The imprint of US power can be found on the governance mechanisms and operational management of a host of global governance organizations, from the most prominent to the more obscure. But nowhere, perhaps, have the US and its rich allies been more successful at designing a system to uphold their interests than with the world’s foremost multilateral financial institutions: the International Monetary Fund (IMF) and the World Bank.

These two organizations were established in 1944 to manage a rapid expansion of international capitalism on behalf of its great powers. The IMF was to oversee a system of fixed exchange rates, while the World Bank was to finance post-war reconstruction. According to the ‘gentleman’s agreement’ struck between the United States and its European allies, the former would be managed by a European, while the president of the latter would be effectively picked by the White House. Over time, the respective roles of these institutions evolved into their present mandates: the IMF is charged with providing bail-out loans to ‘distressed’ economies, while the World Bank is charged with financing economic ‘development.’

Famously, financial support from multilateral financial institutions comes with strings attached. Countries have been forced to implement far-ranging policy reforms before they can access funds. These reforms, known as conditionality, invariably entail a mix of austerity measures, overhauls of public administration, privatization of state-owned enterprises and natural resources, and the liberalization of labour markets and other economic activities. This set of ‘structural adjustment’ policies has been repeatedly shown to be ineffective, counterproductive, and disastrous for health and social systems. Nonetheless, it persists at the core of the exercise of multilateral financial institutions’ power.

In addition to conditionality, multilateral financial institutions use their claims to expertise and technocratic authority to expand the remit of markets in their borrowers’ economies. The IMF regularly evangelizes about the merits of market liberalization, while the World Bank has a specialized private-sector lending arm, the International Finance Corporation. The IFC is supposed to help finance private-sector projects in low- and middle-income countries that might not be able to secure capital from private sources. In practice, the IFC has channelled much of that support to large corporations based in the Global North—like supermarket giant Lidl or five-star hotel chain Mövenpick—to invest in lower-income countries.

Our existing system of ‘global economic governance,’ in other words, continues to provide cover for an aggressive agenda of deregulatory and extractive capitalism. Most recently, World Bank president David Malpass explained what his organization would expect of countries receiving financial support to combat Covid-19: ‘For those countries that have excessive regulations, subsidies, licensing regimes, trade protection or litigiousness as obstacles, we will work with them to foster markets, choice and faster growth prospects during the recovery.’ This amounts to no less than the structural adjustment agenda that has wrought havoc on developing countries’ social systems and contributed to expanding inequalities in many parts of the world.

So what can be done?

One option is simply to abandon the existing institutions of global economic governance all together. According to this view, the genetic composition of these multilateral institutions guarantees lop-sided outcomes that benefit the Global North and the expense of the Global South, and their track record proves as much. But this option is neither practicable nor — I contend — desirable.

Given our deeply interconnected global economy, there remains a need for institutions to support countries experiencing currency-destabilizing capital outflows, lacking funds to kick-start domestic investment in areas ranging from health systems to green infrastructure, or needing assistance with both. Needless to say, building up new institutions takes time — time that, according to the ticking climate clock, we do not have. It also has no guarantee of success. Many attempts at South-South cooperation to establish alternative financial institutions — through the Asian Infrastructure Investment Bank or the New Development Bank, for example — have stalled, or even ended up replicating the IMF and World Bank modus operandi.

Where do we go from here? A progressive policy response to the dysfunctionalities of multilateral financial institutions needs to have a short- and medium-term outlook. In the short-run, given the devastating impact of Covid-19, institutions like the IMF and the World Bank need to be simultaneously challenged and channelled to immediate support. On the one hand, this would entail enabling them to disburse more funds, faster. As of late-April 2020, there has been a record number of requests for financial support from developing countries urgently needing assistance to stabilize their currencies, invest in their health system, and handle the economic fallout of lockdowns and reductions in export demand.

In the case of the IMF, scaling up financial support can be done by generating ‘international liquidity.’ This creates new money that governments around the world can rely on to respond to mass capital outflows and the collapse of credit. Something like this is already happening bilaterally between the world’s major economies, but the majority of countries are excluded. Such a measure is not unprecedented: it last happened in the aftermath of the global financial crisis of 2007/08, although rich countries were ultimately the primary beneficiaries.

On the other hand, the necessary expansion of activities must also entail increased scrutiny of where the money goes, and under what conditions. Is it used to prop up the financial sector or the real economy? Does it contribute to strengthening health systems and social policies, or does it bail out failed corporations? Ultimately, does it contribute towards softening the blow of the pandemic and laying the foundations for equitable recovery? Absent concerted and sustained policy pressure, it is all too easy to imagine a scenario in which multilateral financial institutions fail to live up to their responsibilities to their broader public constituencies.

In the longer run, our system of global economic governance is in dire need of a more fundamental transformation. On the governance side, multilateral financial institutions are underpinned by unequal voting arrangements that privilege major economies — and that good old ‘gentleman’s agreement.’ There is some merit in the idea that these organizations have to give greater voice to economically larger members, but the current system is deeply imbalanced or even absurd: Belgium, for example, has more votes than Turkey or Indonesia. Increasing the voting power of poorer countries, who are also the IMF’s and World Bank’s core borrowers, is a baby step towards rebalancing power on principles of greater equity.

The principle of equity applies to policy and operations, in turn. The gentleman’s agreement that guarantees US and European dominance of these institutions must give way to Global Southern leadership of these institutions, if they are going maintain legitimacy in years to come. Staff composition must change to reflect the diversity of ideas and proposed solutions on how to deal with the world’s economic, health and environmental challenges. The fact that these institutions continue to drive a discredited agenda of economic deregulation when the evidence flies in the face of its efficacy suggests an enduring ideological bent that can only be changed with an overhaul of staffing and leadership. The fact that most staff have been educated in only a handful of Anglo-American universities is a major part of the problem.

These are not far-fetched proposals. Governance reforms have been on the cards for decades, but past reform attempts have hit the wall of the US Treasury and Congress. The latter wants to maintain the precious veto power the US has at the IMF and the World Bank and is also generally unwilling to open up space for other countries to increase their involvement. Changes to staff and organizational culture will reflect a return to the ethos of intellectual curiosity and experimentation of the early years of these organizations. Only in the 1980s, as part of a radical shakeup that pushed aside staff who did not believe that free markets were the best answer to development problems, did the IMF and the World Bank become ideological purists. It is high time to reintroduce a humbler approach towards knowledge and public policy, and to abandon misperceptions on the superiority of market mechanisms and the supposed perils of government intervention.

Multilateral financial institutions are ultimately creatures of their political masters. With the current constellation of leaders of the world’s largest countries (and—therefore—majority shareholders at the IMF and the World Bank), our pressing challenge is to ramp up pressure for expanding international liquidity, disbursing grants rather than loans, and supporting the real economy rather than the financial sector. This strategy is only a half-measure en route to a more comprehensive re-evaluation of global economic governance, which must take place the moment a more favourable opportunity structure arises.