the “cepo”). Ending the cepo would likely spur growth and drive investment but may also put pressure on the peso—and thus reaccelerate inflation—something that the government will likely avoid until after the midterm elections in October.

At the same time, Argentina has reached a new moment in its relationship with China, a key trading partner, following months of tensions triggered by the president’s earlier critical rhetoric. Illustrating this case, in June, China renewed its currency swap with Argentina, saving the country from a sudden loss of much-needed foreign reserves. Chinese leader Xi Jinping and Milei then met for the first time on the margins of the Group of Twenty (G20) summit in November.

Domestically, important announcements such as the end of the recession and recent investments announced under the government’s investment promotion regime, including $2.5 billion from Rio Tinto for lithium mining and a multicompany investment of three billion dollars for a new oil pipeline, both of which happened just this month, indicates that rising investor confidence will begin to fuel the revitalization of Argentina’s historically low investment levels. This year was also significant for the country’s energy independence, and rapidly rising shale oil and gas production has saved the country billions in energy imports while boosting exports, a trend that will only deepen in coming years. Argentina has even started negotiations with Brazil, despite public tensions between President Luiz Inácio Lula da Silva and Milei, to explore the possibility of exporting Argentina’s booming natural gas production there.

Milei’s economic policies have exceeded expectations in the administration’s first year. But given its precarious starting point, Argentina is still vulnerable to external economic shocks and sudden losses of investor confidence. As such, the administration should consider moving forward with a series of key steps that may drive growth beyond post-crisis recovery values and further cement the market’s confidence in the economy. Such measures could include accelerating the end of the cepo and allowing the peso to float freely (and thus making Argentina less vulnerable to the ongoing devaluation of the Brazilian real). The government should take steps to reassure markets of its ongoing commitment to fiscal responsibility and healing its credit rating. These measures could include the negotiation of a new and sustainable IMF program, the passing of the long-delayed 2025 budget, and the continued elimination of special protections that for decades successive governments have awarded to uncompetitive segments of the economy.

The first year of Milei’s administration will be remembered as a surprisingly strong start to an ambitious reform agenda. For that agenda to be fully realized, Milei will need to continue to pursue bold reforms while maintaining public support and market confidence in 2025.

Ignacio Albe is a program assistant with the Atlantic Council’s Adrienne Arsht Latin America Center.

Jason Marczak is vice president and senior director at the Atlantic Council’s Adrienne Arsht Latin America Center.

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In May, US President Joe Biden announced a 100 percent tariff on all electric vehicles (EVs) imported from China. The administration had two main objectives: 1) Protect and stimulate US clean energy industries and supply chains, and 2) counter a flood of Chinese goods as Beijing turns to exports to compensate for its weak internal demand. For the United States, these tariffs are largely preventative and symbolic, as Chinese EVs make up only around 2 percent of total EV imports. For other Group of Seven (G7) countries, it’s too late for prevention, as Chinese EVs already dominate.

The Biden administration coordinated with concerned allies and, in August, Canada also announced it would levy a 100 percent tariff on EV imports from China. The European Union (EU) later imposed up to 45.3 percent tariffs on Chinese EVs. Economic stress due to Chinese dumping increasingly reaches beyond the United States––and even beyond the G7. Since 2023, Argentina, Brazil, India, and Vietnam have all begun anti-dumping or anti-subsidy investigations into Beijing’s practices. 

The incoming Trump administration will now have a choice. It can revert to President-elect Donald Trump’s previous preference for bilateral negotiations, or it can continue to restrict China’s access in step with allies and partners, possibly by creating a “buyers club” to regulate standards and open markets to a select few.

—Sophia Busch is an assistant director at the Atlantic Council’s GeoEconomics Center. 

In October 2024, the US Department of the Treasury issued final regulations implementing the Executive Order on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern. Once it comes into effect on January 2, 2025, the Outbound Investment Security Program (OISP) regulations will prohibit or subject to notification requirements certain transactions involving Americans and persons affiliated with designated countries of concern (presently, China, including Hong Kong and Macau) operating in the semiconductor and microelectronics, quantum information technology, or artificial intelligence (AI) sectors (“covered foreign persons”). 

With respect to AI, the OISP will generally prohibit US persons from investing in a covered foreign person that develops any AI system trained using a quantity of computing power greater than ten septillion (10^25) computational operations (integer or floating-point operations). In addition, the OISP sets forth other computational thresholds implicating investment prohibitions (i.e., greater than 10^24 computational operations using primarily biological sequence data) or notification requirements (i.e., greater than 10^23 computational operations). Notably, regardless of computing power, covered transactions involving AI systems designed or intended for military, government intelligence, mass surveillance, cybersecurity, digital forensics, penetration testing tools, or the control of robotic systems end uses are also subject to prohibitions or notification requirements.

Absent practical guidance or enforcement history, exactly what these computing power thresholds mean in practice, as well as how they reasonably can be determined, remain to be seen. However, given its breadth, complexity, and enforceability, the OISP seems likely to have a significant effect—most notably with respect to US persons, but also in connection with the activities of certain foreign persons controlled by US persons or for which US persons serve in key roles. Such persons have until the new year to start making sense of what may be about 10^25 questions regarding their exposure under the OISP.

—Annie Froehlich is a nonresident senior fellow at the GeoEconomics Center and partner at Cooley LLP.

The 2024 meeting of the BRICS+ gathered the representatives of forty countries on October 22-24 in Kazan, Russia. This number is about four times the size of the BRICS+ (named for members Brazil, Russia, India, China, and South Africa), which expanded in 2023 to include Argentina, Egypt, Ethiopia, Iran, the United Arab Emirates, and Saudi Arabia.

While the creation of a BRICS currency still appears unlikely, the bloc announced a substitute for Western payment systems called BRICS Clear. Circumventing sanctions or the extraterritoriality of US banks and, more generally, becoming less dependent on the US dollar are clear motivations behind such endeavors, as well as a growing interest in making bilateral arrangements to use China’s e-yuan.

Some notable leaders, such as Argentine President Javier Milei and Brazilian President Luiz Inácio Lula da Silva, were absent. But the attendees were a large and heterogeneous group, including both Turkey and North Korea. But without being officially opposed to the United States, the US dollar, or even the G7, the summit in Kazan visibly illustrated increasing global fragmentation. True, it took two world wars for the British pound to be dethroned by the dollar, and the latter remains dominant, representing about 60 percent of central banks’ official reserves, international debt, and credit. But in a multipolar world, could too much hegemony be its own undoing?

—Marc-Olivier Strauss Kahn is a nonresident senior fellow at the Atlantic Council and honorary director general at Banque de France.

Russia’s invasion of Ukraine laid bare a vulnerability in Europe’s energy strategy: an overreliance on a single supplier for critical resources. The EU is determined to avoid repeating the same mistake with lithium, a critical mineral often referred to as “white gold” for its indispensable role in the decarbonization race. However, the EU faces an uphill battle to reduce its near-total dependence on China, which currently supplies 97 percent of the bloc’s raw lithium.

With its ability to produce lithium at low cost thanks to cheaper labor, state-controlled financing, and energy subsidies, Beijing has flooded global markets and produced much more lithium “than the world needs today, by far,” according to Jose Fernandez, under secretary for economic growth, energy, and the environment at the US Treasury Department. To mitigate this monopoly, the EU has set ambitious targets, including producing at least 10 percent of its annual lithium consumption within the bloc by 2030. However, the region’s lithium mining projects are not expected to begin production until the end of 2026, leaving a significant gap in the interim.

As the world transitions to green technologies, lithium will remain a cornerstone of the global energy transition. For the EU, building a resilient, diversified supply chain is a strategic necessity.

—Grace Kim is a young global professional with the GeoEconomics Center.

Almost half of the world held elections in 2024. In Western democracies, opposition parties have won six out of fifteen decisive elections. Globally, more than half of incumbents or ruling coalitions managed to stay in power. However, unstable coalitions prompted multiple collapsed governments in Europe, including Germany and France.

Meanwhile, Russia’s efforts to interfere in Eastern European and Eurasian countries’ elections were a prominent but not unexpected problem. Russia’s direct and indirect interference in the Georgian parliamentary elections has been thoroughly researched and documented. Like in Georgia, the Moldovan elections were fraught with Russian disinformation and meddling, although pro-Western incumbent President Maia Sandu emerged victorious. Meanwhile, Romanian intelligence services declassified documents showing that the country’s elections have become the target of “aggressive hybrid Russian action,” including 85,000 cyberattacks on Romanian election websites. 

These instances of interference throughout 2024 demonstrated that Russia and other adversaries are invested in undermining elections as a fundamental principle of democracy. This is an opportunity for the United States and the EU to leverage positive economic statecraft tools to equip countries in Eastern Europe and Eurasia with secure election technologies and provide financial assistance to educate populations in identifying and thwarting Russian propaganda and disinformation. 

—Kimberly Donovan is the director of the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. Follow her at @KDonovan_AC.

—Maia Nikoladze is the associate director at the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. Follow her at @Mai_Nikoladze.

—Mikael Pir-Budagyan is a young global professional at the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center.

Since the start of the year, the cryptocurrency market capitalization nearly doubled from $1.65 trillion to $3.65 trillion. This year, the digital asset industry made significant inroads into the global economy, especially bitcoin and stablecoins. 

Bitcoin continues to dominate the digital asset market, accounting for more than 50 percent of the total market capitalization as the asset crossed $100,000 on December 4. On January 10, the US Securities and Exchange Commission approved the bitcoin spot exchange-traded funds, giving retail and institutional investors greater access to the asset—in November, a group of US bitcoin exchange-traded funds recorded $6.2 billion of inflow. Stablecoins also saw significant, use accounting for trillions of dollars of transaction volume every month. In October, Stripe acquired stablecoin platform Bridge for $1.1 billion, demonstrating what may be fintech firms’ bigger push into digital assets. 

Digital assets should be expected to see more mainstream adoption under the Trump administration and a Republican-led House and Senate, which have expressed a pro-crypto stance. This will likely result in more open-source developers in the United States and greater exploration by financial institutions. 

—Nikhil Raghuveera is a nonresident senior fellow at the GeoEconomics Center and co-founder of Predicate.

As interest rates hit twenty-year highs, developing countries paid out a staggering sum of $1.4 trillion to service their foreign debts. The details behind that headline are equally stark and troublesome. Interest payments alone amounted to more than $400 billion as rates surged. And, as with most shocks, the poorest countries and most economically insecure people have been hit the hardest as governments are forced to make tradeoffs between development and growth, and as spending is diverted from critical health, education, and infrastructure investments. Low-income economies eligible for the International Development Association (IDA) paid $96 billion in debt service; and their interest payments now amount to nearly 6 percent of the export earnings of IDA-eligible countries—a level that hasn’t been seen in more than twenty-five years. For some countries, the payments run as high as 38 percent of export earnings. And more money is flowing out than in. Since 2022, foreign private creditors took in almost $13 billion more in debt-service payments from public sector borrowers in IDA-eligible economies than they doled out in new financing. Multilateral banks have been playing a larger role, even as service payments, interest rates, fees, charges, and surcharges have come under scrutiny. 

For its part, the World Bank announced in advance of the Annual Meetings in October that it was lowering the minimum equity-to-loan ratio from 19 percent to 18 percent, freeing up $30 billion more in financing, removing certain fees, and lowering the price of loans for smaller economies. Meanwhile, the International Monetary Fund (IMF) announced a package of reforms to its General Resources Account lending that will significantly reduce the cost of IMF borrowing, which has compounded the crisis for many countries. The principal changes include a reduction of the margin over the Special Drawing Rights interest rate, an increase in the threshold at which surcharges apply, a lower rate for time-based surcharges, and a higher threshold for commitment fees. More than a third of General Resources Account (GRA) borrowers are currently subject to surcharges. By fiscal year 2026, the number of nations subject to surcharges is projected to drop from twenty to thirteen. Hefty savings for GRA borrowers are expected––$1.2 billion annually, or 36 percent.

––Nicole Goldin, PhD, is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center.

Nothing encapsulates China’s economic crisis better than the steep fall in government revenue from “land use” sales. Since peaking in 2021, the country’s booming real estate sector has fallen into a deep depression, with construction grinding to a halt in many cities and falling prices adding to deflationary pressures in the Chinese economy. That has proven devastating to China’s heavily indebted local governments, which have relied on the sale of “land use” rights for much of their operating income. The IMF estimated in 2023 that the debt of local governments and financing vehicles they’ve set up over the years to raise (and spend) money totaled more than 100 trillion yuan ($13.7 trillion). With an estimated fifty million residences sitting empty nationwide, many property developers having defaulted on debts, and local governments unable to pay their bills, Beijing is struggling to sustain economic growth.

—Jeremy Mark is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

In 2024, the US Department of the Treasury took the final steps to implement Biden’s Executive Order 14105 to create a targeted Outbound Investment Security Program. During the rulemaking process, Treasury initially estimated that 212 transactions per year could fall within the program’s jurisdiction. The public comment period apparently caused Treasury to raise their estimates to 318 to “account for the likely underrepresentation of potentially relevant transactions,” but the private markets are famously opaque and Treasury went on to concede that “precise data that matches the scope of potential covered transactions is not available.” Treasury’s revised estimate should still only implicate less than 1 percent of deal activity (by deal count, vice value). The question for 2025 is whether this small percentage is an accurate reflection of the program’s impact on US outbound investments and the costs of compliance.

—Jesse Sucher is a nonresident senior fellow at the Atlantic Council’s Economic Statecraft Initiative in the GeoEconomics Center. 

There is nothing like large, unilateral, and across-the-board tariff proposals from the United States to get tongues wagging and economic models churning. The latest tariff proposals from the president-elect are no exception. But maybe more important than the impact of such tariffs is the question of whether the EU should view these tariff proposals as weapons and threats directed against trading partners, or as tools of US domestic policy that result in collateral damage to the EU. Each characterization is credible, but the difference is huge in terms of the direction of transatlantic relations.  And once EU policymakers start to publicly own one narrative or the other, it is hard to go back. 

If the tariff proposals are viewed as weapons and threats, a reasonable EU response—and maybe the only one—is retaliatory tariffs, and to refuse to negotiate “with a gun to our heads” (in well-worn EU parlance). This would likely lead to tit-for-tat retaliation or even a trade war. If, by contrast, the EU views the tariff proposals as tools of US domestic policy that inflict collateral damage on the EU, then a reasonable response is an early bilateral discussion on other ways to achieve US domestic policy objectives, but with less or no collateral damage to the EU. 

Among the policy objectives for these and previous proposed tariffs are: addressing persistent goods trade imbalances, encouraging domestic manufacturing, raising revenue, and protecting against and disincentivizing nonmarket excess capacity. These are policy goals that the EU and other trading partners can understand (and even arguably share), even if they disagree that tariffs are always a good way to achieve them. Indeed, some of these goals—like addressing the challenges posed by nonmarket economies—are better achieved in coordination with like-minded allies, which provides a clear opening and opportunity for collaboration.  

The current moment is ripe for early US-EU engagement on achieving the United States’ policy objectives while minimizing collateral tariff damage (including to the US economy itself). Engagement could, indeed, drive the percentage numbers in the header above closer to zero, at least for the EU.

––L. Dan Mullaney is a nonresident senior fellow with the Atlantic Council’s Europe Center and GeoEconomics Center.

That’s the amount of money generated by pulling forward future interest earnings on Russia’s blocked sovereign assets. For nearly three years, the G7 debated how to handle the $300 billion in Russian foreign exchange reserves being held in Western central banks. While some advocated for a total seizure of the full amount, others worried about the legality of such a move and the backlash it would create across the Global South. 

So the G7 reached a game-changing compromise. Creatively, and drawing in part on Atlantic Council GeoEconomics Center research (see our simple annuity formula below), the G7 calculated the interest these assets would earn over the next twenty years and deliver that total—$50 billion—to Ukraine in this calendar year. When you consider that Ukraine’s total budget in 2023 was around $80 billion, you understand that this solution is more than just a temporary fix—it’s a surge of resources delivered at a critical moment. And the number also represents what can happen when allies work together and think outside the box during an unprecedented situation.

––Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center.

Digital ID presents massive opportunities for governments and the private sector to interact with people more efficiently; well-known examples include India’s Aadhar system and Estonia’s e-ID. As governments digitize services and interfaces with constituents, digital ID is expected to play a significant role in resource allocation, access control, and data collection. At the same time, digital ID poses a number of challenges. Prior research (including from me and my colleagues at Carnegie Mellon University) has shown that ID requirements can pose significant barriers—particularly to marginalized populations—due to procedural challenges and/or limited resources for onboarding, identity-proofing, and authenticating individuals. Another prominent challenge is privacy and security. Digital ID systems typically collect and process sensitive data such as biometrics; ensuring proper privacy and security protections for this data is far from trivial. Moreover, not all countries with digital ID systems even have data protection laws in place—or the means to enforce them. 

As governments around the world increasingly embrace digitization and adopt digital ID, they will face a challenging balancing act between providing useful, usable services while also providing safeguards against many potential pitfalls that can have disastrous outcomes for constituents.

—Giulia Fanti is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and an Angel Jordan associate professor of electrical and computer engineering at Carnegie Mellon University.

Through May of 2024, Russia supplied approximately 35 percent of US imports for nuclear fuel. Biden imposed a ban on the importation of uranium products from Russia, which went into effect in August. This was a significant move for the US energy sector transitioning away from resources that had been a critical part of the US nuclear energy regime. It’s important to note that a waiver process exists to allow some importation of enriched uranium to continue for a limited time. 

This very narrow resource that continued to be purchased from Russia by a country that had imposed crippling sanctions on the Russian economy is an important reminder that Russia was still very much part of global supply chains this year. 

—Daniel Tannebaum is a partner at Oliver Wyman, where he leads the Global Anti-Financial Crime Practice, and a nonresident senior fellow within the Atlantic Council’s GeoEconomics Center.

In October, the Associated Press reported that Microsoft and Google would invest in small nuclear reactors to support “surging demand [for carbon-free electricity] from data centers and artificial intelligence.” Amazon also announced plans to invest in small nuclear reactors as dedicated sources of zero-carbon energy to support its data centers and server infrastructure.

These investments occur as technological innovation sparks sharp increases in demand for electricity, as seen in data released by the US Energy Information Administration.

Goldman Sachs research this year estimates that AI alone will generate a more than 160 percent surge in demand by 2030 for electric power to cool data centers and maintain operational integrity for the physical servers that support cloud-based AI computing.  

The share of demand for electricity by US data centers is expected to double by 2030, although it will still remain in the single digits relative to other sources of demand.

For decades, energy and national security have had a high degree of overlap with geopolitics due to the unique role that fossil fuels play in the global economy. One consequence of Russia’s aggression in Ukraine since 2014 has been to incentivize the rapid adoption of clean energy in order to minimize geoeconomic vulnerabilities associated with imported fossil fuel energy. 

Many will celebrate the proactive shift toward renewable and nuclear energy by the three largest technology companies on Earth. But the shift will also create national security issues among three critical infrastructures: the electricity grid, nuclear energy, and AI/data centers. Local, renewable, zero-emission energy will transform and potentially complicate the interplay between national security policy, energy policy, and AI policy.

—Barbara C. Matthews is the CEO of BCMstrategy, Inc., a company that generates AI training data from the language of public policy. When in government, she was the first US Treasury Department attaché to the EU and, prior to that, senior counsel to the House Financial Services Committee. She is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center.

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• Executive summary
• A blueprint for the new bank
• Faster decisions, better borrowing terms
• Political will remains the key challenge
• How the bank would function
• What the bank would do
• Conclusion
• Appendix

Executive summary

The underinvestment in defense, security and resilience by a significant number of allied nations, falling short of the minimum 2 percent gross domestic product (GDP) NATO target, or who are simply unable to finance credible defense capabilities,¹ creates political disunity and practical limitations in meeting collective defense treaty commitments.² This issue largely stems from political rather than economic factors. Despite Russia’s invasion of Ukraine and rising geopolitical tensions with China, the public in many European nations and Canada prioritize spending on healthcare, education, and public infrastructure over defense.³ This report posits that expecting a drastic shift in these domestic spending priorities remains unlikely.⁴ Instead, a viable solution to this challenge is proposed through the establishment of a Defense, Security and Resilience multilateral lending institution (MLI): what this report is calling the Defense, Security and Resilience bank.

This proposal is grounded in over five years of research and analysis within the NATO International Staff and, externally, in academia, and is complemented by insights from JP Morgan’s supranational (MLI) finance team. It incorporates perspectives from extensive dialogues, solicited by the author, with allied representatives across most Euro-Atlantic governments including ministries of defense, finance, and foreign affairs. The concept of a Defense, Security and Resilience bank— originally called the NATO bank initially briefed to NATO’s secretary general’s office in 2019,⁵ and presented in a 2020 Atlantic Council paper⁶ and a 2023 Financial Times op-ed⁷—is explored in depth in this report, including the anticipated operational dynamics and the advantages and challenges for allies in creating it.

Since that 2019 NATO briefing, the geopolitical landscape has evolved significantly. The emergence of new challenges, notably the war in Ukraine and a shift in global economic conditions (higher domestic interest rates, and exposure to inflation), underscore the relevance of the proposed bank to support long-term, stable defense planning. Unlike existing MLIs, none of which are mandated or equipped to address allies’ unique defense and security financing needs, the Defense, Security and Resilience bank would fill a crucial gap.⁸ For allies across both the Euro-Atlantic and Indo-Pacific regions, the bank could go beyond offering low-interest loans for defense modernization to facilitating equipment leasing, currency hedging, and supporting critical infrastructure and rebuilding efforts in conflict zones like Ukraine. Its counter-cyclical capacity would serve as a financial safety net for all allies, preserving defense spending stability and collective security during economic downturns—i.e. enhancing international resilience.

An additional critical function of the DSR bank would be to underwrite the risk for commercial banks, enabling them to extend financing to defense companies across the supply chain. This mechanism is essential to sustaining and expanding production capacity, particularly for small and medium-sized enterprises (SMEs) that are pivotal to defense manufacturing but often struggle to access capital. By guaranteeing a portion of the risk, the DSR bank would ensure that these companies can secure the financing needed to maintain operations, fulfill contracts, and invest in scaling their capabilities. This approach not only stabilizes supply chains but also reinforces the defense industrial base, ensuring production readiness and resilience during times of heightened demand or economic uncertainty.

Securing a AAA credit rating would be paramount for the bank to effectively fulfill its potential, enabling it to provide low-cost loans and enhancing defense-spending feasibility for the bank’s member nations. This rating would be attainable even though many Euro-Atlantic and Indo-Pacific allied nations do not individually possess a AAA rating, which is the best among investment-grade bonds (see the appendix).⁹ While respecting the sovereignty of its member nations, the bank’s operations must need to navigate the inherently political nature of establishing a defense, security and resilience-focused MLI. It is proposed that a small group of nations act as anchor nations for this efforts.¹⁰

To effectively capitalize the proposed bank, allies would be invited to provide paid-in capital, a standard approach for multilateral lending institutions (MLIs). Additionally, a politically sensitive yet innovative proposal could involve using seized Russian central bank funds—or at least the interest generated from these funds—currently held in Belgium and managed by Euroclear. Leveraging these funds could provide a robust financial foundation for the bank, allowing allied nations to establish a Defense, Security, and Resilience bank with Russian assets as paid-in capital. By channeling Russian central bank resources, the bank could finance loans used to procure armaments for Ukraine, enabling them to sustain their defense efforts. However, given the potential for significant political and diplomatic repercussions, including possible retaliatory actions by Russia, this approach demands careful consideration and consensus among the bank’s prospective shareholder nations.

Effective governance and compliance with established financial regulations would be essential for the bank’s successful operation. The formation of a board of directors, consisting of experts from member nations, would be pivotal for ensuring strategic alignment and sound decision-making. The proposed design for the bank, as a regulated entity, is geared to operation with the efficiency characteristic of MLIs, with which all allies and partners are familiar and members of.

