Another spring with no change: IMF and WB reinforce a dysfunctional system in the face of a systemic crisis that they refuse to acknowledge
April, 2025
The IMF and World Bank Spring Meetings, held in Washington D.C. from the 21st to the 25th of this month, were marked by global uncertainty, trade tensions, which they avoided calling a “trade war” at all costs, and the need to preserve macroeconomic stability. In this context, the IMF reduced its world economic growth projection for 2025 to 2.8% and for Latin America and the Caribbean to 2%.
Two elements marked these meetings: on the one hand, the reorientation of the IMF and the World Bank towards their core functions, moving away from issues related to sustainable development and climate, and on the other hand, a strong discourse on the need for countries to “put their houses in order” and correct domesticimbalances to help reduce external ones, both in fiscal and monetary and exchange rate issues, in order to be able to absorb shocks.
On specific issues, the increase in debt in middle and low-income countries and its high cost; the appropriate use of monetary policy in an inflationary and volatile context; and the role of international financial institutions in a context of uncertainty about their future, among others, were highlighted.
The unacknowledged debt crisis: further stagnant than before and aiming to “put our house in order”
The debt crisis remains on the global agenda as one of the most pressing issues. However, for the Bretton Woods Institutions (BWIs) this crisis continues to be seen as liquidity pressures despite the context of high uncertainty and risks of global recession. The messages have focused with particular emphasis on the actions that countries must take to begin to sort out domestic issues, mainly in terms of austerity measures to counteract the growing debt problems, which are expected to increase given the trade war, volatility, less official aid in the face of increased defense spending, among others.
The IMF’s global policy agenda, more closely aligned with its mandate, presents three priorities: i) promote macroeconomic and financial stability, ii) economic growth to create more jobs and increase incomes, and iii) continue to be the platform for countries to find cooperative solutions to economic challenges, mainly in the areas of trade, debt vulnerability and the Global Financial Safety Net (GFSN). This last point has been widely emphasized by the International Monetary and Financial Committee (IMFC), as well as by the Group of Twenty-Four (G-24). Thus, it seems that the IMF is being highlighted as the dominant forum for the international financial community in a year in which the role of multilateralism has taken center stage, with an eye on the UN’s financing for development processes.
Specifically on how to address debt problems, the focus of this agenda remains the G20 Common Framework and the Global Sovereign Debt Roundtable, which published its fourth report and included a playbook on debt restructurings. The agenda also points to the three-pillar approach to address liquidity problems and some internal IMF processes related to the review of the debt sustainability framework for low-income countries, a forthcoming update of the guidance on the debt sustainability framework and sovereign risk (for market access countries), and the IMF’s role in debt restructurings.
The IMF and World Bank’s three-pillar proposal, published last year, focuses on: i) structural reforms and domestic resource mobilization; ii) external financial support, including from international financial institutions, which would be conditional on the ambition of domestic reforms and country needs, not to mention that their proposals are oriented primarily to low-income countries only; and iii) reducing debt service burdens, which could include the use of risk-sharing instruments by bilateral and multilateral support to encourage private sector inflows. The results of these measures, even if focused solely on liquidity pressures, may not be sufficient and will imply higher economic and social costs in the coming years.
Latin America and the Caribbean is not exempt from these problems, as explained in the regional outlook, where the role of heterogeneous monetary policies is highlighted. Debt servicing, which has reached record levels, crowds out public social spending and leaves the SDGs further away from being achieved, together with a climate crisis that is impacting harder on vulnerable populations in the countries least responsible for this crisis. In addition, inequalities are increasing and conditions and vulnerabilities are exacerbated in different dimensions, as reflected in education, food security and inequalities in the region. However, BWI policies ignore the dimensions that debt problems reach in more comprehensive terms in a more shock-prone environment.
In the sidelines of the meetings, the final report of the Expert Review on Debt, Nature and Climate was presented, calling, in line with the demands of civil society, to integrate nature and climate considerations into macroeconomic and fiscal assessments, particularly in the debt sustainability frameworks and credit ratings. On the other hand, they also include some proposals aligned to the fragmented approach seeking market-based solutions and private investment that has proven not to be an effective response for these interconnected problems.
The role of monetary and exchange rate policy in the BWI agenda: between narrow diagnoses and the same old recipes
On monetary issues, the IMF stressed that price stability and financial stability are complementary. The seminar on monetary policy in emerging markets discussed how central banks should simultaneously manage inflation and financial stress, using tools such as foreign exchange intervention and liquidity provision, without compromising their core mandate. It was emphasized that the exchange rate is the most important price in small, open economies and monetary authorities tend to intervene constantly to avoid large fluctuations. They also noted that many of these economies are moving from floating exchange rates to other regimes with greater intervention, even though there is no explicit notice to the IMF of a regime change.
Against this backdrop, the IMF suggested the use of the Integrated Policy Framework to guide temporary interventions in foreign exchange markets when necessary, but maintain a flexible regime to absorb external shocks that are exacerbated by uncertain economic environments. In practice, the IMF is determined to avoid a generalized wave of capital control-oriented actions, as is already happening in some economies in Asia.
In this regard, a call was made to avoid discretionary actions that could jeopardize the credibility of central banks, and to navigate on clear rules that anchor expectations in order to avoid inflationary pressures.
Argentina and IMF interference
Argentina was at the center of discussions during the Spring Meetings due to its new agreement with the IMF, through which it seeks to move towards greater exchange rate flexibility and deepen its market-oriented structural reforms. The Fund highlighted the progress made by the country in reducing the fiscal deficit, controlling inflation and accumulating international reserves. However, criticism was not long in coming, both because of the high social cost of the adjustments implemented and because of accusations of possible political motivations behind the Fund’s support. These tensions reached their peak when IMF Managing Director Kristalina Georgieva publicly praised Argentina’s reforms and stressed the importance of maintaining the economic course, particularly in view of the October legislative elections. This statement signifies a clear interference of the Fund in the domestic affairs of the region, which has been repudiated by Latindadd and other organizations.
With eyes set on Seville
The BWIs and their main shareholders have insisted to highlight their role in the international financial system and as the platform for dialogue between countries in a scenario of uncertainty and growing risks; however, they have not been able to adapt to the current environment or offer responses that match the circumstances, resulting in insufficient actions. In fact, the IMF reminds us that it is not a development institution, although they constantly try to play a leading role in spaces such as the Financing for Development forum where they stand on the side of those who want to maintain the status quo. It is clear that these institutions will not reform themselves. It is vital to move towards a democratic space, such as the United Nations, where all countries participate on an equal footing.
Immediate and ambitious action is needed to initiate reforms in global governance and in the international financial and debt architecture. The Fourth International Conference on Financing for Development, to be held in a couple of months in Seville, Spain, is a key opportunity to advance reforms towards a new financial architecture that is fair, equitable, democratic and oriented towards sustainable development, with a focus on rights and gender, and centered on people and care for the environment.
