IMF and World Bank’s muted response to illegal attacks on Iran deepens legitimacy concerns
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Article summary
- No emergency response from IMF and World Bank as countries reel from global economic shock caused by war.
- Roots of current crisis lie in decades of austerity measures and deindustrialisation of the South.
- CSOs call for debt relief and a fundamental reorganisation of the international financial architecture.
The inequality inherent in the international financial architecture (IFA) has been laid bare by the United States’ (the BWI’s largest shareholder) war on Iran and from its ally Israel’s campaign of destruction and ethnic cleansing in Lebanon. The crisis deepens questions regarding the legitimacy of the Bretton Woods Institutions (BWIs) – the World Bank and IMF – as central pillars of the multilateral system.
The rising prices of petroleum, gas and other commodities have already produced food and fuel inflation, disproportionately impacting the working class, women, the poor and marginalised communities (see Briefing, Fuelling inequality: The gendered impacts of World Bank and IMF fuel subsidy removal). Indonesia has moved to shutter social welfare and protection programmes, while Egypt, Bangladesh, Pakistan, Sri Lanka and Thailand have rationed energy to preserve their fuel reserves. Protests against fuel price hikes, driven also by the removal of consumer fuel subsidies, have taken place in Kenya while In Bolivia, an oil producing country currently negotiating an IMF programme, weeks of protests demanded that the incumbent US-backed right-wing administration, vocally supported by the World Bank, step down.
As Shereen Talaat, of the MENAFem Movement observes, “The current escalation is not just a geopolitical or security crisis. It is a crisis of the international financial system itself. For decades, when wars, climate disasters, pandemics, or financial shocks happen, ordinary people in the Global South pay the price. The link between militarism and the international financial system is neither random nor unimportant. Armed conflict creates huge profits for fossil fuel companies, arms makers, and financial institutions, while simultaneously pushing indebted countries deeper into crisis.”
Roots of current crisis lie in debt and austerity
The depth of the current crisis is not solely caused by a supply-shock but by the long history of de-industrialisation of the South, including via the BWIs’ structural adjustment policies. Countries’ increased vulnerability to exogenous shocks is the cumulative product of decades of IMF and World Bank austerity policies that have weakened Global South economies, dismantled the regulatory state and made them dependent on the global market for essential commodities. Shehrzadae Moeed of Pakistan-based civil society organisation (CSO) the Alternative Law Collective argues that “decades of World Bank involvement in the energy sector have meant that instead of securing affordable energy, projects such as the International Finance Corporation’s (IFC)-funded Port Qasim Liquefied Natural Gas (LNG) terminals forced Pakistan into long-term contracts with Qatar. This has locked the country into importing expensive fossil fuels and diminishing its ability to develop energy security and affordability through renewable energy systems. Meanwhile, IMF conditionalities required significant levies and surcharges on petroleum, prioritising revenue generation for debt servicing over citizen well-being in a country where almost a third of the population lives below the poverty line.”
The significance of the BWIs is increasing, as countries are forced to turn to them to deal with the fallout. Twenty-five countries have already sought emergency loans from the World Bank and 12 countries have reportedly gone to the IMF for further loans. The crisis is therefore worsening debt levels, which are already at record highs, and entrenching the power of the BWIs in the IFA (see Observer Winter 2025). Yet there has been no ‘emergency response’ from the BWIs, as was the case during the Covid-19 pandemic and post-Russia’s invasion of Ukraine.
CSOs have called for a robust emergency response, with Talaat arguing that the depth of the current crisis requires fundamental change including, “a democratic and representative international financial system, a fair sovereign debt resolution process under the United Nations, wider use of SDRs without conditions, the removal of IMF surcharges, and more freedom for countries to pursue industrialisation, public investment, food sovereignty, energy sovereignty, and care-centered development.”
BWIs’ Global North shareholders undermine the multilateral system
The multilateral system was designed ostensibly to avoid states’ unilateral actions undermining monetary and macroeconomic stability. Yet the BWIs’ Global North shareholders have arguably weakened multilateralism, not least by ensuring that the BWIs are all but excluded from the UN at 80 process (see Observer Spring 2026) even though they are formally both specialised UN institutions (see Observer Spring 2026, Autumn 2025). In policy terms, both institutions have belatedly recognised that fuel and food shortages will exacerbate the debt crisis. However, they are still mandating further austerity, warning countries not to introduce subsidies to prevent economic collapse and protect social cohesion, and instead introduce targeted and temporary measures – which have been extensively criticised.
As Osama Diab, a researcher specialising in development and economic rights notes, this is a continuation of a historical dynamic where Global South economies are “compelled to absorb sacrifices; interest rate hikes, austerity, currency devaluation & privatization, which the IMF markets as the only available remedy for crises these countries played no part in creating.”
While the IMF sees fit to criticise countries for deigning to introduce industrial policies that could help protect economies from the vicissitudes of Global North leaders, the BWIs have been largely silent on the ‘spillover effects’ of the geopolitical manoeuvrings of their largest shareholder. The IMF has criticised China for causing “adverse spillovers to trading partners”, while the US Article IV contains no mention of the damaging global consequences of the Trump administration’s economic policies. As supposed pillars of the IFA, charged with development and financial stability, the BWIs are apparently unable or unwilling to critique the US’s direct role in creating the crisis (see Dispatch Springs 2026).
The question of how countries deal with exogenous shocks, which are increasing in number and duration, is set to become more urgent as a result of the growing importance of rare earth minerals (see Observer Summer 2026), coupled with increased use of industrial policy by the US, Europe and other important shareholders. Talaat argues that “the failure of the IMF and World Bank to address the economic effects of actions taken by their most powerful members raises serious questions about legitimacy, accountability, and democratic governance in the international financial system. A New International Economic Order is not just a historical slogan. It is an urgent need. As crises become more frequent and connected, the choice is becoming clearer: continue managing instability through debt and austerity, or create a global economic system based on justice, solidarity, sovereignty, human rights and anti-imperialism.”