The Defense, Security and Resilience bank is proposed as a strategic tool to address the challenges of defense spending among Euro-Atlantic and Indo-Pacific nations. It offers a complementary financing mechanism, particularly beneficial for nations grappling with high debt-to-GDP ratios or elevated borrowing costs. While not a panacea, such a bank could ease fiscal pressures and encourage increased defense, security and resilience investment across member state regions. Indeed, in the context of defense it should be noted that it is not too much debt that risks being a burden on future generations it is too little investment.

The establishment of the Defense, Security, and Resilience (DSR) bank depends in-part on founding members with strong credit ratings to underpin its financial stability and operations. While the ultimate goal is to allow membership from all Euro-Atlantic and Indo-Pacific allies, the bank will initially require a core group of anchor nations to build its balance sheet and governance structure. The Joint Expeditionary Force (JEF)—a coalition of ten allied nations with robust credit ratings—along with the United States and Japan, could form this foundational group.¹¹ This JEF-led approach would establish a credible foundation and could potentially feed into the European Investment Bank (EIB) framework noting that the Defense, Security and Resilience Bank must be created as a separate legal entity with its own credit rating to ensure independent governance and operational flexibility. Once the bank’s charter is in place by those anchor nations, remaining NATO, EU, and Indo-Pacific allies and partners would be invited to join as shareholders, creating an inclusive and resilient institution for defense, security, and resilience financing.

Based on the creation of other MLI constructs, the bank could be operational by 2027.

A blueprint for the new bank

As geopolitical tensions mount, the lens of global scrutiny remains firmly fixed on allied nations and their defense capabilities. Yet despite these escalating pressures, eleven out of thirty-two NATO met the agreed-upon minimum defense spending target of 2 percent¹² of gross domestic product (GDP) in 2023, with an expectation that this figure will rise to twenty three out of thirty-two by the end of 2024.¹³ This is positive, but the uncertainty about whether such investment will hold or beholden to annual budget cycles and exogenous shocks continues to hang over both finance and defense ministries alike. Although the validity of the 2 percent target is debatable,¹⁴ these public commitments by heads of state and government are critical to the Alliance’s capacity to project and sustain military power. The inability of many nations to meet this baseline, while balancing competing domestic expenditures, not only undermines allies’ credibility but also dilutes the deterrent effect it can project onto the world stage.

Figure 1. NATO defense expenditure as a percentage of GDP in 2014 and 2023e (estimated)

In 2024, NATO’s combined defense expenditure neared an all-time high of $1.47 trillion.¹⁵ However, this figure masks a sobering reality. Once adjustments are made for global purchasing power parity, it becomes clear that real-term spending levels have merely returned to those seen two decades ago. This stagnation is particularly alarming given the rapid increase in spending by potential adversaries, with NATO losing ground to both Russia and China in terms of relative expenditure (see figure 2). To put that into context, before the 2022 Russian invasion of Ukraine, a 155-millimeter artillery shell cost a NATO nation around $2,000, but today it is closer to $8,000.¹⁶

Figure 2. Military spending at purchasing power parity

Notwithstanding purchasing power parity, the challenge of meeting the 2 percent GDP commitment represents a current deficit of approximately $45 billion.¹⁷ Additionally, many Central and Eastern European nations still grapple with the legacy of the Cold War, reliant on aging Soviet-era equipment to defend themselves. Modernizing these systems (including jets, armored vehicles, and transport aircraft) necessitates a significant investment, running into hundreds of billions of dollars and euros. Moreover, a plethora of other defense and security-related challenges looms, ranging from infrastructure protection and multinational operation support to Ukraine reconstruction assistance as well as currency cost hedging to support allies acquiring armaments invoiced in nondomestic currencies. Taken together, these challenges demand an outlay estimated to be between $535 billion and $845 billion (see table 1). 

Table 1: Overview of proposed areas of operation for the bank

Sources:

• Jean-Pierre Maulny, “The Impact of the War in Ukraine on the European Defense Market,” Institute for Strategic International Relations, September 1, 2023, https://www.iris-france.org/wp-content/uploads/2023/09/19_ProgEuropeIndusDef_JPMaulny.pdf
• NATO Staff Defense Investment financial assessment for 2018–2022.
• Kathleen McInnis, Daniel Fata, Benjamin Jensen, and Jose Macias, “Pulling their Weight: The Data on NATO Responsibility Sharing,” Center for Strategic and International Studies, February 2024, https://csis-website-prod.s3.amazonaws.com/s3fs-public/2024-02/240222_McInnis_Nato_Responsibility.pdf?VersionId=Lbjn1X8kSdCn0h.mdHQh02hzyiNf9gBL
• Pieter-Jan Vandoren, “European Critical Infrastructure,” Trans-European Policy Studies Association, May, 16, 2023, https://tepsa.eu/analysis/european-critical-infrastructure/
• Alice Lipowicz, “EU to spend far less for infrastructure protection,” Washington Technology, July 5, 2005, https://washingtontechnology.com/2005/07/eu-to-spend-far-less-for-infrastructure-protection/328391/
• Bernhard Hammerli and Andrea Renda, “Protecting Critical Infrastructure in the EU,” CEPS Task Force, https://aei.pitt.edu/15445/1/Critical_Infrastructure_Protection_Final_A4.pdf
• BBC, “Afghanistan: What has the conflict cost the US and its allies?” BBC, September 3, 2021, https://www.bbc.com/news/world-47391821
• World bank, “Ukraine Recovery and Reconstruction Needs Estimated $349 Billion,” World bank, September 9, 2022, https://www.worldbank.org/en/news/press-release/2022/09/09/ukraine-recovery-and-reconstruction-needs-estimated-349-billion;
• Henry Foy, “NATO plans $100 billion ‘Trump-proof’ fund for Ukraine,” The Financial Times, April 2, 2024 https://www.ft.com/content/254c3b86-2cb9-4c71-824b-dacacbbc9871 
• Diana Dimitrova, Mike Lyons, et al., “The Growing Climate Stakes for the Defense Industry,” BCG, September 10, 2021, https://www.bcg.com/publications/2021/growing-climate-stakes-for-the-defense-industry

Faster decisions, better borrowing terms

With allies facing with formidable and ever-growing fiscal challenges, a bold solution is needed, and the establishment of a Defense, Security and Resilience bank meets that description. This report explores the bank concept, an initiative designed to support allies across both the Euro-Atlantic and Indo-Pacific regions facing fiscal constraints in meeting their defense spending obligations. Acknowledging that financial challenges and political decision-making are at the core of defense investments, the bank should be viewed as a complementary financing option for allies and their sovereign choices. It aims to provide faster decisions and more favorable borrowing terms than available to many nations (table 2), while potentially providing fiscal headroom to all allies, thereby creating more options for domestic tax and spending choices. Considering the diverse economic realities of allied nations, this initiative necessitates a detailed analysis of its implications for nations and their defense, security and resilience obligations.

Through the author’s extensive discussions between 2018 and 2024 with NATO representatives and officials from the majority of members’ respective ministries of defense, foreign affairs, and finance, three key themes emerged regarding the bank: its political, economic, and defense implications. These interactions underline the perceived benefits of the initiative:

Political perspective

• Enhanced political will through collective effort: A DSR bank could foster a renewed commitment to collective defense, thereby creating political momentum and unity. When defense spending is facilitated through a shared institution, it may become more politically acceptable for all governments involved to conduct joint procurement and undertake ambitious projects.¹⁸
• Strategic signaling: Participation as a shareholder in the bank would further demonstrate members’ commitment to the international order, potentially enhancing their influence across various international organizations, while augmenting deterrence through political commitments of fiscal firepower.
• Addressing domestic budget constraints: Politically, borrowing from the bank would offer a strategic way to balance domestic budgetary pressures with international commitments due to extremely low interest rates and potentially very long borrowing timelines, that may not be available domestically to every Euro-Atlantic and Indo-Pacific ally.

Economic perspective

• Lower borrowing costs: The Defense, Security and Resilience bank would offer lower interest rates and faster decisions to many nations, making defense spending through loans more feasible for countries with tight fiscal constraints.
• Budget flexibility: Loans from the bank might allow countries to spread defense spending over longer periods compared to sovereign bonds, offering more economic viability than direct budget allocations. For example, the United Kingdom paid back its World War I war debt in 2015.¹⁹
• Economic multiplier effects: Investments in defense can stimulate domestic industries, production and innovation, with the bank serving as a catalyst without the immediate strain of direct spending.

Defense perspective

• Meeting immediate defense needs: The bank could provide timely solutions for countries needing to modernize their defense capabilities.
• Long-term defense planning: Loans could facilitate strategic, long-term defense projects (including stockpiling of key armaments), enhancing predictability and resilience in defense planning as opposed to the annual budgetary cycles many nations endure at present.
• Collective capability enhancement: Financing defense upgrades through the bank could improve the overall capability and readiness of allies wishing to operate together.

However, during the many discussions in the five-year research period, opinions on the bank’s merits varied among allies. Some officials from defense and foreign affairs ministries were initially skeptical about the mechanics of how the bank would work, often due to their unfamiliarity with MLIs. In contrast, finance ministry officials familiar with MLIs showed significantly more openness, focusing on governance rather than fiscal implications. Notably, senior political appointees displayed considerable interest, indicating receptiveness at higher levels of allied political leadership. All of this suggests that the Defense, Security and Resilience bank would interact with various governmental ministries, thus creating challenges for civil servants as they attempt to forge a unified governmental stance, but that the politics of the initiative represent a unique opportunity.

Additional benefits

With strong political support, the bank could be established within eighteen to twenty-four months once a charter is in place.²⁰ All Euro-Atlantic and Indo-Pacific allied nations are shareholders in at least one existing MLI and could adapt these structures to suit the bank’s mandate. Furthermore, the bank’s activities could directly stimulate domestic production, drive job creation, and spur technological innovation in member nations. For countries with strong credit ratings, involvement in the bank would offer additional economic benefits and potential increases in tax revenues through greater intra-allied defense sales (see figure 3).

Figure 3.  Estimated share of primary NATO member defense export sales (2022)

Political will remains the key challenge

The proposal, however, faces certain hurdles. Some European nations may prefer an exclusive integration of defense financing within existing institutions, specifically the European Investment Bank (EIB), while the United States might view the bank as disproportionately leveraging American credit. Capitalizing the bank would require contributions from its members, and there might be concerns about a borrowing stigma as well as misconceptions about subsidy dynamics.

To address these reservations—particularly those associated to strengthening the EU pillar within NATO—it is imperative that the proposed Defense, Security and Resilience bank framework incorporates mechanisms that explicitly recognize and support the strategic objectives of the European Union in the realm of defense within the transatlantic context of NATO. This includes:

• Ensuring balanced investment: The bank’s investment strategy would need to aim for a balance between supporting allies’ overarching defense objectives and bolstering the EU’s defense capabilities, particularly in areas such as joint procurement, research and development (R&D), and the cultivation of the European defense technology and industrial base (EDTIB). Such an approach would ultimately build resilience within the alliance by reinforcing a more diverse transatlantic defense industrial base.
• Promoting EU defense initiatives: The bank should facilitate and encourage investments in projects that align with key EU defense initiatives, such as the Permanent Structured Cooperation (PESCO), the European Defence Fund (EDF), and European Defense Industrial Strategy (EDIS), helping to enhance European strategic autonomy and industrial competitiveness.  A stronger and more competitive transatlantic defense market benefits all Euro-Atlantic allies and creates greater levels of geopolitical resilience.
• Adhering to transparency and inclusivity: Decision-making processes within the bank must be transparent and inclusive, allowing for the equitable representation of all shareholder interests. This approach would foster a sense of ownership and commitment among all relevant nations, mitigating fears of undue influence or bias.
• Demonstrating flexibility: The bank should offer flexible financing options that cater to the diverse needs and priorities of all allies, including those with a strong preference for either EU or non-EU-centric defense procurement strategies. This flexibility would ensure that the bank serves as a facilitator of members’ defense objectives rather than a prescriptive entity.

While the DSR Bank offers a promising opportunity to strengthen collective defense capabilities, its implementation must be carefully aligned with the strategic goals and sensitivities of all allies. For the Euro-Atlantic region, this entails creating synergies between NATO and EU defense efforts, while also considering the interests of allied nations in the Indo-Pacific. By bridging these priorities, the bank can contribute to a more resilient and integrated transatlantic defense posture. Nevertheless, the primary challenge will be political: Increasing defense spending ultimately depends on the political will of member nations. Although aligning the varied priorities of allied nations presents complexities, these obstacles are surmountable with careful coordination and commitment.

In summary, the Defense, Security and Resilience bank presents a paradigm shift, offering benefits to all allies across the Euro-Atlantic and Indo-Pacific regions and symbolizing a commitment to alliance unity and stability. The remainder of this report will further detail how the bank could operate effectively by merging defense investment with economic incentives for growth, job creation, and enhanced tax revenues.

How the bank would function

The proposed Defense, Security and Resilience bank (with a AAA credit rating) would allow many Euro-Atlantic and Indo-Pacific allies to borrow at lower interest rates than their own cost of capital.²¹ This financial mechanism would benefit both those countries currently below the 2 percent GDP target and those already meeting it due to the economic activity the bank would bring about in terms of financing defense production. Beyond issuing debt through capital markets, the bank could act as the depository institution for annual monetary commitments from the allies for collective financing of institutions such as NATO. These deposits could be centrally managed and strategically utilized for alliance activities such as capital investment, stockpiling of essential equipment, and R&D projects. This could lead to a more effective, transparent, and dynamic resource allocation process than the current disparate ad-hoc approach nations currently undertake.

As previously highlighted, this report builds on prior work that has made clear arguments for the need of collective allied debt to help pay for future defense.²² With that in mind, this section further describes how the Defense, Security and Resilience bank would function by explaining what an MLI is, then exploring the proposed bank’s structure, governance, advantages, and disadvantages. It seeks to provide an objective view of the bank’s feasibility and its potential impact, offering a clear way forward for its creation.

MLIs and their functions

Before discussing the specifics of the proposed Defense, Security and Resilience bank, we need to understand the nature and functions of an MLI. These international financial organizations, formed by multiple countries, provide financial support to member nations. This support primarily comes in the form of loans, guarantees, and grants. By pooling resources from numerous countries (and sharing the risk), MLIs can offer favorable lending terms and promote economic development, stability, and cooperation among member nations.

There are approximately forty MLIs globally,²³ with prominent examples including the World Bank, the European Investment Bank (EIB), and the Asian Infrastructure Investment Bank (AIIB). While each MLI has its unique mandate and focus, they typically share the following key characteristics and functions:

• Ownership and governance: MLIs are owned and governed by member countries, which usually contribute financial resources. The governance structure often includes a board of governors, a board of directors, and an executive management team. Voting rights are proportionate to financial contributions, allowing all members a voice in the decision-making process.
• Financial assistance: MLIs provide financial support to member countries in various forms, such as loans, grants, and guarantees. These financial instruments often carry more beneficial terms than those available in the private market, making them attractive to countries seeking financing.
• Knowledge sharing and capacity building: MLIs often serve as knowledge hubs, offering technical assistance, policy advice, and capacity-building support to member countries. By pooling expertise from various nations, MLIs can help countries implement best practices, improve governance, and strengthen institutional capacity.
• Risk mitigation and credit enhancement: By offering guarantees and other risk-sharing instruments, MLIs can help member countries mitigate risks associated with large-scale projects and attract private investment. Moreover, MLIs’ strong credit ratings often enable them to borrow at advantageous rates, which they can then pass on to their member countries. Furthermore, MLIs tend to carry the nonlegally binding “preferred creditor status,” meaning borrowing nations tend not to default on MLI loans.
• Promoting regional and global cooperation: MLIs can foster cooperation among member countries by financing projects that promote regional integration, economic development, and stability. By working together through MLIs, countries can address common challenges and achieve shared goals more effectively.

Adapting the characteristics and functions of an MLI to focus on defense spending and military cooperation among Euro-Atlantic and Indo-Pacific allies could yield substantial benefits. Not only could a Defense, Security and Resilience bank enhance purchasing capabilities, but it could also contribute to achieving significant levels of standardization and interoperability—integral elements that should form part of any loan criteria. Notably, there is currently no MLI globally with a mandate to support defense needs. The proposed bank, offering low-interest loans and additional financial support, stands as a unique innovation. It could bolster allies’ efforts to meet their defense spending commitments, enhance military capabilities, and fortify collective security through the provision of a counter-cyclical financial instrument.

Bank’s structure and governance

The structure of the Defense, Security and Resilience bank must be built on principles of transparency, accountability, and effectiveness. The bank’s governance would be predicated on established norms for MLIs, fine-tuned to align with allies’ unique requirements.

The formulation of a distinct legal framework is vital for the bank to function effectively. As an independent entity serving its members, the bank should operate under a unique charter. This document should detail its mission, objectives, and guidelines. For example, the 1951 NATO Ottawa Agreement, despite conferring broad privileges and immunities to the larger NATO organization, would not align with the specific nature of the proposed bank, given its focus as a market-oriented international financial instrument. Equally, the current EIB charter would not provide the requisite mandate needed by the DSR bank. Therefore, the bank necessitates its own specialized legal structure, tailored to accommodate its unique operational needs. Crucially, there are no barriers within the current allied defense structure(s) that would preclude the creation of this specialized legal foundation for the bank.

At the helm of the organization would be a board of governors, with representatives—usually finance ministers or senior financial officials—from each member nation. Convening at least quarterly, this board would set policies, review the bank’s performance, and approve its budget.

On an operational level, the bank’s daily activities would be overseen by the board of directors (BoD). This group would hold the responsibility for crucial decisions such as loan approvals and project financing. Working closely with a management team, led by a president or CEO appointed by the board of governors, the BoD would translate board of governor-level decisions into strategic actions, effectively aligning the bank’s objectives with the strategic goals of allies. It would be important for national personnel to represent the directors, ensuring allies’ comfort in the knowledge that capability development and investments are conducted in a manner that respects each state’s sovereign rights over such activities.

Creating a robust governance authority as described above is pivotal to ensure both the highest creditworthiness possible, and that funds borrowed are used for defense expenditure in line with the bank’s policy objectives and charter. This authority, leveraging existing mechanisms from institutions like the World Bank, will need to agree on enforcement activities when crafting the bank’s charter. Simultaneously, the Defense, Security and Resilience bank could aid allies to bolster their capacity to spend effectively. Agencies like the NATO Support and Procurement Agency could prove invaluable in aiding nations in conducting either unilateral or multilateral acquisitions, which come with significant and unique tax advantages.

Complementing this structure will be the need for a system of oversight mechanisms to maintain transparency and accountability. This includes both internal and external auditing, a compliance and risk management department, and regular reporting to shareholders. Therefore, creating the bank with the EIB grouping, albeit as a separate legal structure, could achieve efficiencies in terms of leveraging such oversight mechanisms.

The bank’s inception would require a detailed examination of its core components, seeking expert counsel in relevant areas: e.g., tax advisers, law firms, and global investment banks that are experienced in supporting similar institutions. The legal structure, governance, management framework, capital structure, lending instruments, and financing strategy need to be meticulously planned to both provide confidence to nations and to rapidly achieve a AAA credit rating.

Paying for the bank

Inspired by the models of established MLIs, the proposed bank should operate under a cooperative framework, in line with the principles set out in Articles 2 and 3 of the 1949 Washington Treaty.²⁴ This framework would enable allies with strong (i.e., AAA) credit ratings to collectively underwrite borrowings, leveraging their combined capital and assets.²⁵ This collaborative approach ensures that no single nation is burdened unilaterally. 

To address concerns of inequitable burden sharing, it is essential to highlight that the bank’s framework would be designed for shared responsibility and risk mitigation. The global historical record of MLIs shows no instances of default by any Euro-Atlantic and Indo-Pacific allied nations, indicating a robust collective fiscal discipline among the allies. This history substantiates the argument against the perceived disproportionate support of weaker nations by AAA-rated members. It would be a collective, well-balanced financial initiative, where the risk is distributed across and minimized for all nations. Furthermore, while it is important for the bank to have a AAA rating, such a rating does not exclusively come from AAA-rated members of the bank. Rather, the bank’s mandate, charter, governance structure, modes of operation, and management expertise all contribute to the rating the bank will gain. In other words, this is not solely about AAA-rated nations bolstering non-AAA-rated countries through a third party.  Once a AAA rating is achieved, the bank would need to work closely with the appropriate rating agencies to makes sure that its AAA rating is sustained.

For fiscally conservative allies concerned about supporting less financially disciplined partners, the Defense, Security and Resilience bank presents a mitigated risk model. The collective creditworthiness and historical reliability of nations in fulfilling their wider MLI financial obligations significantly reduce the risk associated with the bank. Therefore, allies such as Germany, the Netherlands, and Denmark can participate with the assurance that their strong credit ratings are part of a collective buffer, rather than being singularly exploited. The bank’s ability to issue debt at competitive rates in the capital markets, owing to this collective strength, will enable the efficient channeling of funds toward essential defense expenditures, overseen by the bank, its risk team, and investment oversight staff.

However, the bank would need to account for its overhead, including staff, infrastructure, and information technology systems. These expenses would be largely self-funded through the interest spread on loans extended to borrowing allies. Any additional income could then be channeled toward supporting further alliance activities.

The bank’s financial model would follow a typical MLI approach, where the bank borrows from capital markets at one rate, let’s call this Rate A (for instance, 2.9 percent),²⁶ and lends to those allies requiring capital at another slightly higher rate, Rate B (for example, 3.0 percent). Rate B would be substantially lower than Rate C, the rate at which allies would need to borrow when individually accessing capital markets (see table 2).

Table 2: Capital market ten-year bond yield rates of NATO allies

The difference between Rates A and B—the interest spread—would cover the bank’s operational costs. Any excess funds, which could originate from interest payments on paid-in capital (i.e., what each shareholder (ally) has invested in the bank), could be deposited within the bank. These funds could then be used by the bank’s members within the framework of defense, security, and resilience spending, offering an added layer of financial flexibility.  However, to bolster risk management and align borrowing with strategic objectives, the bank will employ tailored covenants as safeguards, ensuring funds are used purposefully and within a disciplined financial framework.

While table 2 highlights that the vast majority of NATO nations would financially benefit by borrowing through the DSR bank, it remains essential to emphasize the principle of equal treatment in the bank model. Not only would nations striving to meet the 2 percent GDP target benefit from the initiative, but allies already fulfilling that requirement could also enjoy lower borrowing costs, reinforcing the spirit of unity and collective security, while creating domestic fiscal headroom to balance competing domestic tax and spending needs.

