By Talal Rafi
The article argues that rising geopolitical tensions and the shift in global economic power are challenging the International Monetary Fund’s role as a neutral and universally trusted lender of last resort. As China expands its influence as a major bilateral lender and questions Western dominance in global financial institutions, the IMF is increasingly perceived as politically influenced by the interests of the United States and its allies. To remain credible and effective, the IMF must strengthen institutional neutrality, reform voting structures to reflect modern economic realities, and develop clearer multilateral debt restructuring frameworks.
The International Monetary Fund (IMF) has been seen and used by Washington as a soft power tool in global politics. The organisation has a vastly important role as the lender of last resort and is called on by nations around the world when countries face a balance of payments crisis or a debt crisis. It is one of the most powerful institutions in the world, shaping economic policy in most of the developing world. The United States has the most influence in the IMF as the largest shareholder. In the second half of the 20th century, the United States was able to use this soft power tool as it did not have a serious economic rival. But in the 2020s, the world has changed. China is now the second largest economy in the world in GDP terms, the largest bilateral lender in the world and the largest creditor to developing nations, surpassing the World Bank, IMF and Paris Club countries. How will this new dynamic play out going forward? What is the future of the International Monetary Fund?
Soft Power and International Financial Institutions
The concept of “soft power” was coined by Joseph Nye, defined as a country’s ability to influence other nations without resorting to coercive pressure. Where hard power uses coercion to get other nations to do what the United States wants, soft power is where other governments are made to want what the United States would want them to want, without using coercion.[GW1]
Since the end of the Second World War, two multilateral institutions, the World Bank and the IMF, have had global influence in shaping the economic narrative, especially in the developing world. The World Bank is the largest multilateral development bank in the world, and the IMF is the global lender of last resort. Though both institutions have shareholders across the world, including China, they are both dominated by the United States and its allies in terms of voting share. The IMF is the most influential financial institution in the world, as a last resort for countries in a balance of payments crisis or a debt crisis. The dominant economic thinking in the US has been seen to be pushed by the IMF globally. A good example is that in the 1980s, the IMF’s technical thinking, along with that of the World Bank Group, was referred to as part of the “Washington Consensus”. The IMF has been a hallmark of American soft power in economic terms around the world since the Second World War.
The IMF’s American Foundations and Global Debt Landscape
The IMF was a product of the Bretton Woods Conference in 1944, attended by 44 nations, which sought to build a framework for international economic cooperation. The IMF’s objectives are to promote monetary cooperation and financial stability. Since the organisation was created under the leadership of the United States, they remain the largest shareholder with 16.49% of voting power, followed by Japan (6.14%), China (6.08%) and Germany (5.31%). Though this may seem like the US only has around one-sixth of the voting share, it is all the US needs. Major decisions at the IMF require 85% of the votes, and as the US has 16.49% of the voting share, the United States holds a veto power on any major decisions at the IMF.
The second half of the 20th century was a period when sovereign debt of developing nations was dominated by the Paris Club members (the US and its allies), multilaterals such as the World Bank and the IMF (dominated by the US) and private creditors (mostly based out of the West and lent under New York and London laws). But the 21st century has changed this. Today, China is the largest bilateral lender for most countries, where China alone has lent more than all the Paris Club members combined.
China’s Belt and Road Initiative has resulted in countries across the developing world opting for bilateral credit from China, which has higher interest costs when compared to multilateral debt. Private creditor lending has also grown, as an UNCTAD report shows that the percentage of private creditors in the debt composition for developing nations in 2013 was 52%, but by 2023, had risen to 60%.
Three scenarios where the IMF was perceived as an American-influenced organisation
Sri Lanka’s debt restructuring
The clearest point of geopolitical tensions between the United States and China with regard to the IMF was in the case of Sri Lanka. In 2022, Sri Lanka defaulted on its external debt as it was unsustainable. The largest bilateral creditor to Sri Lanka was China, followed by Japan and India. But over half of Sri Lanka’s bilateral debt was held by China. Multilateral debt was largely owed by Sri Lanka to the Asian Development Bank and the World Bank. Sri Lanka had requested an IMF program, but the IMF could not proceed as Sri Lanka’s debt was deemed unsustainable, so in order for the IMF to proceed, it needed financing assurances from Sri Lanka’s creditors. That is, for bilateral nations to give an assurance to the IMF that debt relief and/or financing to restore debt sustainability will be given to the debtor nation.
