Response to Simon Nixon

In a recent post on his Substack “Wealth of Nations”, Simon Nixon finds fault with the movement to withdraw the U.S. from membership in the World Bank and its sister multilateral development banks.  

The post, titled “American Gangsterism plus other ways to make China Great Again” leans heavily on Ngaire Woods quite flawed Project Syndicate article, “What If the US Leaves the IMF and World Bank“.

Where to begin?

Dr. Woods first error is in assuming there is a negotiation to take place regarding U.S. withdrawal from the IMF and World Bank:

Notably, Project 2025 – the blueprint for his second presidency, developed by the conservative Heritage Foundation – calls for the US to exit the International Monetary Fund and the World Bank. Rather than acceding to Trump’s demands, member countries should recognize that a US withdrawal would primarily harm the US and leverage that to negotiate on their own terms. 

There is no need for negotiations.  The U.S. governor of the World Bank simply conveys to that institution a notice of withdrawal.  Under the Articles of Agreement, the U.S. departs and contributions are repaid to U.S. taxpayers.  It’s pretty straightforward.

She goes on to emphasize President Trump’s Executive Order of February 3 in which he instructs the Secretary of State and the U.N. Ambassador to review “international intergovernmental organizations” to determine which warrant continued membership.  

Sadly, this order does not specifically include the World Bank and IMF as those organizations are not under the authority of the Secretary of State but of the Secretary of the Treasury.  There is no reference to them in the EO as it is totally focused on the United Nations.  Hopefully, Secretary Rubio will stretch his authority.

Continuing, Dr. Woods rightly points out that “The proximity of the IMF and World Bank headquarters to the US State Department, Treasury, and Congress is no coincidence”.  She maintains that this enables the U.S. to succeed in “shaping their policies and leadership to advance its national interests”. 

She continues: “Unsurprisingly, studies have repeatedly shown that the IMF and World Bank’s lending patterns closely align with US national interests.”

Here she confuses the interests of the Washington revolving door of lucrative international careers with the interests of the American people.  It is unsurprising that “studies have repeatedly shown” that the U.S. should support the World Bank because they are written by World Bank supporters.  

One need only look at the list of former government officials who have made their way to highly paid jobs at these institutions.  The international aid cartel at Treasury was able to hoodwink Secretary Donald Regan with such a “study”, followed by a series of top level appointments for those involved.  

In the first Trump administration, the Treasury supported a capital increase on a basis of “reform” leading to a World Bank presidency.  Once the money was in the bank – so to speak – Global Green New Deal financing was doubled and the groundwork began for far riskier borrowing and potential bailouts for Chinese Local Government Financing Vehicles.

Then there is the issue of cost.  Nixon and Woods go to great lengths to downplay the cost to American taxpayers of World Bank membership.  Coincidentally, neither of them pay these costs.

Woods asserts: “In 2018, for example, Trump’s first administration approved a $7.5 billion capital increase for the IBRD. This does not demand more financial contributions from the US.”  

In fact, U.S. direct appropriations for this capital increase were some $1.24 billion.  

Of course, the IBRD is not all that gets financed by members of The World Bank.  During the Biden administration alone, U.S. taxpayers have been committed to $7.5 billion in payments to the International Development Association arm of the bank.  

For American families, that’s real money.

Dr. Woods further claims “The cost of running the IBRD is not paid by the US but by major borrower countries”.  If so, why are they always coming back for more of other people’s money?  Why was there a capital increase in 2018?  Why are there never ending IDA replenishments?

And, as always, there is the “callable capital” argument.  Dr. Woods correctly claims that the IBRD has never tapped its callable capital.  If it is the case that its loans are so sound as to always be repaid, there is no need for callable capital.

Yet, as I have noted elsewhere, the World Bank is on a desperate campaign to establish callable capital as a “full faith and credit” obligation of U.S. taxpayers.  This can only mean that it fears defaults that would trigger a “call”.  Why else would they mount such a public campaign?

The final argument being made is that if the U.S. leaves The World Bank, it will lose influence.  Dr. Woods cites U.S. influence over International Development Association lending and its rights under the Articles of Agreement.  Mr. Nixon asserts that “a US withdrawal would not lead to the collapse of these institutions, because they provide global public goods”. 

But, the U.S. would be leaving precisely because these institutions do not serve its national interests.  If we are gone, these institutions are free to do whatever they like.  It’s their money.  

Dr. Woods incorrectly asserts:

Simply put, withdrawing from the IMF and the World Bank would be a grave mistake, stripping the US of its ability to shape the rules of the international monetary order and pursue its strategic interests.

To the contrary, withdrawing would simply remove the U.S. from these institutions.  Membership in institutions without a purpose serves no interest except those whose careers depend on them.

As for “global public goods”, I am baffled.  Global Green New Deal, global DEI, public policy advice to nations which perpetually ignore the well-known requirements for economic growth?

Dr. Woods and Mr. Nixon should take to heart the words of The World Bank’s Chief Economist, Indermit Gill and his deputy, M. Ayhan Kose in a splendid piece titled “Why Developing Economies Need a New Playbook“:

Developing economies should have no illusions about the struggle ahead: the next 25 years will be a tougher slog than the last 25. They need a fresh game plan, one that strengthens their capacity to fend for themselves and seize growth opportunities wherever they can be found. With the right policies, some challenges can be turned into opportunities.

What better way for them to begin than for American taxpayers to get out of their way?