Incentives

Beyond the immediate low interest savings and hedging strategies that a Defense, Security and Resilience bank could offer, its establishment promises an array of compelling incentives for a diverse spectrum of participants. The bank would transcend the traditional confines of a fiscal instrument and should be viewed as a strategic tool that could bolster defense spending efficiency and fortify international relations. The wider incentives of the bank’s creation include:

• Transforming defense spending dynamics: The proposed bank is designed to complement—not replace—national defense, security, and resilience spending. By pooling resources, it would depoliticize defense funding, shifting the focus from national budgets to a unified alliance strategy. While direct defense budgets remain vital, the bank would offer an alternative funding avenue, alleviating pressure on national finances and internal politics. This collective financing model could reshape the defense spending narrative, allowing nations to demonstrate their commitment without heavily relying on politically sensitive budget increases.²⁷The bank’s role would enable member states to leverage shared resources, enhancing collective security in a way that acknowledges each nation’s unique political and economic constraints. Ultimately, this approach could foster a more cohesive stance within NATO and beyond, offering a pragmatic solution to the challenges of defense spending while strengthening alliance-wide resilience.
• Strengthening international organizations: The Defense, Security and Resilience bank concept represents a contemporary application of international cooperation, reinforcing the relevance and importance of multinational organizations in the current political climate.
• Indicator function: Similar to catastrophe bonds, DSR bonds issued through the bank could offer financial markets an indicator of the likelihood of military conflict, providing valuable insights for risk assessment and strategic planning.
• Capital market deterrence: The bank could introduce an innovative new international relations concept: capital market deterrence. By offering Defense, Security and Resilience bonds on the open market, rival nations—or entities within them—could inadvertently (or advertently) finance allies’ defense. This financial stake could deter conflict, as hostilities may risk bond repayments.  While the probability of this mechanism’s impact on deterrence by itself is low, taken in combination with wider Euro-Atlantic and Indo-Pacific deterrence efforts does make this suggestion greater than zero. However, it bears remembering that World War I disproved the theory of Sir Normal Angell, a British author and Nobel Peace Prize recipient, that financial integration could guarantee peace.²⁸ Thus, while capital market deterrence could supplement traditional defense mechanisms, maintaining a robust defense posture remains crucial.
• Grand strategic response: The bank could be positioned as a response to China’s Belt and Road Initiative. Although the investment activities differ, the strategic aim of using financial entities to maintain the balance of power should not be ignored.
• High-quality liquid assets: Debt securities issued by the bank could be designated as high-quality liquid assets by global financial regulators. This, coupled with the potential inclusion of these securities in bond indices, could significantly stimulate market demand.
• Existing financial infrastructure: Major global investment banks with a history of advising sovereign entities, supranational organizations, and agencies on bond underwriting and distribution could become natural partners for the bank. Their vested interest in the bank’s success, complemented by their existing support networks, could expedite the bank’s establishment, and ensure its efficient operation.
• Counter-cyclical financial instrument for defense stability: The bank is envisioned to act as a vital counter-cyclical tool, which is particularly effective during economic downturns. In periods of recession, when countries face fiscal constraints, maintaining defense spending can become particularly challenging. This is where the bank’s role becomes crucial. By providing low-interest loans spread over very long time frames, the bank would offer a more cost-effective option for defense financing compared to the typically higher interest rates nations would face when borrowing domestically during economic contractions.

The comparative advantage of borrowing from this bank lies in its ability to offer more favorable loan terms than most domestic borrowing options available to countries. This advantage is not just in terms of lower interest rates and lending duration but also in the commitment and consistency it brings to defense spending. History shows that investments made through similar MLIs tend to be more stable and less prone to cuts compared to unilateral domestic projects, which are often the first to face reductions in times of economic hardship.

Thus, the Defense, Security and Resilience bank would serve as a financial buffer, enabling allies to sustain their defense commitments without the immediate financial strain that would typically accompany such spending in times of fiscal constraints. This approach ensures that the collective security of those allies across the Euro-Atlantic and Indo-Pacific regions is not compromised during economic downturns. Essentially, the bank would offer a strategic financing option for defense and strengthen the resilience of the Alliance’s defense commitments against the vagaries of economic cycles.

What the bank would do

Put simply, the DSR bank could perform four core functions:

• direct lending for defense needs;
• currency and resource hedging options to protect against market volatility;
• lease financing for armaments trade between allies; and
• guarantees that underwrite commercial supply chain financing.

Direct lending

To illustrate how the bank model would work, let’s revisit the case of Poland from 2002. At that time, Poland made a significant commitment to purchase forty-eight F-16 fighter aircraft from the American aerospace firm Lockheed Martin, at a total cost of $3.8 billion. This substantial purchase was made possible through a direct loan from the US Treasury. Congress sanctioned a thirteen-year fixed-rate loan at an interest rate of 5 percent—the same as the rate for the ten-year US Treasury note at that time.²⁹ Over the loan’s duration, Poland’s interest burden from this deal was, per an estimate, approximately $3.47 billion.³⁰

Fast forward to today, and the borrowing landscape looks quite different. The yield on a ten-year US Treasury bond now stands at around 4.30 percent.³¹ Meanwhile, the International Bank for Reconstruction and Development (IBRD) under the World Bank—which could serve as a reasonable proxy for the kind of interest rates a DSR bank might offer—has a ten-year bond with a yield of 3.0 percent.³²

In the current lending context, Poland’s borrowing costs would change significantly. If it were to secure a loan from the US government at the current rate of 4.3 percent, Poland would be liable for roughly $2.77 billion in interest over a thirteen-year period. However, if Poland were to borrow from the proposed Defense, Security and Resilience bank at a rate of 3.0 percent, the total interest payable would decrease to approximately $1.78 billion.

Table 3: Breakdown of borrowing costs for Poland and F-16 financing

In today’s financial environment, the existence of a DSR bank could potentially offer Poland substantial savings: around $1 billion in interest payments alone. Moreover, if Poland were to procure the F-16s through NATO’s Support and Procurement Agency, it could realize additional benefits through unique tax incentives.

To place this into further context, it is worth noting that intra-allied defense sales accounted for around $30 billion during 2018/2019. If such trade were financed through the Defense, Security and Resilience bank versus national financing, NATO allies trading between themselves could save almost $500 million annually in interest payments alone (see table 4). Noting that defense borrowing tends to be spread over many years (see the Polish F-16 example), such interest savings soon start to compound and become billions of dollars.

Table 4: Intra-allied defense sales (2018/2019)

Currency hedges

In addition to direct lending, acting as a currency hedge for large procurements is another potential use of the Defense, Security and Resilience bank. Take, for instance, the shock to the British pound in 2022: in early August of that year, one US dollar (USD) bought 81 pence. Yet by the end of September, the currencies were almost at parity, with a dollar fetching 93 pence. This sudden devaluation of the pound by nearly 15 percent meant that UK procurement professionals, sourcing long lead time armaments from US suppliers, had to potentially find an additional 15 percent to pay those dollar-denominated invoices.

A Defense, Security and Resilience bank would provide a mechanism to hedge against such currency fluctuations. Here’s how:

Step 1:  The UK, procuring armaments from a US company, borrows from the bank in pound sterling (GBP). Upon securing the loan, the UK initiates immediate repayments to the bank in GBP, while the borrowed funds are simultaneously converted in full to US dollars at the current spot exchange rate. This upfront-conversion strategy serves as a safeguard against future exchange rate volatility. Given that defense procurements such as jets or submarines often span years if not decades, this could offer substantial protection.

Step 2: The UK might pay an initial 20 percent down payment to the vendor in US dollars, investing the remaining 80 percent in low-risk, USD-denominated assets such as US treasury bonds.

Step 3: As the vendor fulfils contractual milestones, those dollar-denominated investments are easily liquidated and the payments are made in dollars, thereby shielding the UK from sudden currency shocks.

Nonetheless, such a strategy is not without its risks, including interest rate, liquidity, counterparty, operational, and exchange rate volatility. These risks emerge from the UK’s reinvestment of borrowed funds in USD low-risk assets over the procurement period. However, a multipronged approach can help mitigate such concerns:

• Interest rate risk: The use of financial instruments including interest rate swaps or options can help manage interest rate fluctuations.
• Liquidity risk: Investment in highly liquid assets and diversification of the portfolio can ensure funds are available when needed.
• Counterparty risk: Selecting investment counterparts with high credit ratings can reduce the risk of default.

The Defense, Security and Resilience bank could provide allies with a unique strategy to offset future currency fluctuations, ensure predictable future defense budgets (as repayment remains in the original debt-issued currency), and distribute the underwriting risk, potentially lowering the cost of capital. Such a currency hedge would also allow allies to maintain their foreign currency reserves, offering a platform for either unilateral or multinational borrowing. However, it’s crucial to remember that such a strategy, with its complexity and inherent risks, would necessitate the stewardship of experienced banking professionals combined with defense experts. The bankers would need to navigate the intricacies of interest rate swaps and manage liquidity and counterparty risks, while their defense professional colleagues would focus on making informed decisions about the investment of borrowed funds. But with the right expertise and governance, the bank could play a pivotal role in promoting financial stability and procurement efficiency among allies in both Euro-Atlantic Council and Indo-Pacific regions.

Lease financing

The introduction of the bank could usher in a new paradigm for defense expenditure that goes beyond traditional procurement methods: the facilitation of strategic armaments leasing between shareholders. The concept of leasing allows an ally with robust defense manufacturing capabilities (Ally X) to construct and maintain significant armaments such as tanks, aircraft, or naval vessels, which are then leased on a long-term basis to another ally (Ally Y), who may lack the means or capacity to produce such assets domestically.

This leasing arrangement allows for mutual benefits: it manifests as an asset on both allies’ balance sheets, enhancing their defense expenditure without necessitating an immediate, sizable outlay of funds. For Ally Y, it provides an efficient way to rapidly enhance its military capabilities. On the other hand, Ally X can offset some of the costs of production through the lease payments.

The bank, in this case, could serve as the financial intermediary and guarantor of these arrangements. Its mandate could include establishing a robust framework for these agreements, ensuring compliance with allies’ strategic objectives, assessing financial viability, and mitigating risks. It could also provide consultation and advice on the structure of such deals to guarantee they’re mutually beneficial, economically sound, and in line with the defense and foreign policy objectives of the allies involved.

While national import-export banks often play a crucial role in facilitating international trade deals similar to what is being proposed here, their mission and operations might not be aligned closely enough with the specific needs of defense procurement and leasing arrangements within the global defense context. The complexity of these arrangements—which encompass diplomatic, financial, and military dimensions—necessitate an organization like the Defense, Security and Resilience bank, which is specifically tailored to understand and address such multifaceted challenges. Moreover, the sheer cost of defense acquisition often outstrips the balance sheets of national import-export banks. Indeed, as one senior official from a NATO nation recounted in our discussions, their nation used its import-export bank to facilitate the financing of armaments to a non-NATO nation and through that one deal maxed out its import-export bank credit capacity—in other words, individual nations do not always have the capacity to resource multiple defense acquisition efforts. This is something the proposed Defense, Security and Resilience bank could achieve on behalf of allies due to the size of its collective balance sheet.

Supply chain financing

The fourth element of the Defense, Security, and Resilience (DSR) bank’s mission will be to help address the targeted credit crunch facing defense supply networks, particularly among smaller Tier 2–4 suppliers. Traditional commercial banks are increasingly reluctant to lend to these firms due to compliance risks, including Anti-Money Laundering (AML), Know Your Customer (KYC) regulations, and Environmental, Social, and Governance (ESG) standards. This lack of liquidity poses a critical threat to the resilience and scalability of defense supply networks, jeopardizing the production of critical components and the ability of nations to ramp up defense production capabilities.

The DSR bank will be able to deploy a comprehensive framework of supply chain financing guarantees designed to de-risk commercial bank lending and encourage both commercial and non-traditional financial institutions to extend credit across the defense ecosystem. The key mechanisms include:

• Risk Underwriting: The DSR bank will act as a guarantor, underwriting a significant portion of the risk associated with commercial loans to defense suppliers. This reduces the perceived risk for commercial lenders, enabling greater credit flows.
• Tiered Guarantee Structures: Guarantees will be calibrated across different supplier tiers:
  • Tier 1 (Primes): Large defense contractors benefit from easier access to financing for large-scale projects.
  • Tiers 2–4 (SMEs, Component Manufacturers, and Startups): Smaller firms receive targeted guarantees that address their unique financial vulnerabilities, ensuring they can access working capital and funding for innovation.
• Private Sector Participation: In addition to commercial banks, institutional investors—such as pension funds and other private entities—will be encouraged to provide direct supply chain financing underpinned by the bank’s guarantees, further expanding access to capital for critical suppliers.
• Standardization and Compliance Support: The DSR bank will offer a compliance support framework to help suppliers meet regulatory requirements. By addressing AML, KYC, and ESG standards proactively, the Bank ensures that more loans qualify for guarantees.

Through this multi-faceted approach, the DSR bank will help unlock capital flows to critical suppliers, ensuring that all tiers of the defense supply chain—from established primes to innovative startups—can operate effectively. By stabilizing supply chain liquidity, the DSR bank not only supports immediate production needs but also fosters long-term resilience and innovation within the defense sector.

Building the balance sheet

Establishing a Defense, Security and Resilience bank requires the highest political and financial leadership. On the political side, getting the bank established will require engaged effort, direction and guidance from the most senior parts of government with elected ministers taking an active leadership role. On the financial side, vigilant balance sheet construction, with allies underwriting the project, will be critical.

The balance sheet would comprise a blend of cash or paid-in capital, and obligations or callable capital. Together, these constitute the “subscription capital,” which can be drawn upon as needed. The balance sheet would underpin the issuance of DSR bonds, the proceeds of which could be used by allies seeking to enhance their defense spending at low interest rates. The bonds could be unsecured, relying on nations collective financial standing, or secured by subscription capital, potentially reducing the cash commitment required from an underwriting ally. These bonds could also span multiple decades, as war bonds have done in the past, and which many nations are unable to achieve unilaterally.

To provide a practical context for these proposals, it’s worth noting that all Euro-Atlantic and Indo-Pacific allies already participate in at least one MLI such as the World Bank or the European Investment Bank, and therefore all potential shareholder governments have relevant MLI experience. Table 5 presents the average contribution of NATO allies as one-off, paid-in capital investments to their existing MLIs.

Table 5: Average ally contribution to MLIs

Sources: MLIs used to establish average paid-in capital contributions of allies include the Asian Development Bank (ADB), African Development Bank Group (AfDB), the AIIB, European Bank for Reconstruction and Development (EBRD), EIB, Inter-American Development Bank (AIDB), International Bank for Reconstruction and Development (IBRD), Nordic Investment Bank (NIB), and Caribbean Development Bank (CDB); World Bank population data.

If the averages from table 5 were applied to the Defense, Security and Resilience bank, one might expect a balance sheet with a minimum of around $8.36 billion of paid-in capital. Typically, paid-in capital represents anywhere between 10 percent to 15 percent of the overall balance sheet value. Therefore, one can assume that $8.36 billion could represent 12.5 percent of the total balance sheet value. Combining this with the other 87.5 percent of callable capital (or $56 billion), the bank could initially create a subscribed capital total of up to $64 billion, a relatively modest amount when compared to the subscribed capital of existing MLIs (see table 6). One could see this figure ($64 billion) as a starting point for the bank, with future capital calls being made to expand the balance sheet should allied shareholders so wish. 

However, it is this blend of paid-in and callable capital that is pivotal in securing a AAA credit rating, thereby enabling borrowing at remarkably low rates. To foster confidence in achieving and maintaining this rating, the bank’s gearing of debt to equity should adhere to standard MLI ratios, likely starting at 1:1. Over time, this could evolve, potentially aligning more closely with institutions like the European Investment Bank, which maintains a debt-to-equity ratio nearer to 2.5:1.

Table 6: Subscribed capital totals and average of existing MLIs

Sources: Asian Development Bank (ADB), African Development Bank Group (AfDB), the AIIB, European Bank for Reconstruction and Development (EBRD), EIB, Inter-American Development Bank (AIDB), International Bank for Reconstruction and Development (IBRD), Nordic Investment Bank (NIB), and Caribbean Development Bank (CDB).

Payment by nations

To mitigate the immediate fiscal pressures on allies, the proposed contributions toward the bank’s paid-in capital (approximately $8.36 billion) could be dispersed over a four-year time frame. This phased approach would afford nations the opportunity to carefully manage their investments, bolstering the sustainability and feasibility of their commitments.

Contributing to the bank’s paid-in capital offers NATO allies specifically, a strategic avenue to help fulfil their obligation of 2 percent GDP defense spending while enhancing overall financial efficiency. This approach is particularly beneficial for smaller nations like Luxembourg or Iceland, which may not have large standing forces but can demonstrate alliance solidarity through such financial contributions. More significantly, this capital should not only count toward the 2 percent defense commitment but also amplify its impact. When nations invest in the bank and subsequently borrow for defense spending, they effectively leverage their contributions, achieving more with their financial resources. This creates a multiplier effect, allowing taxpayer money to yield greater defense capabilities at potentially lower costs. Such a system promotes equitable burden sharing, as each member’s investment in the bank contributes to more affordable borrowing rates for all, ultimately serving the collective defense objectives more effectively. 

Furthermore, allies would retain full autonomy over their pledges to the bank, whether in the form of paid-in capital, callable capital, or a combination of the two. However, in a manner akin to the World Bank model, pledges should be scaled to determine influence within the bank. This model positions governments as both shareholders and borrowers, fostering shared responsibility and collective gain. The more an ally commits to the bank, the greater their influence at the governance level, as is standard practice in all MLIs.

However, a more ambitious idea would be to use those seized Russian Central Bank funds currently being held in Belgium through Euroclear and essentially utilize said funds to capitalize the Defense, Security and Resilience bank.  This is clearly an escalatory measure but given the current context of the war in Ukraine, there could be Allied political consensus found around the notion of: raising a Defense, Security and Resilience bank, having the Russians pay for it, and using collective loans to buy armaments that support Ukraine as well as providing additional financing to support allied nations prepare to defend themselves from potential Russian aggression.³³

Mitigation strategies

As the proposed Defense, Security and Resilience bank is arguably poised to reshape defense, security and resilience financing, it is crucial to anticipate potential challenges and devise strategic mitigation measures. Financial relations between EU and non-EU nations have been addressed previously, but the complexities involved span across fiscal and political realms, operational difficulties, and the execution of strategic approaches. The following table lays out these challenges, categorized into three broad sections: fiscal and political considerations, overcoming operational challenges, and strategic mitigation approaches. Each challenge is accompanied by a mitigation measure, providing a path to navigate these obstacles and ensure the venture’s success.

Table 7: Fiscal, political, operational, and strategic aspects to address

While the European Investment Bank (EIB) provides a strong foundation in financing and governance, the proposed Defense, Security, and Resilience (DSR) Bank would benefit from being established as a separate legal entity with its own credit rating potentially under the EIB framework. This structure would allow the DSR Bank to leverage the EIB’s respected institutional infrastructure and financial expertise while focusing on a distinct mandate that aligns more closely with global security priorities.
 
Although there is some overlap in membership between NATO allies and the EIB’s shareholders (the twenty-seven EU member states), key partners in transatlantic and Indo-Pacific regions—including Norway, Switzerland, the United Kingdom, the United States, Turkey, Canada, Australia, and Japan³⁴—are not EU members, but it will be vital that such nations are invited to be shareholders in the DSR Bank in order to maximize its credibility. This broader coalition of partners would enable the DSR Bank to respond to collective defense and resilience priorities beyond the EIB’s EU-centric focus on economic cohesion and regional integration.

Moreover, the EIB’s mandate and legal framework are not structured to prioritize defense, security, and resilience objectives. Establishing the DSR Bank as a separate entity within the EIB would ensure that it could develop specialized competencies and operational frameworks tailored to these strategic areas while maintaining financial autonomy and creditworthiness. By having its own credit rating, the DSR Bank would attract a wider range of investors suited to its security-focused mission, strengthening its capital base and lending capacity.

This approach allows the EIB and the DSR Bank to work within their respective areas of expertise while opening pathways for collaboration where their mandates intersect. Such a setup not only respects the EIB’s current structure and purpose but also creates an agile and focused institution capable of addressing the emerging defense and resilience needs of allied nations in an increasingly complex global environment.

In summary, the potential challenges the DSR bank could encounter are multifaceted and navigating them will require a mix of fiscal prudence, political diplomacy, and operational acumen. However, the broad strategic mitigation measures outlined above provide an initial framework for overcoming these obstacles. The bank’s success lies in its ability to foster a sense of shared responsibility and mutual benefit among allies, while working within existing fiscal norms and addressing each nation’s unique needs. By undertaking this approach with diligence and adaptability, the bank can serve as a powerful tool in enhancing allied defense, security and resilience capabilities and fostering a more secure future for allied nations across the Euro-Atlantic and Indo-Pacific regions.

Founding members and an approach to bond issuance

The establishment of the Defense, Security and Resilience bank depends on founding members with strong credit ratings to underpin its financial stability and operations. While the ultimate goal is to allow membership from all Euro-Atlantic and Indo-Pacific allies, the bank will initially require a core group of anchor nations to build its balance sheet and governance structure. The Joint Expeditionary Force (JEF)—a coalition of ten allied nations with robust credit ratings—along with the United States and Japan, could form this foundational group.³⁵ This JEF-led approach would establish a credible foundation and could feed into the European Investment Bank (EIB) framework noting that the Defense, Security and Resilience Bank must be created as a separate legal entity with its own credit rating to ensure independent governance and operational flexibility. Once the bank’s charter is in place by those anchor nations, remaining NATO, EU, and Indo-Pacific allies and partners would be invited to join as shareholders, creating an inclusive and resilient institution for defense, security, and resilience financing.

Regardless of which nations initially anchor the bank, there are some lessons from the recent European Commission’s debt issuance,³⁶ driven by a collective response to the COVID-19 pandemic, which the Defense, Security and Resilience bank should observe including:

• Refining the way bonds are sold: The way a bank sells its bonds can impact the costs of borrowing. Currently, the European Parliament has suggested that the European Commission rely less on “syndicated transactions,”³⁷ where a group of banks are preselected to underwrite the debt, and shift more toward auctions, where different parties bid to buy the bonds. For the Defense, Security and Resilience bank, this strategy could reduce the power of the banks selling the bonds (primary dealers) and help get better prices for the bank’s debt. In simpler terms, this approach is like choosing to sell your house by open bidding instead of one real-estate agent.
• Improving the trading environment: Making DSR bonds easier to buy and sell (e.g., increasing their liquidity) could also help lower borrowing costs. This can be achieved by focusing on issuing short-term bonds first, which are generally more attractive to traders. Also, the bank could encourage the inclusion of DSR bonds in popular bond indices, making them more attractive to a wider range of investors. It might also be possible for the bonds to have tax advantages akin to US municipal bonds.³⁸
• Strengthening institutional support: The bank’s credibility and attractiveness to investors could be further enhanced by aligning its operations closely with the key principles of sovereign entities, such as clear repayment strategies. This would make DSR bonds more like government bonds, which are often seen as safer investments.
• Managing interest costs efficiently: The European Commission has found that its interest costs were higher than expected. To avoid a similar situation, the Defense, Security and Resilience bank should ensure its budgeting processes accurately account for the cost of interest.
• Keeping the option to borrow: Just as a business might have a line of credit it can use when needed, the bank should maintain the ability to borrow as a permanent tool. This allows it to have funds available not just for emergencies, but also for significant initiatives or opportunities that may arise.
• Clear communication: The bank needs to reassure investors that its debt is a long-term, sustainable part of its strategy. This could help to increase investor confidence and result in better loan terms.

By applying these lessons from the European Commission’s debt issuance strategy and experience,³⁹ the Defense, Security and Resilience bank can aim to secure better loan terms and establish itself as a stable and trustworthy player in the global bond market.

Conclusion

The proposed Defense, Security and Resilience Bank, shaped by an understanding of the complex interplay of defense, finance, and international relations, could be a game-changing development for global defense, security and resilience. The blueprint of the bank outlined above provides an overview of its anticipated inception, with a focus on creating a financially sound, accountable, and transparent institution that can support the Euro-Atlantic and Indo-Pacific defense needs. The road to its establishment is paved with intricate decisions and significant coordination among nations at the highest political levels, but with a clear vision and strategic execution, it could play a critical role in strengthening Allies collective defense for the foreseeable future. 

As a next step, a small group of anchor nations should collaborate and seek to develop a charter for the bank with a view to inviting additional nations to join the bank as shareholders and seeing operations begin in or around 2027.

Appendix

The table below lists current defense spending for all NATO allies and, where applicable, those not meeting the 2 percent target. Current sovereign credit ratings follow the table.

Sources:

• National Credit Ratings (July 2024, per https://countryeconomy.com/ratings)
• SIPRI Military Expenditure Database, https://milex.sipri.org/sipri; and
• The Secretary General’s Annual Report: 2023, NATO, https://www.nato.int/nato_static_fl2014/assets/pdf/2024/3/pdf/sgar23-en.pdf.