India was the first nation to give financial assurance to Sri Lanka. But China delayed giving financing assurance to the IMF, arguing that multilateral debt should also be restructured. As a principle, multilateral debt (World Bank, ADB, IMF) is not restructured as they have preferred creditor status,which helps them have an AAA Credit rating so that they can borrow at low interest costs. Multilaterals need to borrow at cheaper interest rates as they lend to some of the poorest nations in the world, with the World Bank’s IDA even giving grants to lower-middle-income countries. IMF debt, in particular, cannot be restructured as it is the lender of last resort, lending to countries that are in severe financial crisis. If IMF debt were to be restructured, it would not be able to borrow at low interest rates, and the IMF itself may factor in credit ratings before helping debt-stressed nations.
But in Sri Lanka’s case, China still insisted that multilateral debt should also be restructured, with the United States pushing back, saying multilateral debt was not for restructuring. Finally, China gave in[GW2] , but this caused a delay in Sri Lanka starting its IMF program, which resulted in uncertainty and further economic pressure in a country that had just defaulted.
But China’s making the case, where it saw the IMF as an American-led organisation, shows that the showdown seen between the two superpowers in the case of Sri Lanka is not going to be the last. Especially, when the UN says 54 countries are under debt stress and debt levels are at a record high across the world. China’s increasing economic clout may make it come back later with a stronger case against the IMF or find a way around it.
Russia-Ukraine Conflict
The Russia-Ukraine war, where the US Dollar was weaponised against Russia, led the world to question the US Dollar’s status as a reserve currency. It was considered a reserve currency because of the trust it had, and when the US used it as a weapon against Russia, the rest of the world took note and looked at diversifying away from the US dollar. The US Dollar remains supreme as it has no strong alternative yet.
In the same way, the IMF has shown itself to be an instrument against Russia. In 2024, the IMF, under pressure from allies of Ukraine, scrapped its mission to Moscow, which is a routine mission to assess Russia’s economic situation. Though this will not have a major impact on the Russian economy, it does send a symbolic message to the world that the West will use the IMF as a tool against anti-Western nations. It hits at the core of the IMF, exposing to the world that it may not be a neutral organisation. This is at a time when the IMF is lending to Ukraine, with the IMF announcing a new $8.1 billionprogram in November 2025.
In a world where bilateral debt is increasingly being dominated by China, the globally accepted lender of last resort doing the bidding of the West does not give a good impression on the IMF, which was to have been a neutral institution.
The IMF Program in Argentina
The IMF has also been influenced by geopolitics in geopolitically important nations like Egypt, Argentina and Pakistan. Argentina is the largest borrower from the IMF at USD 57 billion, and it accounts for one-third of all IMF lending.
Political influence was seen when the Argentine President Javier Milei objected to Rodrigo Valdez, who was the Director of the IMF’s Western Hemisphere Department, which led to him recusing himself from the Argentine negotiations. The Argentine President states that he could not work with Valdez due to the policies Valdez implemented when he was the finance minister of Chile.
But in the case of Argentina, there was also politics involved. According to Bloomberg, about half of the 25 executive board chairs of the IMF had serious concerns about the $20 billion IMF loan to Argentina. The deal was also seen to be muscled through management, with some viewing[GW3] it as being driven more by politics than policy. Argentine President Milei is a strong ally of US President Trump, who has even referred to Milei as his “Favourite president”. It was considered, by some, that Argentina was getting special treatment as the Argentine President even announced the details of the IMF program hours before it was officially approved by the board.
This applies to other countries also, which have been on the good side of Washington, most notably Egypt, Pakistan and Ukraine. After Argentina, the three largest borrowers from the IMF have been Ukraine, Egypt and Pakistan, and all three of them are geopolitically critical nations, which is a point to be noted.
The reason IMF deals are pushed through faster, like in the example of Argentina in 2024 and other geopolitically strategic nations, is also the fact that the world has changed. If the US-influenced IMF does not step in, these desperate nations will knock on the doors of Beijing. Pakistan is a case in point for this as the US tries to maintain influence in this critical nation.
Why is the rise of China a challenge to the IMF’s role as a lender of last resort?
