Part IV of the Special Series for Global Organization and Function: a collaboration between WGI.WORLD (World Geostrategic Insights) and CGPS (Center for Global Peace and Security).
By Sunny Lee – Founder and President at CGPS (Center for Global Peace and Security), and Director at IKUPD (Institute for Korea-U.S. Political Development), Washington DC.
Originating from the United States, the global financial crisis as the Great Recession turned to the global phenomenon through 2007-2009 by striking most countries in horror and shock. As a leading country in the world economy and financial globalization, the U.S. unwillingly yielded its superpower position to China. In January 2009, President Obama announced ‘the era of G2’ with China as the biggest creditor country in the U.S. since it spent an overwhelming budget on the Afghanistan War, causing national deficit and financial insecurity.
Moreover, the subprime mortgage crisis in the United States after exploding inflated bubbles in the housing market extended to the global financial crisis. As the main cause of global recession, accumulating imprudent mortgages and non-performing loans brought out bankruptcy of major investment banks, stock plummeting, and a skyrocket of unemployment rate. Subsequently, it shook the global financial system and the world economy had to go through the worst recession as a humongous disaster since the Great Depression in 1920s.
In 2008, the Wall Street and NYSE as the pillar of the world economy severely froze in panic and DJIA slumped with 11.7%, hitting the bottom line down to 90% for three years. Especially, investment companies’ bankruptcy such as Bear Stearns, Meril Lynch and Lemam Brothers agitated intense financial crunch with a national scale in the U.S. It automatically impacted on global financial system tangled with reciprocal connection between countries. As a result, emerging market countries with vulnerable economic structures faced a national bankruptcy by rapid capital flight, which finally applied to the IMF to overcome the financial crisis.
The International Monetary Fund (IMF) as a major financial agency of the UN is accountable to its 191 member countries by working collaboratively to achieve sustainable growth and prosperity. It promotes secure financial stability such as fostering global monetary cooperation, encouraging the expansion of international trade and high employment, and reducing poverty around the world. To fulfil such critical missions, the IMF plays a key role to monitor the fixed exchange rate arrangements between countries, helping governments manage their exchange rates and prioritize economic growth. It provides short-term or long-term capital not only to aid the balance of payments but also to prevent the expansion of international crises through capital investments for economic growth and technical projects such as infrastructure.
Nonetheless, a few obstacles have been exposed by hindering its primary function from managing the global regime of exchange rates and international payments. The IMF has centralized decision-making process, imposed excessive conditions that severely limit national sovereignty, and entrenched the influence of powerful governments over developing countries. Such tempted interventions would prioritize the stability of financial institutions beyond individual economic freedoms, restricting local markets to self-correct and develop organically. As well, its governance structure is superfluously focused on hegemony countries, particularly the U.S. with dogmatic influence and absolute voting power based on quota system.
International Monetary Crisis
In March 2020, Kristalina Georgieva, Managing Director of the IMF announced that the IMF would mobilize $1 trillion as its response to the COVID-19 pandemic. The IMF estimated global growth to reach 3.4% in 2020 but unpredicted coronavirus shrunk the global economy by 4.4%, resulting in a national disaster in many countries. More than 80 impoverished and middle-income countries had sought bailout and the IMF provided immediate debt relief to 25 member countries under its Catastrophe Containment and Relief Trust (CCRT) program.
The IMF has been recognized as the world’s financial crisis firefighter that member countries can deal with crippling sovereign debt and prevent rapid contagion from spreading through the global financial system. For example, a member country willingly summons the IMF when it can no longer finance imports or afford its debt to creditors in an actual crisis. If the country and lender agree on a set of conditions, the IMF will extend a loan to the government and help it organize a new debt-repayment schedule. However, the beneficial country must agree to implement reforms designed to rectify its balance of payments and restore foreign exchange reserves in its central bank.
Initially, the IMF used to focus on emerging markets or developing countries such as Argentina, Brazil, Indonesia, and Mexico. Nonetheless, the global financial crisis in 2008 and subsequent European debt crisis immediately required major bailouts in advanced eurozone economies. IMF’s intervention in Greece was the drastic case, where the IMF, the European Commission (EC), and the European Central Bank (ECB) pledged $375 billion together in three separate bailouts over eight years. Such an incredible size of the largest assistance package relative to Greece’s IMF membership contribution was extraordinary at 3,200 percent beyond the limit of 600 percent average.
However, amid giant fallout from the COVID-19 pandemic and the Ukraine War, the IMF returned to the developing world, as long as many low-income countries got troubles with variable debit crisis. As wealthy countries raised interest rates to combat inflation, borrowing in their currencies became more expensive simultaneously and local currencies was comparatively less valuable, resulting in debt crises in emerging economies.
As of 2023, total lending power of the IMF reached approximately $1 trillion that it has lent almost $150 billion, including $23 billion in zero interest rate for financing low-income or developing countries. Since the global financial crisis, the IMF has added its voluntary lending fund to its firefighting arsenal with a flexible credit line. As well, a precautionary and liquidity line would be focused on more flexibility in lending member countries which might not even qualify for assistance.