The current defense spending figures derived are from real GDP data found on the OECD and IMF websites and the NATO 2023 official figures of defense expenditure percentages. For the comparative analysis of defense spending, the method used has US dollars as the unit of measure. This decision is driven by the aim to facilitate a clear, direct comparison of defense budgets across nations, utilizing a universally accepted and straightforward metric. The use of US dollars not only aligns with global financial standards but also ensures that comparisons are easily interpretable and relevant for international stakeholders. While purchasing power parity (PPP) offers valuable insights into purchasing power differences between nations, the focus on US dollars reflects a strategic choice to prioritize clarity and uniformity in financial comparisons.

Fellow

Rob Murray

Nonresident Senior Fellow

Forward Defense Scowcroft Center for Strategy and Security

Defense Industry Defense Policy

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NATO deterrence and defense: Military priorities for the Vilnius Summit

By Franklin D. Kramer

Ahead of the NATO Summit in Vilnius, this issue brief sets forth six priority actions that NATO should undertake to enhance its deterrent and defense posture.

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Continued US and allied integration is essential to deter Russian CBRN use

By Natasha Lander Finch, Ryan Arick, Christopher Skaluba

This report presents the findings and recommendations of the Atlantic Council project Conceptualizing Integrated Deterrence to Address Russian Chemical, Biological, Radiological, and Nuclear (CBRN) Escalation. The objective of this project was to develop an approach for incorporating European allies and partners into the US model of integrated deterrence against Russian CBRN use.

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Alternative security futures in the High North

By David Auerswald

Climate change, combined with increasing geopolitical competition and hostilities, has focused renewed attention on national security interests in the Arctic. By 2035, how will those variables combine to influence the High North?

China Climate Change & Climate Action

The Transatlantic Security Initiative, in the Scowcroft Center for Strategy and Security, shapes and influences the debate on the greatest security challenges facing the North Atlantic Alliance and its key partners.

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Faced with rising macroeconomic pressures and the aftershocks of global crises, many nations are scrambling to stay afloat. Unsustainable debt has too often prevented my country—Ghana—from achieving its full potential. Recently, Ghana has successfully restructured thirteen billion dollars in international debt, offering important lessons for countries facing such issues and the wider international financial community.

Lessons for debtor countries

Successful debt restructuring cannot be achieved until a country puts its house in order. An IMF-supported reform agenda that stabilizes the economy and lays the foundation for sustainable, inclusive, and long-term growth is essential. In Ghana, this meant restructuring domestic debt, bringing inflation down, strengthening social safety nets, increasing the flexibility of exchange-rate policies, and tightening monetary policy. Ghana has also used this debt restructuring to refocus our medium-term policy vision on green investments and development projects that will help us meet our climate goals while driving sustainable growth and the creation of new, well-paying jobs for the Ghanaian people. This will ensure that Ghana not only leaves debt challenges behind for good but reemerges in international markets stronger.

Second, Ghana’s proactive approach to negotiating with the IMF, bondholders, and the official creditor committee allowed for swift progress under the Group of Twenty (G20) Common Framework. The negotiation took just two years, making it the fastest to date. We adapted to move at the speed of the market and aligned Ghana’s internal bureaucracies to respond to creditor feedback and proposals more quickly. The involvement of African advisers with a deep understanding of financial markets, local knowledge, and key stakeholders, as well as the ability to navigate Ghana’s bureaucracy, was essential in getting the deal across the finish line—an important lesson for other countries.

Lastly, countries must prioritize transparency to regain the trust of their creditors, investors, and international partners. In Ghana’s case, we committed to regular disclosures of the public debt portfolio, increased our surveillance on debt issuance by public entities, and are digitizing debt management to enhance transparency and efficiency. These are all policies that have been supported and recognized by the IMF. These reforms helped boost the confidence of our private and international partners and show that Ghana is planning for long-term fiscal stability and sustainable growth. Ghana’s priority now is ensuring we do not need a future restructuring, which would damage the market confidence we’ve worked hard to restore.

Lessons for the international financial community

Ghana’s case shows that the G20 Common Framework is working out its growing pains. The Common Framework has come a long way in improving coordination between traditional and nontraditional creditors and accelerating the pace of restructuring. However, the international financial community must continue to increase these coordination efforts to further improve the Common Framework’s speed and efficiency. Waiting two years to regain access to international markets may not seem long, but it still hampers economic progress. Swift, transparent, and fair processes in the international financial system benefit not only debtor countries but also the global economy.

Additionally, many African nations are actively reforming and building stable, growth-focused economies, but they are limited by international perceptions. While political and geopolitical dynamics naturally influence credit ratings, as recognized by the United Nations Development Programme, it is imperative that these standards are applied fairly and consistently.  Credit agencies should ensure that they have sufficient on-the-ground resources to understand the complexity of the continent for their qualitative assessments of policies and geopolitical dynamics. The international financial community must reassess whether risk evaluations reflect today’s realities accurately or are influenced by misperceptions.

Ghana is a stable democracy and serves as an important trading partner on the global stage. Despite that, skewed risk perceptions continue to hinder access to capital, driving up interest payments and stifling development. These biases are costing Africa billions—funds that could be otherwise invested in infrastructure, healthcare, education, and economic growth.

The international financial community can foster a more equitable financial environment by working together to address these disparities. This will benefit African nations and, more importantly, contribute to a more robust and fair global economy. It is my hope that Ghana’s case can serve as a catalyst to continue accelerating the pace of restructurings and improving the international financial system so that it can be a driver of inclusive growth, poverty reduction, and global innovation. 

Nana Addo Dankwa Akufo-Addo is the president of the Republic of Ghana.

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The answer, it turned out, was more benign than what had been feared at the time. Like its predecessors, the Trump administration quickly realized that the two institutions provided the United States with financial leverage to pursue its global objectives, including by assisting friendly countries that would otherwise depend mostly on Chinese lenders for support.

As a result, the collaboration between the two institutions and the Trump administration mostly followed established processes, including in the Group of Seven (G7) and Group of Twenty (G20), where US priorities were quietly negotiated with staff and other shareholders. The administration also lobbied Congress to keep up US financial contributions to the institutions, both for the World Bank’s regular International Development Association replenishment (subsidizing loans to poor countries) and the IMF’s New Arrangements to Borrow (which added to the IMF’s lending capacity on top of its permanent resources).

As Trump prepares to return to office, it would be tempting to expect a similar outcome, given the market-friendly appointments for economic positions so far (which calmed down speculation about a US withdrawal from the Bretton Woods institutions as proposed by the Heritage Foundation). Compared to 2016, however, the geopolitical rivalry between the United States, China, and other autocracies has become more intense. Trump has already announced plans for new tariffs on China, and Beijing has halted exports of some rare minerals in retaliation to US chip restrictions. As a result, the next US-China trade dispute could be much larger in scope. If it spilled over into areas under the mandate of the Bretton Woods twins, then the United States could push them, especially the IMF, to provide more explicit support for its positions.

One of the key planks of a future Trump administration could be an attempt to boost domestic exports by lowering the external value of the dollar. This could affect all countries with a large current account surplus (such as Germany and South Korea), but US policy is likely to focus predominantly on Beijing’s recent manufacturing offensive. The IMF could face pressure to speak out against China’s large current account surplus, providing intellectual support for the country being designated as a “currency manipulator” by the US Treasury Department, which could lead to the imposition of retaliatory tariffs.

Going even further, the United States could also nudge the IMF to declare China a currency manipulator itself, which would put China’s trade and exchange rate pressures under a multilateral spotlight. Per its “Integrated Surveillance Decision,” the IMF would have to find that China was conducting its exchange rate policy with the sole objective of securing a “fundamental exchange rate misalignment” for the purpose of an increase in net exports. This would be a high bar to clear given the views expressed in the IMF’s 2024 External Sector Report and a recent blog post by a group of senior directors that blamed domestic policies on both sides of the Pacific Ocean for the increase in global current account imbalances.

Moreover, the United States would not find many allies on this issue among the IMF’s other shareholders, let alone emerging markets, which could lead to a divisive standoff in the otherwise consensus-oriented institution. In 2007, for example, an earlier initiative by the George W. Bush administration to label China as a currency manipulator backfired when Beijing refused to publish its annual IMF consultations for two years—until the issue was resolved by the global financial crisis.

A similar shift in intensity could also take place regarding the two institutions’ lending activities. The United States under Trump did not lean particularly heavily on the IMF to lend to specific countries, even when it came to Argentina. That was because, at first, there was broad support within the IMF for the reformist Macri government, and when economic developments turned sour, the United States was not the only country reluctant to pull the plug on an ongoing program.

Going forward, however, the next Trump White House could push the IMF more actively to provide Argentine President Javier Milei, a Trump political ally, with additional foreign exchange reserves to prevent a run on the peso in case capital controls are lifted. Other leaders the administration views favorably might hope for similar support in the event of economic difficulties. The danger here is clear: unless the fund’s management and other shareholders were to resist politically motivated loans, the risks to the IMF’s balance sheet could significantly increase. Another large, failed loan to Argentina, for example, could trigger questions about the official reserve status of claims on the IMF, which is at the core of its financial business model.

On the other hand, the new administration could prove more allergic than before to helping developing countries with large outstanding loans to China, pushing more aggressively for debt restructurings before new loans are approved. Getting China to participate more actively in debt restructuring cases would indeed be beneficial for most countries, but the Trump administration should be clear-eyed about the nature of the challenge. Barring financial support from, and stepped-up trade opportunities with, the United States and other countries, few countries would go into arrears to Chinese lenders, which might be the only way to convince Beijing to provide development loans at truly concessional terms.

Both the IMF and World Bank are also likely to face greater scrutiny for their climate-related lending activities. While a wholesale reversal of existing policies may not be high enough on the new administration’s agenda, the potential choice of new personnel at the heads of both institutions could have significant implications. For example, the Trump administration could appoint a new World Bank president, which has traditionally been a US prerogative. However, it could face significant pushback if it were to remove Ajay Banga, the highly effective incumbent, in favor of a candidate modeled on his immediate predecessor, David Malpass.

At the IMF, the United States traditionally chooses a candidate for the number two position but cannot impose a change unless Kristalina Georgieva, its managing director, agrees. Given the unease over the IMF’s move into climate and development finance even within the Biden administration, this could become an early point of friction. The new administration will have a lever to request some changes in the institution, as it has to shepherd the ratification of the IMF’s 2023 capital (or “quota”) increase through Congress (which already missed the original deadline of November 15, 2024). Amid the chatter in Washington of a radical overhaul of the US government, it may even be possible that the gentlemen’s agreement between the United States and Europe of not interfering with each other’s personnel choices (which has been broken before) is up for the chopping block.

Martin Mühleisen is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and a former IMF official with decades of experience in economic crisis management and financial diplomacy.

The post The IMF and World Bank did well under the first Trump administration. Will they again? appeared first on Atlantic Council.

Underwhelming COP29

Participants at COP29 managed to reach an agreement on international carbon market standards, a key step to establishing such a market under the United Nations (UN), as envisioned in Article 6.4 of the 2015 Paris Agreement. However, COP29 became stuck on the key objective of the meeting: producing a new collective quantified goal (NCQG) as a new climate finance target for the next ten to fifteen years. This is meant to replace the current $100 billion annual figure—a pledge of financial aid to developing countries made by developed countries in 2009, but viewed as totally inadequate.

The most important issue to be settled is the quantum of the NCQG. Participating countries have disparate expectations, which are unlikely to be bridged. Developing countries have coalesced around the target of $1.3 trillion a year of international climate finance aid, based on a report by the High Level Expert Group on Climate Finance. Developed countries spearheaded by the European Union (EU) have reportedly toyed with a range of $200-300 billion, but are reportedly leaning toward $200 billion and a 2035 deadline.

The issue of the contributor base has also been important. Developing countries want to stick to the Paris Agreement, which calls for developed countries to provide climate finance to developing countries. Developed countries want to widen the contributor base to include rapidly growing emerging market countries. These countries, such as China and the Gulf countries, are able to contribute and should do so because of their high levels of emissions. Many developing countries, in particular China, have strongly objected to these demands. As part of the debate, China announced that it has voluntarily provided 177 billion yuan ($24 billion) in project financing to help other developing countries deal with climate change since 2016. This statement highlights China’s preferences for a bilateral approach. China is using climate finance as a tool to further its geopolitical agenda, instead of contributing funds to multilateral efforts. If other countries decide to follow a similar bilateral approach, they could strike another blow against the unraveling multilateral world order.

A day after the COP29 officially ended, an agreement on NCQG was reached, calling for developed countries to provide $300 billion a year by 2035 to help developing countries in their climate efforts. No one is happy with the agreement. Developing countries have criticized it as  too little. Developed countries have tried to lower expectations about official aid, emphasizing that the funding would have to come from a wide variety of sources, including the private sector. In any event, the agreements concluded at the COP29 will be overshadowed by the fact that Trump would most likely pull the United States out of the 2015 Paris Agreement for a second time—and could even withdraw from the 1992 UN Treaty that provides the framework for the COP process. This time around, Argentina could follow suit and quit the Paris Agreement. President Milei already recalled his negotiators midway through the COP29 meetings. Without the US and possibly Argentina, the rest of the world would have to struggle to come up with meaningful nationally determined commitments to achieve net zero emissions and to mobilize climate finance to help developing countries. This outlook does not augur well for the COP30 to be hosted by Brazil in 2025.

A divided G20 Summit

The G20 Summit in Rio de Janeiro has been described by media reports as chaotic and divided. Nevertheless, it managed to produce a Leaders’ Declaration, even though the debate about wording was cut short by Brazil’s President Lula—leaving a bitter taste among Western leaders. The Declaration contains watered-down language on practically all agenda items. A major result is the Global Alliance Against Hunger and Poverty, Lula’s signature project, which gathered support and was launched.

However, the facade of cooperation has been rocked by Argentina’s statement that while Milei did not want to prevent other leaders from signing the declaration, he strongly criticized key elements of the agenda. His targets included anything to do with the UN 2030 Sustainable Development Goals and strengthening the role of governments in fighting global hunger (which according to Milei should be promoted by removing the involvement of governments). At the same time, Milei stressed that he would prioritize economic development over environmental protection, having dissolved Argentina’s Environment Ministry after taking office. These arguments are in line with Trump’s views. They will likely be advanced more forcefully in future G20 meetings, undermining the chance of agreements for joint actions and weakening the G20 itself.

Prospects for international cooperation: more turbulence

President Trump will likely reverse or ignore many of Biden’s environmental and climate change initiatives. However, as several red states have seen job creation thanks to IRA programs, he may continue some programs on a case-by-case basis. Overall, Trump’s approach would weaken environmental protection home and disengage from international climate efforts.

In the vacuum created by the United States and Argentina, China has already stepped in to champion international climate efforts under the Paris Agreement and open trade, as Xi Jinping claimed in his speech at the Rio G20 Summit. China has appealed to the EU to “collaborate effectively on the COP29 agenda…(to) establish a strong foundation for re-aligning their broad green and economic initiatives and improve their bilateral relationship.” China’s approach may appeal to the EU when it’s confronted with Trump’s denial of climate change and his protectionist unilateralism. However, if the EU were to cooperate with China on climate and trade issues, it would find itself at greater odds with a Trump administration already unhappy with the EU for free riding the US security umbrella while posting a trade surplus with the United States. The EU would be in a very difficult position, as it still very much depends on Washington for security, especially against a revanchist Russia emboldened by its successes in Ukraine.

The rest of the world can find ways to deal with climate change without the US federal government, as it did during Trump’s first presidential term—including working with US states and cities still keen to promote a green agenda. But the whole exercise would be inefficient and more difficult, especially when mobilizing climate finance.

As summarized by Bloomberg, the Rio G20 Summit has shown “how quickly the guardrails are coming off the international rule-based order…(as) the looming return of Trump hung over the proceedings like the proverbial sword of Damocles.” Expect more of the same, at future summits—starting with the 2025 G20 under the presidency of South Africa.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, a former executive managing director at the Institute of International Finance and a former deputy director at the International Monetary Fund.

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The Economic and Social Costs of the Gaza War

“We’ve had the loss of lives, injuries, and the cessation of economic activity in general in Gaza—as well as the demolition of infrastructure,” economist Perrihan al-Riffai said on Tuesday, October 22^nd, during the launch of her new report, authored in partnership with the Atlantic Council’s empowerME Initiative and GeoEconomics Center.  

The new report, “The economic and social costs of the Gaza War,” uses data to navigate the war’s toll, not only upon the “epicenter countries” directly involved in the conflict but also the broader Middle East. The socioeconomic cost of the war has been overwhelming—but not entirely in the ways economists, at the beginning of the war last October, initially thought.  

Al-Riffai noted that the war had a negative effect on supply chains—especially vis-a-vis Houthi attacks in the Red Sea—but that the increased costs of the diversion had not translated into the expected increase in prices for consumers. Another surprise was the conflict’s apparent lack of immediate impact on oil and energy prices.  

Other socioeconomic impacts, though, were predictably devastating. The war has “helped exacerbate Egypt’s already challenging foreign exchange situation and current account difficulties,” said al-Riffai. Israel faces surging inflation, debt, and military spending, with its labor market hemmed in by militarization. Moreover, “the longer the conflict goes on and the more intense it becomes,” there is potential that risk-shy investors could turn away from investment in the broader Middle East.  

As for the human toll, migration and displacement have shot up. Palestinian refugees fleeing to nearby countries already facing economic challenges, like Jordan and Lebanon, may unfortunately represent “an extra pressure point on public utilities, including the social sector, health, and education. Unfortunately, what ends up happening is the refugees end up suffering in addition to the host country’s citizens.”  

Reshaping Egypt’s fiscal policy with Finance Minister Ahmed Kouchouk

“We still need to keep the course of reforms and to keep monitoring things, but on the fiscal side, we’re seeing good performance,” said Egyptian Finance Minister Ahmed Kouchouk, speaking at an Atlantic Council event on Wednesday, October 23^rd, discussing the future of Egypt’s fiscal policy. His Excellency discussed Egypt’s prosperous relationship with the IMF and spoke on the ongoing program which aims to address fiscal imbalances accrued during the Covid-19 pandemic, as well as public spending at large. 

Discussing current challenges to the Egyptian economy, Minister Kouchouk spoke on the work that the Egyptian Central Bank is doing to bring inflation back to its 2025 target, as well as the importance of social safety programs for Egyptians impacted by rising costs – including a conditional cash transfer program developed in collaboration with the World Bank.  

Minister Kouchouk also noted that Egypt has made climate and sustainability a priority in economic planning. H.E.’s participation in the Coalition of Finance Ministers for Climate Action has allowed Egypt to collaborate with other nations and adopt new strategies to meet the Sustainable Development Goals. Further, Egypt has become the first issuer of green bonds in the region. “We are streamlining climate in our work, in our planning, in the fiscal risk statement.”   

Saudi Arabia’s economic outlook with Minister Faisal F. Alibrahim

“The idea of Vision 2030 was based on optimism for the future,” said H.E. Faisal F. Alibrahim, Saudi Arabian Minister of Economy and Planning on Thursday, October 24^th, at the Atlantic Council. The Minister spoke on the Kingdom’s primary economic goals – namely, to diversify the economy to bring in different sources of growth and to elevate the role of private businesses. “Ultimately, the objective is for the private sector to grow.  We have set an ambitious target of 65% for the private sector, and we’re moving slowly in that direction.” 

As the Saudi economy moves away from oil dependency, the Minister dsicussed the investment diversification effort the Kingdom made in various industries under Saudi Vision 2030, including in technology, artificial intelligence, and tourism. The government has also made sustainability a key priority and has invested heavily in electric vehicles, hydrocarbon energy, solar energy, and carbon removal technology. The Minister stressed the government’s strong commitment to sustainability and the need for the Kingdom to take a regional leadership role on this issue: “A stronger Saudi economy is good for the region.”  

“The heart of all of this is technology and innovation,” said Minister Alibrahim. “Diversification is essentially just doing what you don’t know how to do.” 

Egypt’s sustainable investment and trade growth, with Minister Hassan El Khatib

“I want stable policies, I want predictable policies, and I want to make sure that this location is competitive now and for the next twenty years,” said H.E. Hassan El Khatib, Egypt’s minister of investment and foreign trade. “Egypt has a major advantage and a great opportunity today, especially with the supply chain shift, with onshoring, with our abundance of quality labor.”

On Friday, October 25th, the minister joined the Atlantic Council at the International Monetary Fund to discuss Egypt’s sustainable investment and trade growth with empowerME Initiative Director Racha Helwa. He highlighted Egypt’s empowerment of its private sector and its planned shift away from government-led economic growth: By 2030, H.E. said, the Egyptian government aims for the private sector to contribute 75 percent of investments. These efforts are part of Egypt’s commitment to building an attractive business environment, securing more foreign direct investment, and streamlining existing trade and tax policies.

For example, the minister underscored the need to make the logistics of trade simple and fast, not only by reducing non-tariff barriers but also by pursuing digitization. “Trade is about the ease of getting goods in and out,” His Excellency said. “We want to cut the time taken to release goods by 30 to 50 percent.” Egypt’s trade prospects stand out in a troubled region given the country’s excellent strategic location, clear policies, renewable energy resources, abundant high-quality labor, and stable approach to regional challenges.

Kate Springs and Leila Ouhri are Young Global Professionals in the Atlantic Council’s Middle East Programs.

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empowerME at the Atlantic Council’s Rafik Hariri Center for the Middle East is shaping solutions to empower entrepreneurs, women, and youth and building coalitions of public and private partnerships to drive regional economic integration, prosperity, and job creation.

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The last instance where the international community came together decisively was in response to the 2008 global financial crisis. Then, heads of state gathered in Washington, DC, for a Group of Twenty (G20) summit to agree on a coordinated response to the crisis and lay the foundations for a reform of the financial system. That summit was followed in 2009 by summits in London and Pittsburgh. Since then, international economic cooperation has steadily eroded, with the possible exception of the 2021 agreement of the Organisation for Economic Co-operation and Development–led initiative to impose a global minimum corporate tax of 15 percent. While several dozen countries have adopted the second pillar of the global minimum corporate tax—a tax income inclusion rule related to foreign income of parent companies—none of these countries have adopted the first pillar, which would have ensured uniformity in implementation and overriding of domestic tax treaties. This situation raises doubts about the ultimate implementation of the global minimum corporate tax.

A series of shocks, most notably the COVID-19 pandemic and the war in Ukraine, have rocked international economic cooperation. At the height of the pandemic, the hoarding of vaccines by richer countries seriously damaged their compact with poor countries, spilling over into the economic arena. The ongoing wars in Sudan and Gaza have also demonstrated the inability of the international community work together to stop conflicts, leading to mounting economic uncertainty worldwide.

At the same time, leaders in developing countries have increasingly called out advanced economies’ double standards, including on the application of sanctions. They have also become more assertive about their own domestic priorities, pushing back on what they perceive as a Western-dominated international agenda.

The failure of coordination of the international community is also blatant in the arena of climate change. The United Nations’ Conference of the Parties (COP) that took place in Paris in 2015, and which led to the signing of the Paris Agreement in 2016, was arguably a breakthrough. But it rested on the previously made pledge, first agreed to in 2009’s COP in Copenhagen, that rich countries would provide $100 billion a year to poor countries. That promise was not met until 2022, two years later than the initial target date of 2020.

The distribution of clean energy investment is mostly in rich countries and giant emerging markets, such as China and India, leaving behind many developing countries, which cannot afford borrowing for these new investments. Many developing countries have resorted to doubling down on hydrocarbon energy, arguing that granting their citizens access to electricity and reducing poverty takes precedence over fighting climate change.

The issue of international coordination on the energy transition is intertwined with the issue of debt. After an important breakthrough in the context of the G20 during the pandemic with the debt service suspension initiative, the common framework appears to have stalled. The shift in the composition of developing countries’ debt toward more private and nontraditional creditors arguably makes it more difficult to coordinate on debt restructuring.