Though the IMF has been used by the United States in certain cases to help countries that it favours in the second half of the 20th century, the key difference is that the US did not have a serious economic superpower to rival it. Today, China is emerging as a formidable rival. In a world where China is already the largest bilateral lender in the world, and with a trade surplus of over $1 trillion, it will become increasingly easier for it to establish another organisation to rival the IMF. It must be noted that China is still a member of the IMF and abides by its rules.
But in a world that is seeing increasing rivalry between the two dominant superpowers, where one superpower has dominant voting rights in an institution which was supposed to be managed neutrally, but is being used geopolitically in certain cases, it is a matter of time before China questions this more strongly.
China has already been advocating to increase its voting share in the IMF, and its shares were increased to 6.08% in 2016, slightly below Japan. But China has been adding pressure to increase its voting share further. China’s economy is more than 4 times larger than Japan’s economy, but its voting share is smaller than Japan’s. But the biggest stumbling block would be the United States, which may not like to have its voting share dip below 15%, removing its veto power in the IMF. An agreement to reduce US voting shares will need to be ratified by the US Congress, which means it would need strong political support to go ahead, making it unlikely. But it appears that China is not going to relent, so the IMF voting share may be an area for a geopolitical showdown in the coming years.
But China is playing a role bilaterally in rescuing debt-ridden nations, where in 2021 its bailout of other nations amounted to $40 billion. Chinese rescue lending has been more than 40% of IMF lending in the three years leading up to 2021. China is slowly rising as an alternative to the IMF as a lender of last resort. What China is doing today is similar to what the United States did in the 1930s and post World War 2, where it used the US Federal Reserve, US Ex-Im Bank and the US Exchange Stabilisation Fund to provide rescue funds to other nations, bolstering its financial clout.
With China's increasing economic clout on the world stage, its rescue lending will only increase. China’s emerging as a rescue lender is also a reason the US wants IMF programs to be fast-tracked for countries which are geopolitically strategic.
The Way Forward for the IMF
Firstly, key IMF decisions, such as stepping in to rescue a country from a debt crisis or a balance of payments crisis, should be made in an independent manner. Clear and transparent frameworks for decision-making ensure the IMF is perceived as a neutral and credible institution. Argentina's case in 2025, where management viewed the deal as driven more by politics than policy, and Ukraine's case in 2023, where the IMF reformed its rule of not lending to countries with unsustainable debt to allow lending as long as creditors gave financing assurances, are both signs that the IMF can be swayed by its most powerful shareholders. Independent decision-making at the IMF is essential as it is not only the lender of last resort, but its assessments of countries are seen to bring credibility to bilaterals, private creditors and other multilaterals.
Secondly, adjusting the voting shares at the IMF to a fairer level would help its global credibility and make it a global institution. China, whose economy is more than 4 times the size of the Japanese economy, still has a slightly smaller voting share than Japan, which would seem unfair to China. The United States, holding onto 16.49%, giving it veto power, could also be negotiated. Reducing below 15% would remove America’s veto-like power, but I would suggest that, if this continues, an economically powerful nation like China may start working towards an alternative institution to the IMF, and in that case, America’s control over the IMF would anyway become less useful for global influence. Even if it reduces its vote share below 15%, the combined voting share of its allies together will still make the US highly influential in the IMF.
Lastly, to prevent geopolitical flashpoints from occurring during times of debt restructuring, which exacerbate tensions, a debt restructuring framework should be agreed to, especially with agreement from the United States and China. There is precedent for this, as creditors, including China, came to an agreement known as the G20 Common Framework in 2020 to help low-income countries to restructure their debt in an orderly way, with the requirement for comparability of treatment for all creditors, and the requirement of an IMF program. An agreement at the G20 level addressing key issues such as debt restructuring mechanisms, the question of multilateral debt restructuring and transparency among creditors, can greatly assist the IMF in making clearer decisions.
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Talal Rafi is a Sri Lanka-based economist, currently serving as Policy Advisor to Sri Lanka's opposition leader, a regular columnist for the International Monetary Fund and an expert member of the World Economic Forum, while also holding appointments as a Visiting Fellow at the Centre for Poverty Analysis and as a consultant to the European Commission. He has extensive experience in development policy and public finance, with prior experience as a consultant to the Asian Development Bank, a Director at Ernst & Young Sri Lanka, and having served on the Board of Sri Lanka's government foreign policy think tank. His work has been published by the World Bank, the International Monetary Fund, the Asian Development Bank, the World Economic Forum, Johns Hopkins University's SAIS Review, and the London School of Economics.