Global Economic Growth and Poverty
Because of regional conflicts such as the war in Ukraine, the Israel-Hamas conflict and the global stagnation due to protectionist trade policies and high interest rates, the global economy is not growing fast enough. Currently, global growth is running 0.4 percentage points below the 2010-2019 average. Especially, the slump bears persistent damage from the global disasters, including COVID-19, and newly overwhelming tariff horror by Trump.
The World Bank’s Global Economics Prospects reported that global inflation is expected to slow with an average of 2.7% in 2025 and 2026, compared to 8.7% in 2022. The World Bank in cooperation with the IMF strives to reduce poverty and boost living standards by providing grants and low-rate loans to impoverished economies. As a result, growth is expected to relieve global poverty at 4.1% in 2025 and slow slightly to 4% in 2026. Nonetheless, viewing the current trajectory, 622 million people are projected to live in extreme poverty in 2030 and 3.4 billion people, 40 percent of the world’s population, will live on less than $6.85 per day.
Economic growth is a critical element in lifting people out of poverty by creating more jobs, increasing wages, and improving living standards. It generally stems from industrialization, increased trade, foreign investment, and improvements in technology and infrastructure. Currently, the global economy is stuck, losing a major step to the fight against poverty and inequality. According to the IMF’s latest World Economic Outlook, global growth is expected to reach 3.3 percent with stagnation in 2025, below the 3.8 percent average.
As an outright solution, IMF analysis suggests adjusting period of stagnation lasting four years or longer to beat up income inequality within countries. In this period, if structural unemployment increases due to slow job creation and wage growth, the country’s income going to workers will shrink.
Like the case of Brazil fighting inequality, poverty, making it a priority of the G20 presidency, prospective policies that defeat the trap of low growth and increasing inequality can be highlighted to reduce poverty.
First, it is to eradicate the fundamental problem of slow growth which has been driven by a slump in productivity.Measures to promote competition and finance could get resources flowing more efficiently and boost productivity. Moreover, open trade has contributed to economic growth and job markets as it increases the share of gross domestic product.
Second, it is fiscal policies of the IMF to support vulnerable member countries facing severe financial pressures. In developing countries, debt-servicing costs are taking up a bigger share of tax revenue from investments in infrastructure to the cost of adapting to climate change. Fiscal risks can be alleviated while limiting negative impacts on growth and inequality by raising revenue, improving governance, and protecting social programs. For example, redistributive policies in a growing G20 economy reduce inequality between 1.5 and 5 times through social spending programs and public investment in education.
Third, it is a strong role of global financial safety net for countries which need support. The IMF has been working on a comprehensive package of reforms with a concessional lending program for low-income countries. The Poverty Reduction and Growth Trust (PRGT) is adequately resourced and its long-term finances stand on a sustainable track with surcharge policy. It aims to provide affordable rates to finance member countries by agreeing to increase permanent quota resources, allowing them to maintain their lending capacity, and finally building a prosperous and equitable world.
Even though the World Bank is overly ambitious to eradicate extreme poverty by 2030, it can be achievable in view of economic growth and equitable development strategies. Ironically, poverty and economic prosperity based on a huge population signifies three areas with global challenges: Africa (1.530 billion), India (1.459 billion) and China (1.417 billion). They tend to rebuild economic power structures by kicking out poverty with a great potential of global prosperity. As a symbol of economic miracle, China’s transformation has saved over 500 million people out of extreme poverty through rapid industrialization leading to its integration into the global economy. It was fueled by a shift from a centrally planned economy to opening-market reform, massive urbanization, and an influx of foreign direct investment.
India’s economic liberalization in the early 1990s spurred growth with poverty reduction, which has focused on service industries like information technology and telecommunications by intellectual group playing a significant role in economic growth. Africa is also an icon of emerging economies, showing the obvious decline of poverty rates. Most countries has experienced improved governance, investment in giant resources, and financial aid from international organizations such as the IMF and the World Bank. Moreover, rich countries in natural resources have successfully leveraged these assets to fuel growth.
The IMF’s Successful Case
The IMF acts as a financing and simultaneously, an adjustment-oriented international institution for the benefit of its member countries. It has provided financial assistance to the deficit countries to manage their temporary disequilibrium in Balance of Payments (BOP) by promoting exchange rate stability. The IMF aimed at arranging avoidance of competitive exchange depreciation by fostering international liquidity. In particular, Special Drawing Rights (SDR) is an artificial currency based on foreign exchange reserves. It was created for international liquidity in 1969 to benefit developing countries that SDR allocations timely finance the BOP deficits to tackle disequilibrium.
Korea is listed in the 12th in the world economy in 2024, which overcame the financial crisis without a doubt by bailout of the IMF, close to a national bankruptcy in the late 1990s. The IMF evaluated Korea as one of the successful cases by its structural adjustment. UNCTAD included Korea in the group of developed countries in 2021 and the OECD formally ratified it as a developed country in 2022. Korea’s economic leverage has been the role model of many countries in financial crisis, which are even ambitious to enter into the world economy.