In a bold move, the IMF announced in April that it would revise its policy of lending into arrears to financially support countries whose debt restructuring processes are being held up by major official creditors, including China. That said, it would help if the voices of emerging and developing countries would better represent their shares in the world economy and population in the existing global financial architecture, including in the Bretton Woods system—a system based on the structure of the world economy at the end of World War II.

International economic coordination is eroding at the same time that geopolitics are reordering, with the United States and Europe on one hand and China on the other engaging in a strategic rivalry. The changing power balance between the so-called Global North and Global South could lead the superpowers to use trade, investment, sanctions, and development aid to sway other countries into their camps.

For instance, in the race to dominate the green industry, superpowers could be tempted to offer privileged trade and investment partnerships or aid to gain access to critical mineral resources. That would risk further fragmenting global value chains. With growing vulnerabilities and a further erosion of governance in developing countries, leaders could attempt to grab these new geopolitical rents at the expense of their citizens. Deviating from globalized markets will no doubt decrease efficiency and leave hundreds of millions of individuals worse off.

A new era of ‘coopetition’

Another way is possible. Western countries should accept a change in the balance of power and the competition that comes with it, but agree to coordinate on the ultimate direction of travel. There is too much at stake with the energy transition, wars, and debt distress, with developing countries paying the heaviest price. The resulting destabilization of developing countries could backfire on superpowers in the form of globally intensifying migration, terrorism, and climate shocks.

In their famous 1996 business strategy book, Adam Brandenburger and Barry Nalebuff coined the phrase “coopetition”—a portmanteau of competition and cooperation. The authors make the case that neither war nor peace mindsets are appropriate characterizations of what business is and should be about. They argue that cooperation is needed to create the pie, and competition is warranted when dividing it. That is a good analogy for today’s geopolitical landscape. Whether it is to confront existential threats linked to climate change, proxy wars, debt, and global health challenges, global superpowers should turn their ongoing rivalries into a race to the top rather than a race to the bottom in which everyone loses.

For instance, in the arena of climate change, Chinese, US, and European leaders must make renewed commitments to climate goals to make cooperation complementary to the ongoing competition to dominate the green industry. The same rationale applies for much stronger global cooperation on combating pandemics while competing in the development of the vaccine industry.

Coopetition is not just for major powers. Greater cooperation among poorer countries is also necessary to resolve the global debt crisis, accelerate technology transfers, and increase poorer countries’ access to capital markets, including green infrastructure investments. Poorer countries should thus also compete by forming coalitions and coordinating with other blocs to accomplish shared goals.

In the aftermath of World War II, the Bretton Woods institutions were created with the mission to help the world rebuild physically. In the twenty-first century, the challenge is to rebuild economic governance in a way that accounts for the interdependence of climate, peace, economic stability, and global health in a world increasingly organized around geopolitical blocs. To ensure that the developing world does not get left behind, coopetition between the major blocs is the way forward.

Rabah Arezki is a former chief economist and vice president at the African Development Bank and former chief economist of the World Bank’s Middle East and North Africa region. He is also the former chief of commodities in the International Monetary Fund’s research department. He is a professor and research director at the CNRS, a member of the FERDI’s chair working group on the international architecture of financing for development, and a senior fellow at Harvard Kennedy School.

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It is a mistake for the West to dismiss the power of symbolism and narratives in the geopolitical competition for global influence. The BRICS summit has also produced noteworthy results that the international community should be aware of.

First, Vladimir Putin chaired a successful summit involving thirty-six countries, most of which were represented by heads of state. In doing so, the Russian president showed that he has not been isolated in the international arena by the West following his invasion of Ukraine. Instead, he has deepened relationships with Global South countries through BRICS and other initiatives such as riding the anti-colonial wave to make headways in western Africa. Equally importantly, President Xi Jinping and Prime Minister Narendra Modi met on the sidelines of the summit. They did so mere days after announcing a pact to resolve their border conflicts, which have been a major irritant in their bilateral relationship. Their meeting helped raise the stature of the BRICS summit as a venue where important political discourse can take place.

Last but not least, with many countries reportedly wanting to join, BRICS has invited 13 thirteen nations to be partner countries-they will continue discussions with a view to formal membership. The list of partner countries—confirmed by several senior officials, but not officially specified in the Kazan Declaration—includes Algeria, Belarus, Bolivia, Cuba, Indonesia, Kazakhstan, Malaysia, Nigeria, Thailand, Turkey, Vietnam, Uganda, and Uzbekistan. It is unclear which of these countries will eventually decide to become formal members. Saudi Arabia, for example, was invited to join last year but has not yet decided, though its officials have attended BRICS meetings since then. The inclusion of priority countries for the West, such as Turkey (a NATO member) and four important ASEAN countries, should concern policymakers. Many developing countries have found BRICS a useful forum for a variety of reasons, including diversifying international relationships and expanding trade opportunities.

The Kazan Declaration, released at the end of the summit, covers a wide range of issues. The Declaration avoids any direct mention of the United States, hostile or otherwise. Some Western analysts had raised that doing so could make moderate members like India and Brazil uncomfortable, especially given the anti-Western tilt of the group’s expanded membership. The Declaration focuses on promoting multipolarity and a more representative and fairer international system. These goals remain the common denominator attracting many countries to BRICS.

The Declaration supports initiatives and groups developed to coordinate and promote the views of BRICS members and countries in the Global South in international fora, including the United Nations (UN) and the Group of Twenty. These groupings cover issues from sustainable development to climate finance, and call for settling the conflicts in Gaza and Ukraine.

In particular, BRICS will intensify ongoing efforts to promote settlements of cross-border trade and investment transactions in local currencies by establishing BRICS Clear as an independent cross-border settlement and depository infrastructure. Doing so would help facilitate the use of local currencies. It will also launch the BRICS Interbank Cooperation Mechanism to promote innovative financial practices, including financing in local currencies. Many developing countries are interested in using local currencies more frequently given their limited access to US dollar funding.

The group’s decision to form an informal consultative framework on World Trade Organization (WTO) issues to engage more actively in the debates about reforming the WTO is also noteworthy. This section of the Declaration includes opposition to the use of unilateral economic sanctions and discriminatory carbon border adjustment mechanisms. Taking advantage of the fact that BRICS members constitute the largest producers of natural resources in the world, the group also pledges to jointly promote its interests throughout the value chains of mineral production against the backdrop of increased demand for critical minerals for the energy transition. The geopolitics of the energy transition could open an opportunity for mineral-rich developing countries to coordinate their mineral policies and join the superpowers in their search for reliable supply chains of critical minerals.

Overall, BRICS has attracted interest from many developing countries—now boasting nine members and thirteen partner countries. The collective share of its members’ population and gross domestic product has surpassed that of the Group of Seven (G7). However, expansion comes at a cost. Building consensus among more diverse members is increasingly complex, and expansion plans could remain a point of contention within the group. For example, Venezuela had reportedly been kept out of the list of partner countries due to Brazil’s objection.

Despite this challenge, key members of BRICS have successfully developed common positions among Global South countries in international fora in recent years. Their joint effort to demand a loss and damages fund at COP28 in Dubai in 2023 is one example. Additionally, BRICS members have collaborated with Global South countries to work for the adoption of the UN mandate in August 2024 to negotiate a UN tax convention, which covers taxation of multinational corporations and wealthy individuals. BRICS countries also consistently promote governance reform of the Bretton Woods Institutions. The more BRICS can develop and articulate common views among Global South countries, the more it can be regarded as the counterpart of the G7 (representing developed countries) at international fora and in the public domain.

Importantly, BRICS’ flagship project—promoting the use of local currencies to settle cross-border trade and investment transactions—is gradually gathering momentum. China, for example, has increased the share of the renminbi when settling its cross-border transactions from 48 percent (surpassing the US dollar) in mid-2023 to more than 50 percent in mid-2024.

In short, BRICS—or BRICS-plus as some observers and officials have referred to the expanded group—is here to stay. Other countries, including Western ones, need to figure out how to deal with it.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, a former executive managing director at the Institute of International Finance and a former deputy director at the International Monetary Fund.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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Online Event Wed, October 23, 2024 • 10:00 am ET

European Central Bank President Christine Lagarde on Europe’s economic outlook

AN #ACFRONTPAGE EVENT—European Central Bank President Christine Lagarde discusses Europe’s economic challenges and the path forward during IMF-World Bank Week at the Atlantic Council.

Digital Currencies Digital Policy Economy & Business European Union

The role of a global reserve currency should “never be taken for granted,” said European Central Bank (ECB) President Christine Lagarde on Wednesday at an Atlantic Council Front Page event on the sidelines of the International Monetary Fund-World Bank Annual Meetings.

Lagarde addressed a host of issues facing the continent, including the European Union’s (EU’s) ambition to create a central bank digital currency (CBDC), the ECB’s efforts to keep prices stable, what Europe’s lagging economic competitiveness means for the ECB’s fight against inflation, and the outsize impacts that the next US president’s approach to trade will have on the global economy.

Below are more highlights from this conversation with Lagarde, which was moderated by Atlantic Council President and CEO Frederick Kempe. 

Fighting inflation

• Assessing the ECB’s monetary policy over the past two years, Lagarde pointed out that inflation in the eurozone stood at 10.6 percent in October 2022 and has come down to below 2 percent. “We have reasons to believe that it will move up again above 2 percent in the next few months,” she said, “but it’s really good progress.”
• Lagarde explained that the ECB is driven by a “pretty simple and straightforward” mandate of “price stability,” unlike the US Federal Reserve, which also targets growth.
• Nevertheless, former ECB President Mario Draghi’s report on European competitiveness, which Lagarde called “a severe but just diagnosis of where Europe is,” touched on major issues of concern to the ECB’s efforts to combat inflation, including low productivity, high energy costs, and the need for further efforts on digitalization.
• To make progress on digitalization, she said, “You need capital, and you need capital that is prepared to take risks. This is not something that we are very good at in Europe.” To remedy this, Lagarde said she supports a capital market union that is “common to all, at least countries of the euro area, if not the whole of the European Union,” which she said would require “a single integrated market from a regulatory point of view.”

A digital eurozone?

• Lagarde spoke of her support for a European CBDC: “When you look at central bank money, why would it not also turn digital? Why would we always and forever rely on banknotes as our basis for the currency?”
• One potential benefit of a European CBDC, Lagarde said, would be helping to interlink international payments systems, which she said “are very fragmented in Europe. If you want to pay digitally, there are at the moment thirteen countries that are operating in an isolated manner and which are not linked to the rest of the system,” she said. “Having a digital euro is a way to actually bring that together.”  
• This would have major implications for sending remittance payments from Europe. Currently, sending remittances “takes forever,” Lagarde said. “It’s very expensive. It does funny loop-de-loop circuits around the world for some countries.” One aim of a European CBDC would be to interlink payment systems “so that remittances can go back to the Philippines or to Thailand or to Mexico in a smooth and cheap way.”
• The European CBDC is currently in an exploratory phase, but Lagarde said she hopes to see the European Parliament vote in 2025 to create one. She added that an EU legal framework for the digital currency will need to be completed as well, but along with the legislation, “the two are coming together.”

Tariffs and transatlanticism 

• Trade, Lagarde said, is beneficial for innovation, economic growth, and poverty reduction. “So trade barriers, whether they are tariff or nontariff barriers, are likely to have a negative impact on growth,” she said. “I think it would have an impact on inflation as well and not one that would be particularly welcome.”
• While acknowledging that “there is clearly overcapacity in certain sectors in China,” Lagarde said that “periods of restrictions and barriers” in US trade policy “have not been periods of prosperity and strong leadership around the world,” and the next US president “should at least bear that in mind.” Rather, she said, US economic prosperity and leadership has “most often coincided with periods of trade around the world.”
• Lagarde sounded a note of caution on China’s and Russia’s attempts to push their own currencies as means of international payments at the expense of the dollar and the euro. Noting that “the renminbi is neck to neck with the euro on trade finance,” Lagarde said that “we all need to be attentive to new developments” on Chinese and Russian efforts to diminish the role of the dollar and the euro.

Daniel Hojnacki is an assistant editor on the editorial team at the Atlantic Council.

Watch the full event

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Online Event Wed, October 23, 2024 • 10:00 am ET

European Central Bank President Christine Lagarde on Europe’s economic outlook

AN #ACFRONTPAGE EVENT—European Central Bank President Christine Lagarde discusses Europe’s economic challenges and the path forward during IMF-World Bank Week at the Atlantic Council.

Digital Currencies Digital Policy Economy & Business European Union

Speaker

Christine Lagarde
President, European Central Bank

Moderator

Frederick Kempe
President and CEO, Atlantic Council

Introduction

Josh Lipsky
Senior Director, GeoEconomics Center, Atlantic Council

Event transcript

Uncorrected transcript: Check against delivery

JOSH LIPSKY: Good morning, and welcome to the Atlantic Council. I’m Josh Lipsky, senior director of the Atlantic Council’s GeoEconomics Center. And it is truly my honor to welcome you today to our AC Front Page conversation with the president of the European Central Bank, Christine Lagarde.

This morning’s event keynotes our series of interviews with leading financial policymakers during the IMF-World Bank annual meetings. Both here at the Council and live from our studios inside the IMF, we are hosting fifty conversations this week on a range of issues, from China’s economy to digital currencies to the future of the Bretton Woods system.

And I wanted to take a moment this morning to explain why we’re doing that. When we launched the GeoEconomics Center nearly four years ago, it was founded on a simple premise: Finance, economics, foreign policy and national security are deeply interconnected. The events of the intervening few years have proved the point. Think of the pandemic and the resulting supply-chain shocks. Think of Russia’s illegal invasion of Ukraine and the way the tools of economic statecraft have been deployed by the G7 to respond.

This center, through our research, our convenings, our fellowships with young economists, has sought to be the place that delivers new solutions for the challenges of our time. In fact, it was on this very stage two years ago that US Treasury Secretary Janet Yellen delivered her friendshoring speech, just before the IMF-World Bank annual meetings.

She called upon all of us to channel the spirit of Bretton Woods, to remember that 44 countries met in New Hampshire not after war but during war, six weeks after D-Day. She said at the time that they sought to build the future they hoped to win.

And so the IMF and the World Bank to us are the quintessential geoeconomic institutions. They are proof that even in crisis, international collaboration works and can deliver something better than what came before. And there is no one who more embodies that principle than our guest today.

Time and again over the past two decades, President Lagarde has been called upon to lead in extraordinarily difficult moments. In 2007 she became French finance minister, the first time a woman was appointed as G7 finance minister. Only months into the job, she helped not just her country but the rest of Europe and her counterparts here in the US navigate the global financial crisis.

In 2011 she became the first woman to lead the International Monetary Fund. Here she was asked to help manage the unfolding eurozone crisis and strengthen and stabilize the IMF after a difficult period.

In 2019 she became the first woman to lead the European Central Bank, just before a global pandemic and a land war in Europe would send shockwaves through every economy in the euro area.

In each of these roles, she demonstrated what true leadership looks like. And on a personal note, for me, the opportunity to work for her at the IMF was an incredible honor, as I know it is for all those who have had the chance to learn from her. And many of them are here in this room.

So it is truly my pleasure today to welcome President Lagarde back to the Atlantic Council as she joins the president and CEO of the Atlantic Council, Fred Kempe, for this special conversation.

Fred, over to you.

FREDERICK KEMPE: Thank you.

So, Madam Lagarde, first of all, you trained Josh really well.

CHRISTINE LAGARDE: He came with high recommendation from you.

FREDERICK KEMPE: So salute to Josh and his remarkable GeoEconomics team; another amazing week you’re putting together. And you’re putting it together as we dismantle our offices here.

Good morning to all of you for this, our last major event at our old headquarters. We’re already moving into our new headquarters at 1400 L. I think you’re going to be amazed at the new convening space.

And good afternoon in Europe. Good evening in Asia. Hello all over the world. We’ve got people tuning in all over the place because they want to hear what you have to say. So if you have questions we’re going to do them online today. All those in the audience live here can send them in through your phone if you like, and it’s AskAC.org. Send it to AskAC.org.

Let me get started with monetary policy, which seems like the right place to start with you, and I’m really interested in a situation where you’re looking at inflation coming down. One point eight percent in September. It was as high as 10.6 percent October 2022.

So that’s the good side. The bad side is growth is slow. In Germany it could be negative this year, probably will be negative this year, and they may be on the edge of a recession.

GDP outgrowth—growth outlook forecast under 1 percent for the euro zone. As you weigh these factors looking at future decisions how do you weigh inflation coming down but growth—which is a good thing, but growth being as slow as it is, which is not a good thing?

CHRISTINE LAGARDE: Thank you, Fred. Thank you, Josh, very much for your way too kind introduction and it’s really a pleasure being here.

I was wondering whether you follow a tradition that is often observed where when you leave a place you allow anybody who is here for the last time to pick up something from the—

FREDERICK KEMPE: That’s the end of our program today.

CHRISTINE LAGARDE: No, but it’s wonderful to be back at the Atlantic Council and congratulations for having expanded so much the scope of your work and your research, bringing together geopolitics, economics, and security under one single roof.

Back to your question, and thank you for starting with monetary policy because this is really my business. So at the European Central Bank we are driven by a mandate which is pretty simple and straightforward, which has a primary objective which says price stability.

It’s upon us to define what it is and we have in our last strategy review defined it as 2 percent medium term symmetric. So we, first of all, look at inflation, at prices. We dissect inflation as much as we can and we try to distinguish what is sort of headline inflation, which is what is felt and resented sometimes by people, from what is permanent, from what is temporary, to really understand where it is heading and how our decisions on interest rates in particular are going to affect inflation.

So that’s what we look at primarily. But, of course—and we are—at this point in time we are rather satisfied with the progress made because, as you just mentioned, we started off back in October two years ago at a reading of 10.6 percent on average and we are now below 2 percent for the moment.

We have reasons to believe that it will move up again above 2 percent in the next few months but it’s really good progress that we have contribute—we have largely contributed to.

Growth. So we are attentive to growth, of course, because it impacts on inflation and it is that impact of growth on inflation that we are attentive to. It’s different from the Fed. The Fed has this dual mandate of price stability but also growth, economic activity, employment. The ECB does not have that. We have a primary mandate which is price stability.

FREDERICK KEMPE: And so let’s get to European competitiveness and growth. Your predecessor Mario Draghi just released a major report on the future of competitiveness. As Josh said in his opening, you’ve not just been in your current job as a central bank governor but you’ve been a minister in France. You’ve been the head of IMF. You were in the private sector for twenty years, and so you know that it all links together in how competitive a place is.

He raised many issues that fall on the fiscal side—not your job—but the ECB does play a role in financial regulation of capital markets. You have urged people to swiftly follow up on Draghi’s plan, I think particularly on capital markets. But I guess the question behind this is, how concerned are you about European competitiveness, and what’s most urgent in the Draghi report?

CHRISTINE LAGARDE: Well, first of all, his report is comprehensive, analytical, documented, and, as I said, a severe but just diagnosis of where Europe is. From my position, as president of the central bank, I’m particularly attentive to three directions that he’s identified. The first one—because they matter for monetary policy.

So the first one is productivity. Europe lags in productivity way behind the United States. Just to give you a number, between 1995 and, say, 2020, US productivity has increased by 50 percent. Europe, productivity has increased by 28 percent. So Europe is lagging behind in terms of productivity. That’s objective number one, improve, catch up, and identify which sectors are going to drive productivity. When you look at the gap between 50 and 28 percent, you see that a lot of that results from the tech sector. Very obvious.

Second item, which he also identifies, is energy costs, and what can Europe do about it. If you look at the price of energy, it’s about two or three times higher in Europe than it is in the US If you look at the price of gas, it’s four to five times higher in Europe than in the United States. So are we suddenly going to find oil, find gas? Do we actually want that? No. What he identifies as the way forward is rapid and smart decarbonization of the economy so that Europe can lead in terms of non-fossil energies, where we are a little bit ahead of the game—with caveats—but which would lead to a much cheaper source of energy once the investments are made, once the transition is completed. And which would also be a good way to adapt—to adapt to the climate change impacts that we are suffering more and more by the day.

The third dimension which he identifies as well is digitalization of our economies. And that is one where the productivity gap is obvious, and where a collective endeavor by the Europeans is called for. What is needed behind it and why does it matter to us, you know, in terms of monetary policy, is the financing. To progress in digitalization, to move into the innovation journey that is needed for that, you need capital. And you need capital that is prepared to take risk. This is not something that we are very good at in Europe. If you look at the volume of venture capital that is raised in Europe, it’s minimal relative to what is raised in the US, or even China.

So he advocates, and I have advocated before that myself, for a capital market union that is common to all, at least, countries of the euro area, if not the whole of the European Union. And for that we need a single, integrated market from a regulatory point of view, from a supervision point of view, with common trade and post-trade infrastructure, where we are completely scattered all over. So those are the three directions where it matters to us—improved productivity, of course it matters to us, especially with an aging population as we have in Europe. Cheaper energy. Of course it matters, because it’s clearly one of the domain that can shock our economies, and has shocked all our economies but Europe in particular recently. And digitalization, because there will be productivity improvement as a result as well.

FREDERICK KEMPE: So, coming back to the core question behind this, how worried are you about it, we’ve known that these things need to be fixed for a long time. And so you look at the Draghi report, and you can’t help but embrace it. But how does one now—what would be different now that one would actually execute on something like capital markets, when one hasn’t before?

CHRISTINE LAGARDE: You remind me of a famous Margaret Thatcher comment. You know, don’t tell me what to do, tell me how to do it. And that’s exactly where I think Europe is. Because, yes, those things have been identified—probably in a more piecemeal way. One of the great values of the excellent Draghi report is that it brings it all together by someone who’s been in all positions. National central bank, so he knows about the territorial aspects of some of the reforms. He has been president of the European Central Bank before me, so he knows how bringing everyone together is necessary and relies also on other unions than just monetary union. And he’s been president of—prime minister of Italy, so he appreciates the politics that is behind it. So value is comprehensive by somebody who has a holistic view of the issues.

He doesn’t go, in my humble view, deeper enough into the action list, what needs to be done. And that’s probably not—you know, it’s—this is now going into the weeds and rolling sleeves up and getting the job done, but this is what the European leadership at all levels of institutions will have to do. How do you go about a capital market union? What do you need to tackle first? Who do you need to bring around the table to say, OK, you have your territory at the moment, it’s not a question of taking it away from you, but bringing it to a level where major operations, major issuance, will be taken at a different level? So all this needs to be done, and the urgency of the matter is now.

FREDERICK KEMPE: Thank you for that very clear, clear statement.

So I won’t—we don’t want to turn this into a press conference; that’s not the purpose of the Atlantic Council. But I do have one follow-up question on your first answer, from Mark Conahan: Is it appropriate for markets to begin pricing in an aggressive rate-reduction path in anticipation for economic data even when the ECB’s forecasts seem more sanguine? And this really gets to the point that if you look only at the inflation data you may go in one direction. It’s not your mandate to look at the economic data, but you’ve said how much it’s linked. I think the real question behind this is: Are you being too sanguine?

CHRISTINE LAGARDE: What we have done since last June on the basis of the data that we had and our baseline, we have gradually cut interest rates once, in June; then we held, in July; then we cut again, in September; and we cut again, in October. So we do not have a linear, systematic sequence that would be, you know, the way to go.

We have reiterated many times—and I’m happy to do it again, because it’s really the way it works—we are data dependent and we look at everything that’s available. And we analyze those data on the basis of three key criterias, which include the inflation outlook, the underlying inflation, and the transmission of monetary policy. And when we last cut, in October, we were confident on the basis of the data that we were receiving and observing that the disinflationary path was underway and that we could continue to dial back the restrictive monetary policy that was in place—that is in place.

But of course, we need to be cautious. We need to be cautious because data will come—will come up and will indicate to use what is the state of the economy, what is the state of inflation, of underlying inflation, and there will be a judgmental aspect to our decisions. But we will, indeed, have to be cautious in doing so.

