Christine Lagarde, Managing Director of the International Monetary Fund. Photo: ABACA/ABACA/PA Images

Donald Trump’s attacks on the World Trade Organisation have left that other superintendent of the global economy, the International Monetary Fund (IMF), out of the spotlight. This may be about to change. As the Fund’s members assemble for their annual gabfest, this time in Indonesia, financial crises are brewing in Argentina, Turkey and elsewhere.

A savvy management team has done what it can to cultivate the Trump administration and fine-tune operations. After a long period when it focused on budget deficits as the source of financing problems (recall the old saw that IMF stands for “it’s mostly fiscal”), the Fund has intensified its monitoring of financial markets. It has embraced less ideological views of capital controls (not always bad) and austerity (not always good).

But now the IMF is faced with its own financial crisis. Many of its resources come from temporary loans provided by a subset of members through a pair of ad hoc agreements. One is set to expire at the end of next year, the other in 2022.

This crisis could be met by increasing its permanent resources. But these permanent contributions (“quotas” in IMF-speak) also determine voting power in the Fund, where the US has a 17 per cent share, China just 6 per cent. In any discussion of larger quotas China will insist on a greater share, and a bigger vote. But this will diminish American influence—especially because if the US share drops below 15 per cent, it loses its effective veto—and so elicits Washington’s opposition. The Fund could instead seek to extend the system of bilateral and multilateral credits. But as contributions that come in this form don’t ensure additional votes, China would be resistant.

China is already responding to the emerging IMF impasse by providing regional assistance more directly. Its central bank has currency swap arrangements with 32 foreign central banks and in 2016 Beijing enlisted its state banks to provide an emergency loan to Pakistan. It participated in the creation of a regional rescue fund for East Asia. The danger is that the IMF will be sidelined. The Fund could attempt to work together with regional lenders capable of contributing additional resources when it cannot. But what would happen if it disagreed with them on substantive policy? This is what…

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