On March 5, 2025, Pakistan set to unlock a $1 billion IMF loan after successfully completing the first review of its $7 billion lending program, following Pakistan’s substantial improvement in fulfilling IMF requirements. Prime Minister Shehbaz Sharif in Pakistan announced a national vision as if the economy is stabilized, Pakistan will propel its economic growth. Pakistan’s major reforms include implementing a new agricultural income tax, privatizing the Pakistan International Airlines, and addressing the issue of enhancing tax revenue collection.
Ghana became a rising star in Africa as one of sub-Saharan Africa’s successful models that the IMF program helped the economy restore effectively. It built a stable democracy in the 1990s so that a thriving economy fueled by exports of cocoa, gold, and oil largely cut the poverty rate from 53 percent in 1991 to 21 percent in 2012. Nonetheless, Ghana’s economy was hampered by widening current account and budget deficits, and rampant inflation caused by high interest rate and bank debit. Ghana finally fell into out-of-control government spending and currency deficit, largely paying salaries of an overgrown civil service.
Ghana applied to the IMF for a $918 million loan to stabilize the economy in 2015 and IMF advisors started working with the Ghanaian government to conduct a three-part program: restoring debt sustainability, strengthening monetary policy, and filtering its banking system. The outcome was very successful to mend Ghana’s economy that trade and budget deficits were grossly improved. The economic growth rose to 8.8 percent in 2019 from 2.2 percent in 2015. The bubbled inflation rate was also projected to fall to 8 percent from almost 19 percent. Ghana’s 28 million people enjoyed higher incomes, better job opportunities, and more purchasing power as it remains largely reliant on foreign financing, attracting investment and maintaining fiscal discipline with a great challenge.
There is another outstanding case where the IMF reformed a country’s policies through capacity development for financial stability and growth. Developing countries usually don’t have consistent, standardized data to assess financial institutions or their counterparts. Safeguarding financial stability would be tackled so that policies promoting growth and attracting international investment while gauging macroeconomic stability might be seriously delayed. For example, El Salvador strived to develop a strategy to enhance financial stability through stronger oversight and improved crisis management. The IMF worked with the Salvadoran government to reform strategy focused on improving risk-based supervision, a strong crisis management framework, and a modernized securities market.
Furthermore, the IMF has successfully played its key role in building a top-notch credit registry to facilitate access to credit in the West Bank and Gaza (WBG). The IMF helped it expand credit so that the non-performing loan ratio went down by building sustainable financial and monetary institutions. Without an efficient credit registry system, it was difficult for smaller companies or individuals to access credit and moreover, banks couldn’t monitor credit risk effectively. An IMF regional center based in Lebanon (METAC) supported by European Commission, EIB, USAID, France, Germany, Oman, Kuwait worked with the Palestine Monetary Authority (PMA) to build a modern credit registry system. With METAC’s assistance since 2008, the PMA Palestinian banks and microfinance institutions have implemented an automated, online 24/7 credit registry system, currently the best in the Middle East and North Africa.
Prospective Vision and Global Prosperity
The IMF’s future vision for 2030 is to ensure the stability of the international monetary system shaped by challenges and opportunities for a rapidly evolving world. Globalization, technological advancements, and shifts in geopolitical dynamics require capacity development, inclusivity, and foresight based on structural reforms. To conduct such missions, the IMF is very ambitious to promote global economic stability, support sustainable growth, and strengthen financial sector surveillance while assisting countries to achieve and maintain economic stability.
As well, global prosperity has been explored to encompass sustainability in both economic and environmental dimensions. In particular, climate change has profound implications for economic stability, critically involved in many countries. The IMF is deepening its engagement on environmental issues, helping countries incorporate green policies and invest in the financial implications relevant to climate risks. Sooner or later, climate challenges will be a detrimental disaster impairing global prosperity as facing a financial crisis in speed.
The global society is consistently unveiling numerous challenges from climate change to technological disruptions in the political and economic complex. Nonetheless, the IMF surely emphasizes the prospective commitment to its successful adaptability and guides member countries to explore economic stability, creating policies to initiate global prosperity. The IMF’s vigorous vision is on the way to global equality, eradication of poverty and communal development with remarkable achievement as a global agenda.
Therefore, the IMF should effectively conduct the missions for reform within its structure as representing the evolving power dynamics in the global economy. As a result, its vision will come true through a more inclusive decision-making process, reflecting the voices of emerging economies which take financial assistance toward global equality and prosperity. The benefit of overall growth will be shared to eradicate global poverty in the long run.
Author: Sunny Lee – Founder and President at CGPS (Center for Global Peace and Security), and Director at IKUPD (Institute for Korea-U.S. Political Development), Washington DC. Sunny Lee is the author of 115 academic books in politics (original English and in German, French, Russian, Polish, Dutch, Italian, Spanish, and Portuguese). She is a bestseller writer not only in politics but also in literature on Amazon. Her recent book is titled: “The Influence on Humankind’s Peace through Korean Reunification: Creating new paradigm in social science by interdisciplinary research.”
(The opinions expressed in this article are solely those of the author and do not necessarily reflect the views of World Geostrategic Insights).