FREDERICK KEMPE: Thank you for that.

So from the immediate to the generational question, you’ve delivered a truly fascinating speech last month at the IMF, and you said central bankers today—and any of you who have not read it, you should go and read the whole thing.

CHRISTINE LAGARDE: Oh, thank you.

FREDERICK KEMPE: As you know, I’m an amateur historian as well as a think tank leader. But you talked about how central bankers today have better tools to manage structural changes than the 1920s, even if some of the headwinds are similar. Here’s your quote: “Two specific parallels between two ‘twenties’, the 1920s and the 2020s,” which I found fascinating. “Then, as now, we’re seeing a setback in global trade integration and a stride toward progress in technological progress.” So AI on the one side and decoupling/derisking. I would add a third element to this that was there in the 1920s, which is a rising geopolitical risk.

So we all know how the 1920s ended, which is the disasters of the 1930s, whether it was the Great Depression or whether in the end it was world war. What makes you more confident of our challenges today? You know, if you’re looking at the 1930s versus the potential 2030s, how do we avoid wrong turns at this point?

CHRISTINE LAGARDE: OK. Well, each one of us has to do what one has to do. So you are the historian and you can do the sort of geopolitical comparative analysis between the 1930s back then and the 2030s now. I will not venture in that area, because I have to focus on what impacts monetary policy. And you would take me into too political direction.

But what gives me more confidence today—maybe it’s twofold. One is, if you look at trade, back in those days, in the 1920s, trade went down significantly. In a couple of decades, trade went down by 20 percent—down. The numbers we have on trade are not downward. They are up. So if you look at the forecast by the IMF for the next couple of years, it’s an increase of trade. I think it’s 3.1 next year and 3.4 the year after.

So we are not in a world where trade stops and trade declines. We are in a world where trade continues. But it continues in a different way. And I think we have to be attentive to the composition and the distribution; so no less trade, but trade with other partners, trade in a different risk distribution, if you will.

It’s the whole, you know, strategies of corporate to have China plus one or to have plus one, but certainly to continue to use the world in order to benefit from elasticity or in order to benefit from larger market outside home base. So I don’t think that trade is here to go on the basis of the information that we have and the analysis that we can conduct.

I think the second reason I’m more optimistic is that central banks in those days, they exacerbated the problems because they were operating within a rigid framework. And I think that we don’t have that rigid framework anymore. I mean, the gold standards and the reference that currencies had vis-à-vis each other with gold as the standard is no longer with us. And we have invented, over the course of the last few decades, a much more flexible system which allows for that room to maneuver in a less brutal and rigid way on the economies.

Second, still in that monetary toolbox that we have and the way that framework is organized, inflation expectations is one of the major compass that is being used in order to make sure that inflation comes back to that target that most of us around the world have of 2 percent, more or less.

So those are two reasons, in my field, that give me hope that those twenties, while there are interesting similarities in terms of decline of trade and massive technology breakthrough, will not give rise, I hope—and I’m sure you do as well, Fred—to the thirties.

FREDERICK KEMPE: Thank you for that, because the saying, those who forget history are condemned to repeat it, I hope you’re right.

I’m going to ask for a visual aid here from our AV team, because I’m going to talk here about central-bank digital currency, which I know is, you know, something of a passion of our GeoEconomics Center here. We’ve studied central-bank digital currencies closely. What you’re seeing right now is one of our most clicked-on and most-viewed webpages of the Atlantic Council, which tells you what geeks follow the Atlantic Council. But the ECB is currently in a two-year preparation phase of the digital euro, so you’re testing it for real-world-use cases.

Two questions from this, really. What are the factors that are going to lead to a decision on whether a digital euro will be deployed at the end of the two years? Aligned with that is you’ve made an argument for digital euros, a European sovereignty issue. So I’d like you to elaborate on this.

So I guess there’s actually three questions, those two questions, and then the third is we’ve been pushing for the US participation and leadership on this issue of digital assets. As a peer central bank, how do you view the role of the US on central bank digital currency? So it’s really a three-part question on digital currencies.

CHRISTINE LAGARDE: So your second—or, it was—sorry—

FREDERICK KEMPE: The first one is, how are you going to make a decision to go? The second is, what is the sovereignty issue? And the third is, how does the US play?

CHRISTINE LAGARDE: OK. You know, I might start with your second question, because—no, I’ll tell you where we are. So we are, as you rightly said, in the—what we call the exploratory phase. And it’s a phase that will finish at the end of 2025. So we have still one year to go. And at the end of 2025, provided that the legislative process is completed, then the governing council of the euro system will decide to launch for real or not.

Why do I say the legislative process? Because in Europe, it follows this two-prong approach that hopefully will work, and do work at the moment, in parallel, where we explore from a technological and practical point of view how the digital euro will work. And the legislator, meaning the European Parliament, will have to pass a law that will define what the digital euro is, what its threshold is, how it will operate, whether it will be fiat—well, whether it will have tender status, rather, with fiat currencies. And those two tracks are working in parallel.

My hope—because a lot of work has already been covered under the previous Belgium presidency—my hope is—and Hungarian presidency, to a certain extent. But we now have a new European Parliament which has, you know, now a lot of work on its—on its plate, and will look at that, I hope, in the not-too-distant future. My hope is that in the course of 2025, the law will be voted by parliament. We will have a legal framework in which our technology efforts and definition will be inserted. But the two are coming together.

Your second question, which is more fundamental, is, you know, why do we do that? I think the reason we do that is that everything is digital. And what is not digital, is gradually—and more rapidly than gradually—becoming digital. You buy digitally. You we speak digitally. There are lots of things that are taking place that way. So why wouldn’t currency also be digital? I’m going to oversimplify it. You have central bank money, which is essentially, let’s say, banknotes. And that central bank money is critically important for the trust that people have in the system.

The fact that you hold a dollar, that I hold a euro, is—you know, in euro we trust. And we know that that bank note is always going to be honored. It is central bank money. Then you have commercial bank money, which is what commercial banks create by activating, granting loans. And it’s a whole different situation. But if you just look at central bank money, why would it not also turn digital? Why would we always and forever rely on banknotes as our basis for the currency?

So I think we owe it to future generations, and to all of us, to build that alternative of digital currency, which is, you know, to—again, to put it—to oversimplify it, it’s digital banknote. With less total anonymity, which is probably right given, you know, the security that we want to give each other, and the respect that we have for both the confidentiality of information, which we’re working hard so that there is as much privacy as possible, but equally the fact that it cannot be totally, totally anonymous and facilitate the likes of money laundering, financing of terrorism, and what have you.

So, number one, everything is digital. Central bank money should be digital as well. And there are countries in Europe where banknotes are hardly ever used. So we need to have that anchor established in digital—in a digital way.

I think the second reason we are doing that is the fact that payment systems are not exactly sovereign, and more to the point they are very fragmented. In Europe, you know, if you want to pay digitally, there are at the moment thirteen countries that are operating in an isolated manner and which are not linked to the rest of the system. Having a digital euro is a way to actually bring that together on the back of whatever infrastructure will be available, but which will essentially facilitate peer-to-peer point of sales off-hours payment between people in the trade, people between themselves in a cheap, fast, transparent manner. That’s the objective that we have. And I think it’s—you know, if you look after your currency, it’s also a way to really establish your sovereignty, which is what we are all doing.

FREDERICK KEMPE: Well, let’s drill down on the sovereignty issue. Ananya Kumar from our team is asking about the parallel conversations happening about undercutting the international role of the dollar and the euro at the BRICS summit this week. How do you view the geoeconomic role of the digital euro within this context? And perhaps we could add the digital dollar to that, but your business is the digital euro.

CHRISTINE LAGARDE: Yeah.

So I think here we’re touching on two different things. One was the digital euro, which I tried to explain and which we are working on, we’ll continue to work, and we’ll hopefully launch at the end of 2025.

I think what is also important is linkages between payments systems, because at the moment we have too fragmented a payments system around the world, as a result of which if, for instance, people want to remit money back home—and it is the case for a lot of migrants who are working away from home and want to send their salary back home—it takes forever, it’s very expensive, it does funny loop-the-loop circuits around the world for some countries. So interlinking payments system so that people can actually transact easily and cheaply and transparently, so that remittances can go back to the Philippines or to Thailand or to Mexico in a smooth and cheap way, that is important.

And it’s the reason why we in Europe, we have a system which is called TARGET Instant Payment system, which applies to retail transactions and which, within Europe, work in that fashion—fast, cheap, transparent. And yesterday or a couple of days ago, we announced that we were prepared to link that TIPS—this instant payment system—with other instant payment systems around the world, and they are blossoming.

And I would like to pay tribute to your CBDC Tracker, which is really elaborate and top quality. But I think it would be interesting to also track the instant payments systems that are blossoming around the world. If you look at India, if you look at Brazil, if you look at Europe, we are heading in that direction. And it’s a system that should not be closed off or restricted to the G7 countries, for instance. It’s a system that has vocation to open up to multi-countries around the world in order to serve consumers and people who transact in the best possible ways, in the cheapest way, and introduce good competition.

FREDERICK KEMPE: Fascinating. And, obviously, you can’t comment or instruct the US what to do on its own digital currency, but we seem to be a little bit behind on that from that the European—

CHRISTINE LAGARDE: Can I say something on that?

FREDERICK KEMPE: Yeah. Yeah.

CHRISTINE LAGARDE: I will not comment on it. But I think we need to be really attentive to developments around the world. We publish annually the International Role of the—of the Euro. That’s an ECB annual publication. And we follow, you know, in which currency people transact, in which currency they keep reserves at the central banks in which currency they do trade finance. And the role of a currency should never be taken for granted.

Now, of course, the dollar has the dominant role, and has had it for a long time. It’s the exorbitant role of the dollar that Giscard d’Estaing, the former president of France, had identified. And the dollar is at around 50 percent of all those transactions, when the euro is just below 20 percent. But we have to be attentive and careful. And there is—there are rising—there are phenomenons of rising movements concerning gold, notably. I mean, China has been buying gold like never before. Russia is supporting gold because it is extracting a lot of gold out of its underground, and there are clearly attempts to push other currencies. The renminbi is neck to neck with the euro on trade finance.

So I think we all need to be attentive to developments. We all need to be attentive to new technologies. We need to listen to our customers and our compatriots to see what will serve them best with the concern of defending the currency, establishing the sovereignty as it should be by legitimate means, but clearly defending finance.

FREDERICK KEMPE: That’s an excellent answer. Thank you.

So let’s talk a bit about Russia and its immobilized reserves. Six months ago at the last IMF World Bank meetings we’d been through several months of negotiations between the US and EU on the use of $300 billion of frozen Russian reserves.

G7 announced in Italy—brought forward interest income into a fifty-billion-dollar payment, though not yet delivered. It seemed like something as a breakthrough. The CFR—the Council on Foreign Relations—I think it was back in April you were talking about how freezing assets is different than confiscating assets and the global legal consequences of that.

How do you view this new idea? What role would the ECB play now in getting the fifty billion dollars plan over the line?

CHRISTINE LAGARDE: OK. Maybe let me describe what the new idea is so that it’s—we all understand what the difference is with the old idea.

So the new idea that is being discussed is to use the interests generated by those frozen—not confiscated, frozen assets. So this interest generated by the frozen assets that actually belong to the CSD—Euroclear—and to use that in order to serve the debt of Ukraine vis-à-vis the European Union, Japan, the US, the UK. And this is—and, of course, Canada. I don’ t want to forget anyone in that game but, yeah, Canada is also part of the proposal.

So it’s very different from confiscating the capital. What I think the analysis is the interest generated do not belong to Russia. They’re generated by the capital. The links between the CSD and Russia did not provide for any attribution or ownership of those interests as a result of which it is in the books and in the accounts of the CSD—Euroclear—and can be used for the purpose that is intended by the lenders.

So that’s really what is at stake and I think it’s vastly different from saying we confiscate your assets. No, there’s no such thing. Assets are frozen. They will remain frozen as long as it’s determined by those who made the decisions and the interest generated that do not belong to Russia but to the CSD are used to serve the debt of—that is, to Ukraine.

FREDERICK KEMPE: So you’re comfortable with that approach it sounds like. We’re at work—Ukraine’s at work. This is ongoing. Why can’t it move faster and what would be the ECB role in this?

CHRISTINE LAGARDE: No. No. It has moved. I think it was two days ago that the European—I think it was the parliament or the three institutions together have actually decided to issue the loan, which the exact amount I can’t remember—I think it’s thirty billion—that is backed—guaranteed, if you will, in terms of debt services—by the interest generated as such. And I know that other G7 countries are moving in that direction. I think the UK is fairly advanced, as well, and I don’t know about the US You’d have to—you’d have to ask Janet.

FREDERICK KEMPE: Let’s go back to US and China and trade. You talked—it’s one of the overwhelming themes of this week. And so on the one hand you have, you know, European-US tariffs, the danger or potential of more. On the other hand you have manufacturing over capacity of China being imposed on the world.

What are the specific long-term risks of what’s going on with this potential decoupling between Western economies and China? How concerned are you about the Chinese manufacturing overcapacity on the one hand and rising tariffs on the other?

CHRISTINE LAGARDE: I’ll start with that. I think that trade, according to the rules that partners have agreed with each other—meaning essentially the WTO rules—is beneficial for innovation. It’s beneficial for the development of the activity. Has proven extremely good for some countries that have managed to reduce poverty as a result of extended activity and development of the economy, as a result of trade being the major driver. And I think that we all stood to benefit from trade in many respects. So trade barriers, whether they are tariff or nontariff barriers, are likely to have a negative impact on that. On growth, certainly. On—I think it would have an impact on inflation as well. And not one that, you know, would be—would be particularly welcome.

There is clearly overcapacity in certain sectors in China. And we have to remind our partners that there are rules by which we trade, which they have consented when they joined the WTO, and that they have to abide by. And that not being the case, then decisions have to be made. But I think that jumping to the conclusion that the economy will fare better at home because we have a big market, simply because we will raise tariffs, I think is a bit of a far-fetched conclusion that I don’t—I don’t see in the history of large economies. Because when you look at that—you’re a historian—when you look at that, it’s pretty clear that periods of restrictions and barriers have not been periods of prosperity and strong leadership around the world.

So whoever in this country is ultimately the president, I think should at least bear that in mind. The times when the United States has been in strong leadership, and when the economy has been prosperous, have most often coincided with periods of trade around the world and engagement of the country. Because the US economy is such a large and powerful economy, and it has to project in the world on the global stage.

FREDERICK KEMPE: Thank you for that. I’m going to call for another visual aid. And this gets to the question of leadership at central banks and finance ministries. And we’d like to show you the disparity here between—this is our own data visualization, so the team is very good at this kind of thing. Twelve percent of the world’s finance ministers are female. Thirteen percent of the central bank governors. This is fact. You can see it on the chart very strongly. But are there implications for the global economy? Is this something we should fix just because it doesn’t seem right, or is there actually implications for the global economy in this—in this visualization?

CHRISTINE LAGARDE: I think it’s abysmally small and does not reflect the availability of talents and merits that many economists, and macroeconomic experts, and financial experts have around the world. So it does not—there’s a whole pool of talent that is not tapped into, and clearly not reflected on this chart. Thank you, by the way, for putting that in in such a colorful way.

FREDERICK KEMPE: And but so the economic impact is we’re not tapping enough—

CHRISTINE LAGARDE: But, going beyond that, it’s talent—a pool of talent that is untapped. But it’s also a lack of diversity as such. And we all know from, you know, having studied that and practiced it, that diversity is a source of better decision, of more stability, of, you know, better outcome altogether. Whether it’s in the financial sector or otherwise. And I think we should just, you know, learn that lesson, and do it. Just do it.

FREDERICK KEMPE: OK. Thank you for that.

CHRISTINE LAGARDE: I know you do here.

FREDERICK KEMPE: Well, look, first of all, you look at the facts. And if the facts don’t seem right, then you start—you change.

The final question. And I don’t expect you to prognosticate what will happen here in November or give a view on that. But we’re the Atlantic Council. You’re one of the most remarkable transatlantists/atlanticists we know. You lived in the US for a long time. You have a great appreciation of this country and the transatlantic alliance. What message would you share with our American audience about how their decision now and through December 5th can impact not just Europe, but the rest of the world? I’ve had ministers of foreign countries complain to me that they don’t get to vote in the US elections, because they have so much at stake. But what do you think the stakes are in our own democratic process and elections?

CHRISTINE LAGARDE: I agree with them that a lot is at stake, actually. And the domestic decision, that belongs only to the American people, will have ramifications around the world in a very significant way. So it’s not just a decision at home, although I understand the concern is much more at home on inflation and the economy and all that. But it has massive implications outside the United States because of what I’ve just said. The United States is leading in multiple ways and has to deploy its leadership for the common good. That’s what we should always keep in mind.

FREDERICK KEMPE: And maybe then let’s put this a little bit of a different way. For Europe and the US to maintain their leadership role in this inflection point in history, where we’re going to be shaping the global future yet again together, from your standpoint, what you’re doing, what do we need to do better together?

CHRISTINE LAGARDE: I think we need to remember what history has forged between us. And, you know, I don’t want to go back to Washington and Lafayette. But reading their letters, reading the letters that these two men exchanged and how they played a role in structuring that history, which led to this extraordinary country, should always be a reminder that in whichever position, in whichever situation, we need to be together. And I think that there are some bounds of history that is seen on the Normandy beaches, that is seen on the East Coast of the United States, that cannot go to waste. So we are together, and we should stay in this together.

FREDERICK KEMPE: I think Washington and Lafayette is probably a good spot to close. So please join me virtually and also here in the audience in thanking Christine Lagarde, president of the European Central Bank, for this fascinating discussion.

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The post Christine Lagarde’s message to the United States: Trade barriers and restrictions hold back prosperity appeared first on Atlantic Council.

But with finance ministers and central bank governors gathering in Washington for the IMF-World Bank Annual Meetings, there may only be time for a crash course in cooperation, as they look to tackle challenges ranging from inflation to slow gross domestic product (GDP) growth to debt crises and beyond.

To gauge whether delegates can revive the spirit of cooperation in this geopolitically fragmented moment, we sent our experts to the center of the action in Foggy Bottom. Below are their insights, in addition to takeaways from our conversations with financial leaders outlining the global economy’s outlook for the coming years.

Dispatch from IMF-World Bank week: A look at the seeds that were planted

The “loop-the-loop circuits” of global remittances need straightening out—and fast

Read our earlier analysis

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IMF-World Bank Week at the Atlantic Council

WASHINGTON, DC APRIL 21-25

The Atlantic Council hosts a series of special events with finance ministers and central bank governors from around the globe during the 2025 Spring Meetings of the World Bank and International Monetary Fund (IMF).

Dispatch from IMF-World Bank week: A look at the seeds that were planted

Over at the IMF, leaders and delegates can finally wind down, with the final day of the week having fewer meetings, bilats, and events. There are reasons to commend the progress made just before or during the annual meetings, as the IMF reformed its subsidized lending policies and released a new “debt-at-risk” framework that quantifies risks associated with debt projections. In addition, Group of Twenty (G20) ministers officially endorsed a plan outlining next steps for the World Bank’s strategy for reform. However, the fate of the World Bank’s goal to replenish the International Development Association, while supported by some sizable commitments, remains uncertain.

In fact, much felt uncertain this week, with the US election whipping up doubt about Washington’s future commitment to the Bretton Woods institutions. A shock in the United States—the largest shareholder in both institutions—would reverberate across the global economy. The institutions and the ministers were reluctant to give direct public comments on the topic, deeming it to be a purely domestic issue. But, as became clear in private conversations we had on the ground, anxiety about the election behind closed doors was unmistakable.

The tension was also palpable when it came to China’s domestic economy. Europeans are concerned about retaliation after the recent vote on electric-vehicle tariffs, hoping to avoid tit-for-tat escalations. Food and energy exporters in the Middle East, Asia, and South America are worried about the future of their exports if the Chinese economy continues to slow, leading to a drop in demand.

Major announcements were missing this week, which contrasts with what we saw last year in Marrakesh, where leaders were able to achieve significant progress on quota reform and debt restructuring deals. But true change in international economics and finance takes years, and quiet diplomacy could help prevent problems from escalating. Mark your calendars to join us at the Spring Meetings, as we return to see if the seeds planted behind closed doors this week flourish—or wither.

The “loop-the-loop circuits” of global remittances need straightening out—and fast

There’s one phrase I’ll never forget from this year’s IMF-World Bank Annual Meetings: “Funny loop-the-loop circuits.” 

That is how European Central Bank President Christine Lagarde, speaking at the Atlantic Council on Wednesday, characterized the process of sending remittances—money migrants send back home. She explained that sending remittances “takes forever” and “is very expensive,” and the money “does funny loop-the-loop circuits around the world” along the journey. 

Lagarde wasn’t the only one to hone in on the issue, as this week in Washington, the topic of remittance payments—usually confined to technical discussions and policy footnotes—took center stage in several discussions. But Lagarde’s remarks highlight the complex journey remittances often take, in which funds pass through multiple correspondent banks, undergo regulatory compliance checks, and face currency exchange fees, leading to delays and higher costs as the money “loops” through various intermediaries before reaching the final destination. The numbers paint a compelling picture: Last year, global remittance flows (valued at $890 billion) surpassed both foreign direct investment and official development assistance, making them an increasingly vital source of income for emerging markets. Today, the average cost of sending remittances stands at 6.4 percent—more than double the World Bank’s target of 3 percent by 2030. In some corridors, such as Tanzania to South Africa, the cost can be even higher: For example, it can cost nearly one hundred dollars to send two hundred dollars.

Ahead of the meetings, my colleague Ananya Kumar and I outlined a twenty-first-century approach to remittances, advocating for the introduction of more digital solutions in financial systems and enhanced private-sector collaboration and experimentation in digital infrastructure to reduce costs and increase speed.

But technology alone isn’t the answer—the regulatory framework also needs to evolve. Remittances are inherently a global issue: They cross borders, link multiple payment systems, and involve migrants who navigate between different national economies, making it impractical to address their challenges through domestic policies alone. This situation calls for coordinated action from international bodies like the IMF and World Bank, and support from South Africa’s Group of Twenty presidency.

Dispatch from IMF-World Bank week: Slow and steady may no longer suffice

The intensification of war in Lebanon has “flipped” the country’s economic priorities “180 degrees,” says minister of economy and trade

European Commissioner Jutta Urpilainen: Investing in Europe’s security requires investing in international cooperation and partnerships 

An evasive—and elusive—G20 communiqué

Don’t forget about regional development banks. They play a key role in a Bretton Woods 2.0.

There’s plenty of worry—but not much talk—about China’s economy

Read our earlier analysis

Dispatch from IMF-World Bank week: Slow and steady may no longer suffice

Well, the week has nearly come to an end, except for a few talks. The plenary speeches have been delivered, and the IMF’s and World Bank’s ministerial-level forums (the International Monetary and Finance Committee and Development Committee, respectively) have come and gone.

When the dust settles tomorrow after another round of consultations and seminars—despite some important, albeit incremental, policy changes—it’s unlikely that very much will be remembered to distinguish these annual meetings from their recent predecessors.

The most important IMF reform, which actually was agreed upon earlier this month, will provide additional assistance to low-income countries that come to the IMF hat in hand during a crisis. Wealthier countries agreed to contribute additional resources to a fund that finances concessional loans to the poorest countries to the tune of an additional $3.6 billion of lending a year. The IMF is also moving to cut the charges and surcharges imposed on borrowers, which will reduce the repayment burden that countries face.

But on the long-term issues facing the global economy, which is still trying to regain higher levels of growth in the post-COVID era, the messages from the meeting sound too familiar: raise productivity, implement labor market reforms, pursue the “green transition,” and improve people’s lives. Indeed, these goals have been outlined at several previous annual meetings, but progress is slow.

