This year's government shutdown arrives on the eve of consequential IMF and World Bank Annual Meetings, and a budget fight means the IMF and World Bank’s congressional priorities will not be easy legislative wins.
After April’s Spring Meetings, the US agenda for the IMF and World Bank was clear. A review of US participation in all international organizations placed a sword of Damocles above the Bank and Fund emblazoned with three words: back to basics. October’s Annual Meetings will give the institutions a chance to show they’ve grabbed that sword to wield for institutional streamlining that readies them to face the issues of the day.
US Congress: A Time of Incredulity
Congress’s annual duty to fund the US government or face a government shutdown has passed with the end of the fiscal year on September 30. A stopgap continuing resolution would have been necessary to keep much of the government running, given the significant differences between House and Senate funding bills. The Republican majority in the House faces vanishingly narrow vote margins that make them vulnerable to being held hostage by both Democrats and a small but vocal minority of their own members.
The chambers’ approaches have differed. House Republicans have spent the spring and summer considering partisan appropriations bills, while their Senate colleagues have worked on bipartisan bills which are more in line with the administration’s budget request. House Republicans have managed to pass all 12 subcommittee appropriations bills out of committee and even advanced a few through the full House, but how these bills will be reconciled with the more bipartisan bills making their way through the Senate remains to be seen.
What does this process mean for the Trump administration’s IFI requests? The House FY26 appropriations bill did not include funding for the World Bank’s IDA or almost any of the other administration's requests for the IFIs. This is presumably to ease passage of the legislation through a body with a substantial number of Republican members skeptical of the efficacy of foreign assistance and international organizations to deliver on their mandates.
As of this writing, the Senate has not released its version of the foreign assistance legislation, but we believe it likely the Senate will endorse most of the Trump administration's IFI requests. If prior experience is any guide, we would hope closed-door negotiations between the House and Senate would ultimately settle on something close to the administration's fairly orthodox Budget Request for the IFIs, which we previously detailed here.
One item we’re keeping a close eye on is IMF quota reform. Broadly divergent views between Republicans and progressive Democrats over the use and utility of IMF Special Drawing Rights (SDRs) could create a stumbling block for Congressional authorization of an IMF quota increase. This could be avoided if an agreement can be reached on new restrictions regarding the amount and limitations of any potential future SDR allocations. House Financial Services Committee Chairman French Hill (R-Arkansas) and his colleagues have introduced legislation along these lines in the past, but it’s not clear if Democrats would support such conditionality.
We’ve also been tracking several bills that have passed the House of Representatives this year. In a bipartisan show of support for concessional lending, Maxine Waters (D-CA) introduced a bill that would boost IDA’s lending power by exempting it from securities registration regulation, which passed the House without opposition after flying through committee. The bill is something of a legislative orphan in the Senate, but perhaps this will be the Congress where a Senator steps forward and helps get the legislation passed into law.
The House also passed a bill calling for US action to improve exchange rate transparency at the IMF, a bill calling for more equitable treatment for Taiwan at international financial institutions—including US support for Taiwan’s admission to the IMF, and a bill opposing any increase in the weight of the Renminbi in the IMF’s Special Drawing Rights (SDR) Basket.
Taken together, these measures demonstrate lawmakers' desires to use the institutions to advance broader geopolitical objectives. However, as we turn a calendar page to Annual Meetings, it’s on the institutions now to prove they’re receiving and implementing the back-to-basics message.
Two Institutions, One Challenge
The World Bank has put forth its answer to the charge with a strategic vision around jobs, private sector engagement, and energy expansion. The Bank's all-of-the-above energy strategy supports lending for natural gas, geothermal, hydro, solar, wind, and, in a departure from long-standing policy, nuclear power. Germany's policy shifts and the recent US-UK nuclear agreement underscores the importance of new nuclear energy technology in meeting energy needs in advanced and developing economies while also limiting carbon emissions. This shift has received support from Republicans and some Democrats, too, on Capitol Hill. African leaders have also lauded the drive and committed to a major electrification initiative to expand power access to 300 million people on the continent.
The IMF continues to work to demonstrate that it’s bringing a focused and disciplined approach to carrying out its core mandate. It is undertaking several important policy reviews. This includes a comprehensive surveillance review and a lending review which seeks to tackle the IMF’s serial borrower problem. The IMF still has a lot of work to do, however, to meet G7 members’ expectations that it “continue to enhance its analysis of imbalances in both its bilateral and multilateral surveillance.” The institution's surveillance function, often underappreciated as a global public good, struggles for credibility when the Fund is unwilling to call out heavily distortive and harmful economic practices from its members, including if the U.S. engages in distortive policy implementation.
One area where both institutions are finding their footing is on digital assets and stablecoins. The Bank has published research highlighting the possible benefits of digital assets and has planned panels on the subject at this year’s meetings. The IMF also has a slate of panels in the works which will soon be announced, and we’ll be keeping our eyes out for additional research on the subject in the coming weeks and months.
Some Convergence Ahead
The Trump administration is also leaning heavily on the transformative potential of AI and digital assets. The passage of the GENIUS Act into law in mid-July has legitimized payment stablecoins for the first time in major legislation in the U.S., and begins a two-year long implementation timeline. BWC discussed provisions for future US stablecoin legislation in February, including 1:1 backing with reserve auditing. The passed GENIUS Act includes both provisions and is an important first step for regulated stablecoins in the U.S.
Several risks must be addressed as stablecoins are issued at scale. These include uncertainty regarding the Federal Reserve's role in managing reserve volatility and potential runs. Additionally, prohibiting stablecoin issuers from paying interest could incentivize exchanges to offer riskier interest-bearing products, creating a flight from credit. There's also the potential for disruptions to the Treasury market if stablecoins' backing by government debt becomes too large, and ongoing questions about rulemaking compliance with the Bank Secrecy Act and anti-money laundering frameworks.
Beyond US borders, other jurisdictions are re-evaluating their own regulatory frameworks to preserve monetary sovereignty and remain competitive with a strong dollar-backed stablecoin market. The critical question now is how domestic jurisdictions coordinate effectively and if global regulatory convergence is on the horizon.
In terms of AI, in late July, the White House released a sweeping plan to increase American competitiveness in the race to develop AI. America’s AI Action Plan was followed by the signing of three AI-related Executive Orders. The action plan is focused on ensuring allies around the world use American models, Americans are well trained to sustain jobs throughout AI’s integration into the world economy, and that infrastructure can be quickly built. The overall approach from the administration is explicitly competitive, viewing AI leadership as essential to maintaining economic prosperity and global influence in what it characterizes as a defining technological race of the 21st century.
Looking Ahead
As we head into the Annual Meetings, energy, global imbalances, and private sector engagement themes are likely to dominate discussions. This year’s Annual Meetings will serve as a test of whether the IFIs can translate their back-to-basics messaging into concrete policy victories that satisfy both their diverse membership and a skeptical US administration. We hope to see you in Washington, DC for our flagship conference. |
