During the recent International Monetary Fund and World Bank spring meetings, US Treasury secretary Scott Bessent criticised both institutions for mission creep and stressed the need for them to “step back from their sprawling and unfocused agendas”. The new administration does not support climate programs and actively opposes diversity, equity and inclusion initiatives. The message is clear. The United States under Donald Trump wants change.
Alarmed by the possibility of funding cuts, the world’s big multilateral banks are scrambling to accommodate US demands. For several years, the Asian Development Bank has highlighted its role as “the region’s climate bank”. However, at its annual meeting held last month in Milan, the term “climate” was hardly mentioned, and none of the many sessions included the word in their titles. The US statement at the meeting echoed its criticism of overreach at the IMF and World Bank.
But where does this leave developing countries, the targets of the support provided by these banks? In Milan, they emphasised the need for free trade, while statements by other Western donors stressed the importance of climate, environment, gender and diversity programs, highlighting the deepening chasm between the US and the rest of the world.
Then there is China. A decade ago, China started to expand its role in development finance, marking a major turning point for the international financial and aid architecture. In 2013, Xi Jinping, who had recently taken over as general secretary of the CCP and China’s president, launched the Belt and Road Initiative, to provide China-led financing for projects in the Global South.
There are already signs that China plans to fill the gap left by the United States.
The following year, the five BRICS countries established the New Development Bank, and in 2015 China spearheaded establishment of the Asian Infrastructure Investment Bank. Both banks were intended to offer emerging economies an alternative to the established financial architecture, which was dominated by the Western-led IMF and World Bank.
In the decade that followed, the BRI went on to become the world’s largest bilateral source of infrastructure financing, frequently eclipsing the World Bank, regional development banks and other financiers. On the upside, the BRI’s no-strings-attached approach vastly increased the availability of finance, but in many borrowing countries it also instigated serious debt problems.
At the same time, the AIIB and the NDB have evolved into credible financial institutions offering their own brand of development finance. The AIIB, whose borrowers span Africa, Asia, Latin America and the Middle East, focuses on big-ticket infrastructure projects, while the NDB finances the local costs of projects, with 40 per cent of its funding used to combat climate change.
Now the advent of the second Trump administration marks a new turning point.
On his first day in office, Trump announced the United States’ withdrawal from the World Health Organisation and the Paris climate accord. And within weeks of assuming office, the administration discontinued the operations of the US Agency for International Development, terminated most of its staff, and transferred remaining operations to the State Department. The administration has also phased out the much smaller Millennium Challenge Corporation.
USAID, established during the Kennedy era, was the world’s largest source of bilateral official development assistance, providing grant financing of about $55 billion a year. Accounting for 24 per cent of bilateral ODA, it helped to create livelihoods and save lives in many of the world’s poorest countries. The closure of USAID leaves a yawning gap that will be hard to fill.
The administration’s latest budget has cut by 20 per cent the US commitment to the International Development Association, the World Bank’s concessional affiliate that provides soft loans to the poorest countries. But it reserved its harshest treatment for the African Development Bank, slashing the entire US pledge of $555 million to the bank’s poverty-focused concessional window. This will likely force the bank to seek additional funds from China and the Gulf states.
There are already signs that China plans to fill the gap left by the United States. At an April meeting of the G20, Finance Minister Lan Fo’an called for “all parties to pool resources for Africa’s development”. And in May China pledged $500 million to the WHO, stepping in as the agency’s largest donor following the US withdrawal.
At the same time, the China-led multilateral banks remain free to pursue their development goals. Unencumbered by American membership and pressure to align with the priorities of the Trump administration, the AIIB and NDB can continue with business as usual, including climate projects, which donors may find attractive.
Nor can the newer banks be faulted for shunning diversity. Among the established international financial institutions, only the IMF and the EBRD have ever elected women to their top position, while both new banks have already broken the glass ceiling. The NDB is headed by Dilma Rousseff, a former president of Brazil, while China recently nominated Zou Jiayi, a senior government official, to take the helm at the AIIB.
By shutting down its aid programs and pressuring multilateral agencies to drop climate projects and align their priorities with those of the United States, the Trump administration has seriously diminished America’s soft power. More significantly, with the world reeling from recent tariff increases, the US has left development cooperation wide open to be taken over by China.