That is one of the basic truths of the multilateral process. Change comes slowly, when it comes at all. But in a world facing a rising tide of geopolitical fragmentation, wars, debt crises, and demographic change, incremental change may no longer suffice. Sometimes slow and steady just means sclerotic.

The intensification of war in Lebanon has “flipped” the country’s economic priorities “180 degrees,” says minister of economy and trade

At the IMF-World Bank Annual Meetings, Lebanese Minister of Economy and Trade Amin Salam has sensed a shift in conversations, and priorities, with the Bretton Woods institutions regarding Lebanon. 

“A few months ago, we were looking at reform and recovery. . . we were looking at a deal with the IMF,” he said in a conversation with senior economist Perrihan Al-Riffai. “Now, everything has changed.” 

That deal, slated to include a three-billion-dollar loan to “kickstart the economy,” was the subject of a staff-level agreement in 2022. (According to the head of the IMF mission to Lebanon, the deal stalled amid Lebanon’s slow implementation of promised reforms). The three-billion-dollar loan, Salam said, was supposed to be a “stamp of approval” or a sign of trust in the Lebanese economy, encouraging investment. But the intensification of Israel’s war against Hezbollah in recent weeks, including airstrikes in Beirut and a ground campaign in southern Lebanon, “really flipped the equation 180 degrees,” with economic conversations focusing on sending aid to Lebanon to help the economy recover—and with investors looking elsewhere. 

Speaking at the Atlantic Council interview studio at IMF headquarters, Salam looked back on the challenges his country has faced before today’s war: a financial crisis in 2018, the COVID-19 pandemic, impacts from the war in Ukraine, and the Beirut port explosion in 2020—which destroyed “half the city,” Salam explained. 

“Lebanon has witnessed a sequence of different challenges . . . that hit the socioeconomic scene,” he said. “There is no economy in the world that can really tolerate or that can handle so many different challenges . . . within such a small amount of time.” 

Salam said that the tourism and agriculture sectors, which were the “oxygen of the economy,” have been particularly impacted. That raises fears, he said, that if the war continues and if Lebanon keeps “spending without income,” it will have to tap into its reserves. “That is unhealthy for the economy,” he explained. 

The country needs $250 million monthly “just to handle the emergency situation,” Salam explained, pointing to the rising costs required to support displaced people, provide food, and maintain health services. That would amount to $3 billion a year. Yesterday, international partners at a conference for Lebanon in Paris pledged $1 billion in aid, including $200 million for Lebanon’s security forces. 

Salam praised the Paris conference for filling the needs gap, as once the war became more intense this year, countries that began helping Lebanon were only able to meet a small fraction of the needs. He said that the funds geared toward security forces will help the country comply with United Nations Security Council Resolution 1701, which is intended to prevent conflict along the country’s border with Israel. That, he said, requires sending the army to “create a safe and peaceful zone.” 

While his country is pushing for humanitarian aid, it “is not the solution,” Salam said. “The solution is the ceasefire.” 

“The more we extend this war, the wider the scope gets . . . the more the needs are, the more the billions will accumulate that we will need in emergency help,” he said.

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European Commissioner Jutta Urpilainen: Investing in Europe’s security requires investing in international cooperation and partnerships 

European Commissioner Jutta Urpilainen argued Friday that while the European Union (EU) focuses on boosting its security and competitiveness, it must not fail to invest in its international cooperation and partnerships. 

“We are living in a very interconnected and intertwined world,” she told Atlantic Council Europe Center Senior Director Jörn Fleck. While the European Union bolsters its “hard security,” she said, it must also address other security threats, such as terrorism and even climate change. “And that means,” she added, “that we have to also invest in our international cooperation and international partnerships.” 

Urpilainen explained that over her five-year term, the COVID-19 pandemic and the increasing size of the youth population across the Global South has changed Europe’s “playbook” when it comes to development. The pandemic, she said, showed Europe how it needs to “coordinate our efforts with set common objectives” and collaborate in more ways, such as pooling resources; meanwhile, the rising number of young people in partner countries has taught Europe it needs to “invest in youth” and work to empower them. 

The commissioner also said that she saw a new dynamic form, in which partner countries in the Global South no longer wanted to be the “subject of aid,” but rather wanted to work with the EU on reforms and improving their resilience. That, she added, is the model behind the European Union’s Global Gateway strategy to invest in infrastructure projects worldwide. 

There are several reasons behind the 300-billion-euro plan, Urpilainen explained. One is the “huge gap of investments” across the EU’s partner countries. Achieving the United Nations Sustainable Development Goals, she noted, would take trillions of dollars in additional investment each year. But another reason is that, amid intensifying geopolitical competition, competitors such as the EU are engaged in a “battle of offers,” she explained. “We need to have our own European offer to our partner countries.” 

She noted that, for the EU, “it’s very important to respect very [high] standards in terms of environment and social standards,” she said. “We don’t want to create new dependencies. Instead, we really want to strengthen the resilience of our partner countries.” 

Urpilainen also said that development actors and leaders aren’t working closely enough to exchange ideas and information—and thus to achieve better results. “We work too much in silos as an international community. I think we very much share common objectives when it comes to sustainable development goals,” she said. “We should get out of these silos.”

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An evasive—and elusive—G20 communiqué

The gathering of Group of Twenty (G20) finance ministers at the IMF-World Bank meetings used to make news. Reporters would devote megabytes of copy to the communiqués, which often overshadowed the Fund’s own pronouncements. But this year, the document has been harder to track down than tickets to a Taylor Swift concert. The website of the G20’s 2024 “rotating presidency” (Brazil), has been silent on the topic so far, and most news organizations have given it a miss.

I finally found the communiqué thanks to Japan’s Ministry of Finance, and it’s understandable that it isn’t grabbing headlines. The thirty-five dense paragraphs do contain discussion of a multitude of important issues—from the ten downside risks facing the global economy to inequality and climate change to a “Roadmap towards Bigger, Better, and More Effective” multilateral development banks. But concrete proposals are a bit lacking. Instead, the ministers cite a vast range of reports, working groups, and reviews, all of which work toward building elusive consensus among a group increasingly riven by geopolitical differences.

A few years ago, the pressing problem of developing-country debt was at the forefront of the ministers’ deliberations. But that issue has been relegated to one paragraph that “welcomes” meager progress in restructuring a few countries’ obligations. Meanwhile, the ministers gloss over the social cost of the debt and its centrality to their headline issues of climate-change mitigation and sustainable development.

It is notable that the communiqué is silent on the biggest global issues: Ukraine and the Middle East. However, Reuters reported that the Brazilian chair issued a statement saying “members had differing views on whether the conflicts should be discussed within the group.” That statement has not been officially posted either.

All of this suggests that the brief era in which it was believed that twenty governments from advanced and emerging market economies could work together productively in a single multilateral forum may be fading into posterity.

Don’t forget about regional development banks. They play a key role in a Bretton Woods 2.0.

As the World Bank and International Monetary Fund turn eighty, multilateral development bank reform is atop everyone’s agenda this week.

The agenda extends beyond the Bretton Woods twins, however, to include the regional development banks (known as RDBs)—the EBRD (Europe), AfDB (Africa), ADB (Asia), and IDB (Latin America), among others. As Undersecretary of the US Treasury Jay Shambaugh noted in his annual-meetings preview speech at the Atlantic Council, RDBs “have become critical sister institutions to the World Bank and IMF, complementing and deepening the impacts of the Bretton Woods system”

In the context of COVID-19, I wrote that RDBs have a critical role to play in recovery given their agility, complementarity, and continuity. 

This is arguably even truer—and these traits more crucial—today in the face of ongoing shocks and a tenuous economic landscape marked by debt, conflict and fragility, fragmentation, demographic pressures, and extreme climate challenges alongside opportunity in the green and digital transitions. The ability of RDBs to specialize, be context vigilant, pivot more quickly to respond to changing needs, and seize investable opportunities differentiates them in the international financial system. These sentiments were echoed in my conversation on Thursday with EBRD President Odile Renaud-Basso: “We can react quickly to events and adjust to the needs of the country; the war in Ukraine for example tested our agility to come up with quick solutions.”

And as the Bank and Fund (and let’s not forget the World Trade Organization) evolve in governance and operational capabilities and efficiencies, new paths and platforms for collaboration and coordination with the RDBs are being created or expanded. For example, AfDB has partnered with the World Bank on Mission 300, a joint initiative to connect 300 million people in Africa to electricity by 2030; and Ajay Banga updated this week that in the just the first six months of the Global Collaborative Co-Financing Platform (announced in April by ten multilateral development banks), more than one hundred projects are in the pipeline.

Given their size and global reach, it is easy for the Bretton Woods institutions to garner all the attention. But ensuring RDBs and all actors in the international financial system are fit for purpose and aligned can bring meaningful scale, efficiency, innovation and impact.

There’s plenty of worry—but not much talk—about China’s economy

Seats in the IMF’s atrium started filling up a full forty-five minutes before the Fund’s biannual Debate on the Global Economy, with guests lining up in the back and sides for this standing-room-only event. 

The panel, which included IMF Managing Director Kristalina Georgieva, discussed the global economic outlook, lingering stress on consumers from elevated prices, liquidity challenges, and limited room for fiscal maneuvering. Without getting into politics, the speakers referenced the US election and the importance of the United States as the “anchor of the multilateral system.” In the same breath, they debated why the United States had such a proclivity for trade barriers compared to the EU’s relative openness. Why would the US be more fearful about China’s threat to its jobs and manufacturing, while European peers’ economies were actually slowing?

Part of the answer they provided was that the United States could afford to be more protectionist and isolated. I delved deep into possible US approaches to tariffs with China in conversation with former National Economic Council Deputy Director Clete Willems on Tuesday. Our conversation leaned more towards the argument that the United States, with its outsized economic weight, could use tariffs as leverage for more suitable terms of trade globally. At the same time, however, the United States needs to provide better incentives to trading partners and put market access back on the table. 

Surprisingly, in the IMF’s conversation about the outlook for global growth and major economies’ fiscal positions, one country’s domestic situation wasn’t discussed: China. According to Bloomberg calculations, based on the IMF’s own World Economic Outlook forecasts, China will be the largest contributor to global growth for the next five years. The panel’s time was limited to just an hour, of course, but it’s still puzzling why more time wasn’t spent on the world’s second-largest economy.

Dispatch from IMF-World Bank week: Gray clouds are rolling in…

Ukrainian Finance Minister Serhiy Marchenko on how his government hopes to use its new $50 billion loan

Europe must have “its own view” on trade and tariffs, says Spanish Minister of Economy Carlos Cuerpo

Irish Finance Minister Jack Chambers: The US and EU must “guard against” rising protectionism

How low-income countries fare in the flagship publications

A look at what’s behind all the talk on payments in Washington and Kazan this week

Read our earlier analysis

Dispatch from IMF-World Bank week: Gray clouds are rolling in…

“Let’s achieve inclusive growth” here, “boost green finance” there. Along 19th Street in downtown Washington DC, the familiar pageantry of the IMF-World Bank meetings is in full bloom, carrying slogans that call upon delegates and visitors to end poverty and collaborate on a bright future for the citizens of the world.

As a former IMF official, I remember the energy and optimism conveyed by this colorful redesign of the Annual Meetings a little more than a decade ago. There was a genuine belief around the world that the global powers could work together peacefully in the Bretton Woods institutions and the, at the time, relatively young Group of Twenty.

Today’s reality looks starkly different, unfortunately. Large countries seem less and less willing to put aside domestic interests in favor of the multilateral process. Autocratic countries would like to end the dollar’s dominance, and a new trade war looms on the horizon as the World Trade Organization fades into oblivion. And Western democracies themselves face populist movements for whom the values espoused by the posters in Foggy Bottom remain an ideological (and budgetary) anathema.

There is still value in holding face-to-face meetings for finance officials in Washington, of course. Quiet diplomacy may be able to avoid an escalation of problems, and an increasing focus on helping low-income countries seems to be the common denominator that still leads to meaningful policy decisions. There is intense geopolitical competition for the “Global South,” which helps facilitate agreement on issues such as the IMF’s reform of its subsidized lending policies and the World Bank’s impending replenishment of its International Development Association, for example. But these accomplishments pale in comparison with the challenges at hand.

The colorful posters that flank 19th Street are becoming a relic of times past. They stack up against a reality of record debt levels, widening inequality, and a hotter planet. There is still time to turn things around, but inside the buildings, blue-sky optimism has long given way to the gray clouds of realism.

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Ukrainian Finance Minister Serhiy Marchenko on how his government hopes to use its new $50-billion loan

During a week when the United States and its G7 partners will approve some $50 billion in loans to Ukraine backed by immobilized Russian assets, Ukrainian Finance Minister Serhiy Marchenko sat down with GeoEconomics Center Deputy Director Charles Lichfield to discuss how Kyiv hopes to use the money. 

The loan—part of the Group of Seven (G7) Extraordinary Revenue Acceleration of Ukraine announced in June this year—“helps us at least to think about some possible relief,” Marchenko said, explaining that he hopes the funds will help cover Ukraine’s current financing gap and also help with medium-term goals over the next few years. 

“There are some discussions about additional military needs,” he said, referring to the United States’ suggestion that it will devote half of its $20-billion contribution to military assistance provided it can get a new appropriation through Congress. He added that the government intends to use “at least part of this money” for reconstruction. 

On international support, Marchenko spoke about the Ukraine Recovery Conference. He said that instead of looking forward to next year’s convening in Rome, he would prefer to look back on “what we already achieved,” such as cooperation agreements and various memorandums. “We shouldn’t try to create some new vehicle in Rome,” he said. “We should track our decisions, which were made during London and Berlin, and then think about how to implement [them].” 

Watch the full event

Europe must have “its own view” on trade and tariffs, says Spanish Minister of Economy Carlos Cuerpo

“Europe has to have its own view and its own position” distinct from both the United States and China when it comes to trade and tariffs, said Carlos Cuerpo, the Spanish minister of economy, trade, and business. Cuerpo appeared at an Atlantic Council event on Thursday in conversation with GeoEconomics Center Senior Director Josh Lipsky.

Spain abstained from voting on the European Union’s decision this month to adopt tariffs on Chinese-made electric vehicles. Explaining this position, Cuerpo said Spain is “a very open economy that actually thrives thanks to multilateralism” and trade under World Trade Organization (WTO) rules. But, he added, “It’s 2024. It’s not 2004. We have to be open, but we should not be naive.” 

This approach, he said, requires protecting Europe’s strategic industries, including electric vehicles (EVs) and ensuring that Chinese EV companies “compete on a level playing field” with European ones. Stating that Beijing employs “unfair” and “asymmetric” EV subsidies, Cuerpo called for an “efficient use of the WTO as a way out of these controversies.” The need for an efficient WTO framework to resolve such disputes, he said, “has been forgotten” in the last few years.

Cuerpo also discussed the state of the Spanish economy amid lagging growth rates across the European Union. While acknowledging that structural unemployment was one of the “main challenges” for the Spanish economy, Cuerpo touted Spain’s low levels of inflation and its expected growth rate of 2.9 percent for 2024—the strongest among all advanced economies. “We expect that as our main partners do recover, we would have a tailwind going forward,” he said. 

On Spain’s role in international financial institutions, Cuerpo noted that Spain’s banks are “ready to engage and to help” in the construction of a digital euro, as well as to take part in discussions with the European Central Bank on its development. He also spoke of Spain’s initiative to expand its aid to low-income and middle-income countries in South America, which includes an increase in its contribution to the World Bank’s International Development Association fund. 

Looking ahead to the future of the International Monetary Fund and the World Bank, Cuerpo said that “we need to be bold in the way that we face what Bretton Woods institutions need for the twenty-first century.” But, citing the GeoEconomics Center’s work on a “Bretton Woods 1.5,” he added that before undertaking massive reforms, “we need intermediate steps that will help us arrive in a realistic way” at those bold objectives.

Watch the full event

Irish Finance Minister Jack Chambers: The US and EU must “guard against” rising protectionism

In a world in which deglobalization and conflict are unfolding, the world needs to reignite cooperation on trade to improve economies globally, said Irish Finance Minister Jack Chambers.  

Chambers appeared at an Atlantic Council event on Thursday in conversation with GeoEconomics Center Deputy Director Charles Lichfield.  

Earlier this month—with the EU’s investigation into Chinese subsidies for electric vehicles still underway—the European Commission voted in favor of imposing tariffs on the import of Chinese electric vehicles. Meanwhile, China has launched an anti-subsidy investigation into EU dairy products. Chambers said that it is important to “resolve [the electric vehicle] issue and indeed other issues that exist between the EU and China as it relates to trade.” 

Ireland “promotes and supports free trade between all countries, and that’s something that has underpinned our wider economic development,” Chambers said. “We need to avoid a situation where we have tit-for-tat disputes or protectionism taking hold,” he cautioned, as that would “damage” the economy. 

Trade is something that the United States and EU will need to work more closely on, Chambers said, including after the upcoming US presidential elections. The finance minister said that he is “concerned” about the “protectionist outlook taking hold” in the EU and United States. “We have to guard against that because it’s a net negative for everybody.” 

In September, the European Court of Justice ruled that Ireland had given Apple (which has its European headquarters in Cork) illegal tax breaks; Ireland is now responsible for recovering those funds from the company. The government plans to use the fourteen-billion-euro windfall to invest in infrastructure. 

“Obviously, we sought to defend a matter of interpretation on tax policy,” Chambers said. “We respect the outcome, but it was important we defended the tax policy that we had at the time.” 

In discussing whether the ruling would dissuade multinationals from investing in Ireland, Chambers touted the country’s ability to give companies stability and predictability. “We’re confident that the system that we have presently is one that gives them that stability for the future.” 

Watch the full event

How low-income countries fare in the flagship publications

Attention to developing-country issues in the IMF flagship publications is noticeably sparse at this year’s annual meetings. The World Economic Outlook offers only a limited assessment of the outlook for the swath of low-income countries that have lost ground since the COVID-19 pandemic hit in 2020, a topic I wrote about earlier this week.

The Global Financial Stability Report (GFSR), whose headline messages my colleague Hung Tran previously summarized for this blog, does detail recent trends affecting the so-called “frontier markets.” These make up the group of developing economies that before the pandemic had become the darlings of sovereign lenders like China and institutional investors because of their solid growth and seemingly bright prospects. However, many of them fell into debt distress after 2020, and their interactions with lenders and investors shifted toward difficult debt-restructuring negotiations.

The GFSR reports that there has been “significant progress” on restructuring, a conclusion that many observers might consider to be overstated given the uncertain prospects for either sustainable growth or debt sustainability in countries like Ghana, Sri Lanka, and Zambia. But at the same time, the report chronicles that frontier economies have enjoyed “strong investor risk appetite” for new international bond issues, “although yields remained high.” Indeed, some 20 percent of those countries have had to offer yields “close to 10 percent or higher” above the rates on US Treasury bonds carrying a similar maturity in order to attract those investors. The GFSR also reports that about four billion dollars of frontier economy debt will have to be repaid before the end of this year, and about thirteen billion dollars will come due in 2024 and fourteen billion dollars in 2025. Nearly 60 percent of those maturing bonds carry yields close to 10 percent or above. This hardly sounds like grounds for confidence if the global economy hits an unexpected speed bump again.

A look at what’s behind all the talk on payments in Washington and Kazan this week

Events at the annual meetings this year have a special emphasis on payments and digital public infrastructure, reflecting the burgeoning emerging market interest in developing and deploying new technologies. The public and private schedule at the IMF and the World Bank this week is chock-a-block with events on digital payments: the macroeconomic impacts of them, issues of inclusion and technological infrastructure, and the nuts and bolts of putting these technologies to use. The Group of Twenty is a welcome entrant to this payments party, as it released its progress report on the roadmap for enhancing cross-border payments on Monday. But even as Washington seems all business this week, the BRICS summit—which is simultaneously underway in Kazan, Russia—is all geopolitics when it comes to payments. 

Russian President Vladimir Putin opened the summit with an emphasis on the role of the dollar in the global financial system, saying that “the dollar is being used as a weapon.” BRICS members have stated their goal to develop an alternative payments channel to the dollar, which would allow them to continue trade and other activities. This is not a surprising proposal, considering the challenges Russia is facing as a result of the economic measures taken by the Group of Seven in response to the invasion of Ukraine in 2014 and 2022. Other BRICS members are more cautious about this announcement, looking to create short-term strategies for mutually beneficial trade relationships—such as increased invoicing in local currencies—while mulling over the long-term strategy of alternative payments channels. The BRICS members’ geopolitical interest in payments systems stands out this week, as discussions of payments systems not only encompass domestic economic considerations but also seek to address the impact on the global financial system.

Bangladesh’s finance adviser on the interim government’s reform priorities

Dispatch from IMF-World Bank Week: Solving the inclusive growth puzzle

Egyptian Finance Minister Ahmed Kouchouk on his government’s reform progress: “We’re not yet out” of economically difficult times

The number of finance ministers and central bank governors who are women is shockingly low. Here’s what that means for the economy.

A warning from the IMF: Risks to financial stability ahead threaten to expose fragilities

Christine Lagarde on European competitiveness, US tariffs, and creating a digital euro

Two new publications show emerging-market credit risk is better than previously believed

The dark end of the WEO street

Read our earlier analysis

Bangladesh’s finance adviser on the interim government’s reform priorities

Less than three months after a caretaker government assumed power in Bangladesh, the country’s finance adviser, Salehuddin Ahmed, sat down with Atlantic Council GeoEconomics Center Assistant Director Mrugank Bhusari to talk about the reforms the interim leadership is pursuing. 

Ahmed explained the interim government will be working to implement “structural” changes across the country’s institutions, banks, insurance companies, markets, and beyond. They “have to be made efficient with the proper people,” he said, “and previously there was a lack of transparency and accountability.” 

Over the long term, Ahmed said he hopes the interim government will “leave some footprint” so that the next government takes up those reforms instead of entering office and proceeding to “sweep everything under the carpet.” 

Even as the IMF is forecasting Bangladesh’s economy to grow at 5.4 percent, its forecast did get a small downgrade. Ahmed said that such a downgrade was a “logical” and “rational calculation,” considering the slowing in economic activity the country faced in the beginning of the year and as student protests swept the country in the summer. 

While Bangladesh is just about to graduate out of the group of least-developed countries, as determined by United Nations standards, Ahmed believes there’s still work to do. “I think we have done reasonably well,” he explained, “but the fruits of development, they have not gone to the people . . . because the rich have become richer. . . so we are now giving this attention,” by focusing on social development, education, and equal growth across the country. 

While the IMF-World Bank Annual Meetings are underway, leaders representing the BRICS bloc of countries—named for the core group of Brazil, Russia, India, China, and South Africa—are also meeting in Russia. Bangladesh has applied to join the bloc, and Ahmed said joining BRICS is “still valuable” because Bangladesh wants to create a wider market for its garments and other products. 

While Bangladesh is developing frameworks to process payments with Indian rupees and Chinese yuan, Ahmed said that he thinks the dollar will “be able to remain dominant.” But the country, he said, is having “some problems” making payments in dollars for a nuclear power plant Russia built in Rooppur, given that Russia has been banned from the financial messaging system SWIFT. Bangladesh decided last year to pay Russia in Chinese yuan. 

Watch the full event

Dispatch from IMF-World Bank Week: Solving the inclusive growth puzzle

It’s day three, and the annual meetings are clearly in full swing on both sides of 19th Street and across town.

The security and cafeteria lines are longer. There are fewer, if any, empty seats at the events—even as organizers put on multiple simultaneous events to absorb enthusiastic delegates and attendees.

To that end, it was a full house this morning over on 15th Street at the Atlantic Council to hear European Central Bank President Christine Lagarde’s insights on the European economy and the international financial landscape, from inflation to digital currencies to decoupling. On many things, she struck a generally sanguine, if not cautiously optimistic, tone.

That positivity ended, however, when she was presented with the number (a measly 12 percent!) of finance ministers and central bank governors who are women, which she called “abysmally small.”

As Lagarde pointed out, more diversity in leadership leads to better outcomes. But, taking a step back, improving women’s economic participation and financial inclusion across the board helps solve many of the challenges leaders are convening in Foggy Bottom to discuss. For example, more women in the labor force and in entrepreneurship increases productivity (improving growth) and boosts tax revenues (easing debt).

It’s a critical piece of the inclusive growth puzzle, along with creating opportunities for youth that can help usher in a demographic dividend. This requires better education and skilling on the supply side and generating more jobs on the demand side—and better aligning supply to demand. There’s no time to waste: 1.2 billion youth will enter the workforce in the next ten years, and only 420 million new jobs are projected (a data point repeated by World Bank President Ajay Banga again today, during a high-profile, packed-house event).

So if you’ve got a list going of issues and announcements to watch from the annual meetings, add “measures that address gender and generational inequality” right at the top.

Egyptian Finance Minister Ahmed Kouchouk on his government’s reform progress: “We’re not yet out” of economically difficult times

Seven months after the IMF agreed to increase its latest loan program with Egypt, Finance Minister Ahmed Kouchouk sat down with Racha Helwa, director of the empowerME initiative at the Atlantic Council, to talk about the deal and Egypt’s reform priorities. 

On the latest extension of the program, Kouchouk said that “usually, every program has its own nature.” This one, he explained, is directed toward helping Egypt improve its current account imbalances that arose after the pandemic and also toward helping the country improve its oversight across public spending. 

According to Reuters, the program had previously stalled amid delays to divesting public assets and increasing the role of the private sector. “I think private sector should be leading,” Kouchouk said, explaining that such an arrangement could be a solution for Egypt as it looks to increase production and growth while taking on less borrowing. “This is in the interests of everybody.” 

In February this year, Egypt signed a foreign-direct-investment deal with the United Arab Emirates to develop the area of Ras El Hekma. “The structure” of the deal “is quite good,” Kouchouk argued, because it will swap eleven billion dollars in UAE deposits at Egypt’s central bank into foreign direct investment. “This investment will give them and give us a higher rate of return, so it’s a good deal.” 

Kouchouk said that the reforms Egypt has thus far implemented, as part of its commitments, are helping support improvements in the economy. But “we’re not yet out” of economically difficult times, he said. “We still need to keep the course of reforms and to keep monitoring things.” 

Kouchouk participated in the Atlantic Council discussion shortly after a Coalition of Finance Ministers for Climate Action meeting. Before the group was formed in 2019, Kouchouk explained, he had seen many Sustainable Development Goals and other aspirations form without finance ministers in the loop—then finance ministers had to deliver the news that there was not adequate financing for those goals. 

The coalition, he said, “lets us all benefit and learn. And it’s making us deal with financing of the climate challenges . . . in a much more proactive manner.” 

Watch the full event

The number of finance ministers and central bank governors who are women is shockingly low. Here’s what that means for the economy.

This week, on the ground at the IMF-World Bank Annual Meetings, the gender gap in global economic leadership is glaringly apparent. Only twenty-two of the 191 IMF countries have women as finance ministers, and twenty-four have women as central bank governors—significantly lower than the average proportion of women in cabinet minister positions globally.

During a conversation this morning between European Central Bank (ECB) President Christine Lagarde and Atlantic Council CEO and President Frederick Kempe, our team shared research illustrating that only 12.3 percent of finance ministers and central bank governors are women. “I think it’s abysmally small and does not reflect the availability of talents and merits that many economists and macroeconomic experts and financial experts have around the world. There’s a whole pool of talent that is not tapped into . . . but it’s also a lack of diversity,” Lagarde commented.

Lagarde is the first female finance minister of a Group of Seven economy, the first woman to head the IMF, and the first female president of the ECB, so she is no stranger to the barriers women face in this field. She concluded, “We all know from having studied that and practiced it, that diversity is a source of better decision, of more stability, of better [outcomes] altogether—whether it’s in the financial sector or otherwise . . . we should learn that lesson and just do it.”

Explore the research

A warning from the IMF: Risks to financial stability ahead threaten to expose fragilities

As I wrote yesterday, the IMF’s World Economic Outlook presents a rather benign view (to quote, “stable yet underwhelming”). But its sister publication, the Global Financial Stability Report has called for policymakers to remain vigilant about medium-term risks to global financial stability. It identifies two main sources of that risk.

The first is the lofty asset valuation around the world, driven by accommodating monetary and financial conditions for too long. Indeed, the price-to-earnings ratio for the S&P 500 index—a standard measure of stock market valuation—has reached 29.6, or one standard deviation above the long-term mean of 19.26. Historically, stock markets have tended to correct when valuation gets much higher than that. Furthermore, public and private debt levels are high, as is the leveraging used by financial institutions in their portfolios. These frothy asset valuations can amplify future financial shocks.

The second is the disconnect between very heightened uncertainty generated by geopolitical rifts and low levels of measured market volatility. This disconnect could cause a surge in volatility when geopolitical conflicts materialize, catching market participants off guard and triggering disorderly market conditions.

This is a timely reminder to policymakers and financial regulators around the world to use the time immediately ahead—while many risks are still contained thanks to the economic soft landing—to strengthen the resilience of financial institutions, so as to be better prepared for future turmoil.

Christine Lagarde on European competitiveness, US tariffs, and creating a digital euro 

The role of a global reserve currency should “never be taken for granted,” said European Central Bank (ECB) President Christine Lagarde on Wednesday at an Atlantic Council Front Page event on the sidelines of the International Monetary Fund-World Bank Annual Meetings.

Lagarde addressed a host of issues facing the continent, including the European Union’s (EU’s) ambition to create a central bank digital currency (CBDC), the ECB’s efforts to keep prices stable, what Europe’s lagging economic competitiveness means for the ECB’s fight against inflation, and the outsize impacts that the next US president’s approach to trade will have on the global economy.

Below are more highlights from this conversation with Lagarde.

Read the highlights

New Atlanticist

Oct 23, 2024

Christine Lagarde on European competitiveness, US tariffs, and creating a digital euro 

By Daniel Hojnacki

The European Central Bank president discussed the European Union’s ambitions for becoming more competitive and modernizing its payments systems.

Economy & Business European Union

Two new publications show emerging-market credit risk is better than previously believed

The International Finance Corporation (IFC)—a member organization of the World Bank Group—has released two important studies, which unfortunately have been buried by the busy talks about other issues at the IMF-World Bank Annual Meetings this week.

The studies are from the Global Emerging Market Risk Database Consortium of twenty-six multilateral development banks and development financial institutions. The publications provide detailed information on credit risk in emerging markets and developing economies based on the investment experience of consortium members.

On their lending to private entities in emerging markets and developing economies, the average annual default rate is 3.56 percent—broadly aligned with many non-investment-grade companies in advanced economies; the average recovery rate is 72.2 percent—higher than many global benchmarks.

On their lending to sovereign and sovereign-guaranteed borrowers, based on forty years of experience, the average annual default rate is 1.06 percent and the average recovery rate is 94.9 percent—much better than previously assumed by many in the financial markets.

While this data reflects the unique experience of multilateral development banks and development finance institutions, it can provide useful input for the private sector’s lending and investment decisions. This is important as the world’s governments and multilateral development banks have tried hard to catalyze private capital to invest in emerging markets, developing economies, and low-income countries, especially in climate-mitigation and energy-transition efforts—to complement meager public investment efforts.

The dark end of the WEO street

Sometimes it makes sense to look at the downside. That’s certainly the case with the World Economic Outlook (WEO), whose authors always devote considerable thought to what could go wrong—and right, although the sunnier outlook always gets less attention. In the latest report, there is a lengthy box in the first chapter with the catchy title “Risk Assessment Surrounding the World Economic Outlook’s Baseline Projections,” which delves into the scenarios and “confidence bands” that give greater texture to the IMF modeling.

But for many readers, the real meat of the report from issue to issue is the section that details “risks to the outlook,” which this time around are “tilted to the downside.” Assembling the WEO is always a process of negotiation. While the IMF Research Department holds the pen, it inevitably must reflect the input and pressures from other departments, IMF management, and the always prickly membership—especially the most important governments that have their own view of how their economies should be presented. Small wonder, then, that some Fund insiders say that the most accurate view of the outlook sometimes can be found in the downside risk section.

In this WEO, most of those risks focus on systemic issues: how the recent cycle of monetary tightening might bite “more than intended,” leading to financial market repricing; intensified “sovereign debt stress” in emerging markets and developing countries; renewed “spikes” in commodity prices; increased protectionism; and a “resumption” of social unrest around the world (which, according to an accompanying chart, supposedly has subsided of late—not that most of us would notice). But one country is singled out: China. That’s because of a scenario in which the country’s already struggling property market experiences a deeper-than-expected contraction. China, of course, did the WEO authors no favor by announcing wide-ranging measures to put a floor under its housing market in the weeks leading up to the annual meetings, when the report was largely done and dusted. As much as anything else in the WEO, this risk bears close scrutiny in the coming months.

A tale of two town halls

Reading between the lines of the IMF’s World Economic Outlook

Dispatch from IMF-World Bank Week: “Stable yet underwhelming”

A crack in the BRICS: Iran’s economic challenges take center stage at Russia’s summit

The Bank of England’s Megan Greene on why interest rates “will probably have to end up a bit higher” than before the pandemic

A bleak paper on the plight of low-income countries

Read our earlier analysis

A tale of two town halls

As an expert at a think tank, I registered as a representative of a civil society organization (or, as the IMF and World Bank say, “CSO”) and thus joined both IMF Managing Director Kristalina Georgieva’s town hall yesterday and World Bank President Ajay Banga’s event today. They followed the same format: opening statements from the principal followed by moderated Q&A with the in-person and online audience. Both were well attended. Both were substantive and informative. And both covered a fairly wide range of topics.

But, like the institutions themselves, they differed in style and vibe, as well as in the substance. 

On style, Georgieva and the moderator were both seated the whole time, while Banga (or Ajay, as he prefers) and his moderator were standing—he delivered his opening speech from a podium, then onstage with a handheld mic. Also notably, he introduced and engaged other executives in responding to questions, including World Bank Managing Director of Operations Anna Bjerde. Taken together, I found the Bank event more informal, candid, and inviting.

On substance, Georgieva touted progress both in the global fiscal situation and the IMF’s operations but reiterated her curtain-raiser message: “We can do better.” She said this message also applies to the extent and nature of the IMF’s engagement with civil society. Perhaps surprisingly, audience questions were limited on debt and fiscal matters, instead skewing toward “macro-critical” issues ranging from dealing with conflict and fragility to addressing climate change, and from gender to governance, even though the Fund is arguably still debating about the extent to which it should be addressing such issues. Banga focused on how he and his team are delivering towards “building a better Bank,” the charge he was given when he took the helm eighteen months ago—bringing speed and simplification to both the money and the knowledge sides of the Bank. He prioritized jobs and enabling environments and made a pitch for International Development Association (IDA) replenishment, telling governments “I need your help” in making the case for them to ante up and even increase their contributions. Questions ranged from addressing informality to operationalizing callable capital to supporting conflict-affected people and beyond.

In the end, we CSO representatives may not have heard anything new, but the commitment and level of engagement and transparency is arguably new and worth acknowledging in and of itself. And for participants like me who like to understand, compare, contrast, and ultimately influence what’s happening on both sides of 19th Street and the Bretton Woods institutions’ varying perspectives, reforms, and impacts, it was two hours very well spent.

Reading between the lines of the IMF’s World Economic Outlook 

Just hours after the IMF released its World Economic Outlook (WEO), three Atlantic Council experts sat down at IMF HQ1 to talk about the updated growth forecasts for countries worldwide and about the reforms needed to boost growth. 

Martin Mühleisen, a former IMF official, pointed out that this WEO was likely easier to write than the last couple of editions, because just before the October 2023 and April 2024 WEOs released, “big shocks”—in the form of war in the Middle East—occurred, and the IMF team had to “scramble” to incorporate how those events would impact the economy. But while this WEO may have been easier to write, it also “presents a different kind of challenge” because of the upcoming US elections, Mühleisen argued. He added that growth numbers are in a way “tentative” because the outcome of the US elections will trigger “volatility that we can’t really assess at the moment,” which could be good or bad for the global economy. 

But in the medium term, Mühleisen said, growth looks “lower than anything we had in the past,” and “trade, geopolitics, [and] inflation surprises just add to the fact that we’re probably going to see a somewhat lower trajectory on average over the next couple of years.” 

Nicole Goldin, a former consulting economist with the World Bank, pointed out that the WEO reflects “relatively stable” global growth overall, but emerging markets and developing economies are seeing low projections. Conflict is playing a role in that, as wars have a “somewhat disproportionate impact” on emerging markets and developing economies. Debt also plays a role in these low projections, she added. Hung Tran, a former IMF official, added that low-income countries falling further behind “will be a big problem socially [and] politically” for the world economy. 

While the IMF has struck a positive tone in seeing countries achieve a soft landing in the battle against inflation, Tran clarified that inflation might just be slowing because of “lower activity,” meaning that while inflation for goods has shrunk dramatically, inflation for services is sticky. That, he said, is “something that we need to keep an eye on.” 

The IMF has called for a “policy triple pivot” to protect from risks to global growth. But, Tran noted, significant reforms will be required. “The political will and the political appetite to do that simply [are] not there,” he said.  

Goldin pointed out a few policy changes that could help secure and boost global growth. One such measure is harnessing artificial intelligence (AI) to boost productivity. AI is “coming in as both the threat and the opportunity,” she said. Another change is for countries to balance punitive policies (such as tariffs and protectionist trade policies) with inducements (such as development financing) when working with other nations. Those “positive economic statecraft” tools can help “bring about the policy reforms that are needed,” she explained. 

Watch the full conversation

Dispatch from IMF-World Bank Week: “Stable yet underwhelming”

One section heading in the World Economic Outlook released by the International Monetary Fund this morning aptly sums up the mood at this year’s annual meetings: “Stable yet underwhelming . . .”

The outlook is stable as major economies have managed to engineer a soft landing with inflation slowing, labor markets proving resilient, and GDP growth at 3.2 percent this year, unchanged from the IMF’s previous estimates (although the estimate for next year was revised down a touch, to 3.2 percent). However, behind that stability is a series of revisions worth taking note of. The US growth rate has been revised upward by 0.2 percentage points (to 2.8 percent) this year, and by 0.3 percentage points (to 2.2 percent) for 2025. The WEO shows that Asia continues to be the growth engine for the global economy, with India expected to grow by 6.7 percent this year and 6.5 percent next year, followed by Vietnam at 6.1 percent in each of the next two years. China is expected to undershoot its “around 5 percent” growth target, coming in at 4.8 percent this year and slowing further to 4.5 percent in 2025.

By contrast, euro area growth has been revised downward by 0.1 percentage points (to 0.8 percent this year) and by 0.3 percentage points (to 1.2 percent) next year. Also concerning is the downward revision of low-income countries’ growth by 0.2 percentage points (to 4.0 percent) this year and by 0.4 percentage points (to 4.7 percent) next year.

The growth estimates and revisions in the WEO are indeed underwhelming, a product of uneven global recovery from the many shocks of the past few years. More importantly, the world seems set for a period of low growth, triggered by challenges such as aging populations, weak investment, and historically low production efficiency—especially if countries fail to implement significant structural reforms to improve economic performance (but even the WEO admits such reforms face strong social resistance).

But there’s a second beat to the subhead in the WEO: “Stable but underwhelming—brace for uncertain times.” That points to factors that could tilt the balance of risks to the downside, but the WEO says nothing about the elephant in the room: the outcome of the US presidential election, which could heighten turmoil in geopolitical conflicts, trade wars, and social instability in the United States—the largest shareholder of both institutions. Such developments would trigger the need for a fresh set of revisions of economic forecasts.

Putting the WEO aside, two issues that IMF Managing Director Kristalina Georgieva raised in kicking off the meetings did pique my interest, but they are drawing less attention. The first is that in facing climate change, countries should try to free up funds for the green transition by eliminating their fossil fuel subsidies—such subsidies amounted to seven trillion dollars in 2022. The second point is that countries should work together to set up AI regulations, not just to avoid the risks the technology poses but also to harness its ability to raise productivity, potentially boosting growth by 0.8 percentage points. If the IMF can get governments focused on that, it would be a great service to the Fund’s membership.

This week, our team will continue to tease out developments big and small from the annual meetings.

A crack in the BRICS: Iran’s economic challenges take center stage at Russia’s summit

This week, finance ministers and central bank governors from over 190 countries will gather in Washington, DC, for the International Monetary Fund (IMF) and World Bank Annual Meetings. But there is another major economic event happening on the opposite side of the world. Leaders of the BRICS group are meeting in the Russian city of Kazan for their annual summit, with Iran’s new president, Masoud Pezeshkian, in attendance for the first time after his country officially joined the BRICS earlier this year.

Uncertainty continues to loom over Iran as Israeli officials pledge to retaliate against Tehran’s ballistic missile attack on Israel earlier this month. However, while most analysis focuses on Iran’s geopolitical objectives in the region, there has been less discussion about the severe economic constraints facing the regime. These challenges will be at the center of Iran’s priorities during its first BRICS summit. 

Read the full analysis

Econographics

Oct 22, 2024

A crack in the BRICS: Iran’s economic challenges take center stage at Russia’s summit 

By Josh Lipsky, Alisha Chhangani

The reality is that Iranian President Masoud Pezeshkian will show up to the BRICS leaders meeting and look for support across the BRICS not only in the military domain, but also for his country’s economy.

Economic Sanctions Economy & Business

The Bank of England’s Megan Greene on why interest rates “will probably have to end up a bit higher” than before the pandemic

According to Megan Greene, an external member of the Bank of England’s Monetary Policy Committee, the United Kingdom’s neutral rate of interest—the rate when there is full employment and stable inflation—has “probably risen a bit.” 

“We’re not going back to the [interest] rates that we had pre-pandemic,” she said in an interview at the Atlantic Council’s IMF HQ1 studio. 

Greene, in conversation with Atlantic Council GeoEconomics Center Senior Director Josh Lipsky, said that she favors “more of a gradualist approach” to cutting interest rates in pursuit of the neutral rate of interest, commonly called “r star.” Back in August, she explained, she voted against an interest rate cut at the Bank of England based on various indications that inflation has been sticky. But the Bank voted 5-4 in favor of a cut.  

“Now that we’re in a rate-cutting cycle. . . we should remain on a cautious and gradual path,” she said. 

In September, the Monetary Policy Committee voted to hold rates steady, in part based on “uncertainty [about] what state of the world we’re in, off the back of a pandemic and a war in Europe,” she explained.  

The committee, she added, has come up with three “states of the world” to map the future of the rate-cutting cycle: 1. Inflation is coming down as inflationary shocks ease, meaning the Bank won’t need to be restrictive. 2. Inflation persists somewhat, requiring the Bank to “bear down” on inflation. 3. There have been more structural changes in the economy that require the Bank to be “more restrictive for much longer.” 

“I think it’s most likely that we’re in the second state of the world, where actually it requires monetary policy to bear down on inflation,” she said. 

On whether there is a risk that the Bank is too restrictive heading into the next vote on interest rates in November, Greene said that relative to other developed economies, the United Kingdom’s “speed limit” for how much it can grow without it being inflationary “is pretty low,” due to low investment overall that has slowed productivity growth. 

Speaking at the IMF-World Bank Annual Meetings, Greene said that the institutions are “a microcosm for a better state of the world than the one we’re living in,” with conflicts happening in Europe and the Middle East. “People from different countries do come together over really good analysis to try to support those who are most vulnerable.” 

Watch the full interview

A bleak paper on the plight of low-income countries

On a day when attention focuses on flagship publications like the World Economic Outlook and Global Financial Stability Report, it is always useful to dig into papers that will attract less attention. It’s well worth the time to read through a World Bank report on the deepening financial plight of low-income countries (LICs). Fiscal Vulnerabilities in Low-Income Countries: Evolution, Drivers, and Policies by the World Bank’s Joseph Mawejje offers a bleak view of where the world’s twenty-six poorest countries—home to 40 percent of all people living in extreme poverty—stand four years after the COVID-19 pandemic hit. The bottom line: Unlike most of the world, these nations have not rebounded from the brutal impact of the crisis on the global economy.

The study calculates that the average government debt-to-GDP ratio in these countries “increased by 9 percentage points in 2023 alone—the largest annual rise in more than two decades—to 72 percent,” driven largely by expanding fiscal deficits. Those deficits have “expanded markedly, from 1.2 percent of GDP in 2019 to 2.4 percent in 2023.” While that is relatively low compared to many advanced and middle-income economies, the LICs have much less ability to finance their deficits, especially as they have little recourse to raise money from scarce domestic sources. Instead, they try to obtain financing from abroad.

However, the study says that “net financial flows—including foreign direct investment and official aid—fell to a 14-year low in 2022,” the most recent year for which comprehensive data was available. That means these countries have to borrow, and most now are in, or at high risk of, debt distress. This underlines the importance of finding new approaches to debt relief, an issue that has vexed the IMF and World Bank for years—and is unlikely to be resolved this week.

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Our experts outline what to expect from the IMF-World Bank Annual Meetings 

On the first day of the IMF-World Bank Annual Meetings, three Atlantic Council nonresident senior fellows gathered in IMF headquarters to talk about what they’re hoping to see as the week rolls on—and to reflect on the changes that have been achieved since last year’s meetings in Marrakesh. Here are some highlights from the conversation. 

• Central banks have done a “good job . . . so far” in slowing inflation, said Martin Mühleisen, a former IMF official. Hung Tran, also a former IMF official, added that while central banks have had some success, the structural reasons behind high inflation—including geopolitical competition, economic fragmentation, and trade friction—still exist, and will “feed and keep structural inflation higher.” 

• Nicole Goldin, a former consulting economist with the World Bank, noted that prices are still high, and financial leaders will need to focus more on dealing with the fallout. “Inflation tends to impact those most vulnerable the most,” she said. 

• Tran said China’s struggle to restore its growth and recover sustainably has been a surprise, and that China’s youth unemployment problem would play a part in burdening the growth potential “for many countries, including China, for years to come.” “That needs to be a high-priority item for the IMF,” he said. 

• Mühleisen noted that over the past year, he has been struck by “the reality of much closer collaboration between different autocratic countries,” pointing to China’s support for Russia as it continues its war in Ukraine. He sees an “open competition between different camps,” adding that the United States, as a major shareholder in the IMF, will need to think about whether to freeze out countries in the autocratic bloc. In such a scenario, those countries, he explained, “will still be members,” but Western allies could “take decisions that the majority of the Western democracies take in their own interests.” 

• Goldin said that she will be watching to see whether the Bretton Woods institutions can “walk and chew gum” to concurrently address both short-term issues such as debt distress and long-term issues such as liquidity pressures in countries. Mühleisen said that he would like to see IMF shareholders “insist on more accountability” for lending programs, which have not resulted in some countries implementing reforms they committed to earlier on in negotiations. “Shareholders need to think a bit more about what teeth they can give the IMF,” he said. 

• Mühleisen expressed skepticism about whether there will be “any progress” on the matter of reforming IMF quotas in the short term. “That will drag on for some time, and as long as that is kind of on hold and not proceeding, I don’t think the IMF will be able to tackle much.” 

• Tran is watching what the IMF does to mobilize the fiscal resources needed to adapt to and mitigate climate change. He pointed to the IMF managing director’s call to eliminate fossil-fuel subsidies, which Tran said is the “right approach,” in contrast to recent efforts to mobilize private-sector resources. 

• Goldin said she’ll be watching whether the International Development Association, a mechanism of the World Bank, will be replenished and how the conversations around artificial intelligence evolve. 

Watch the full event

What’s behind the IMF and World Bank’s data dance-off