Who Should Help Ukraine? Not the IMF

This week's spring meetings of the World Bank and the International Monetary Fund are being held amid grumbles from the Global South that are calling into question the postwar global financial architecture. That's a problem for the West. Efforts to help Ukraine are making it worse.

Right now, the pandemic and inflation exacerbated by Russia's invasion have driven a record number of developing nations to the brink of sovereign debt crises. Helping them should be the core task of the IMF and the World Bank.

Yet even the Bank's outgoing chief David Malpass agrees "the debt restructuring process is not moving much, and there hasn't been enough discussion yet on ways to take action toward debt sustainability." The slow pace — when added to larger questions about whether these institutions are diluting their mission by focusing on climate issues — has led many countries to wonder if multilateral lenders have lost sight of their needs.

It's impossible to overstate how important the IMF and the World Bank are to confidence in the postwar liberal order and the idea that it should work for everyone, even the poorest and most indebted. The institutions' struggles threaten a " fundamental breakdown of the nearly 80-year-old covenant" between rich countries and poorer ones, as Barbadian Prime Minister Mia Amor Mottley and Rockefeller Foundation President Rajiv J. Shah recently wrote.

Worse, this comes just as many developing countries are being chastised in the West for being insufficiently critical of Russia. Their response has sometimes been prickly: The Indian foreign minister made headlines last year when he said that "Europe has to grow out of the mindset that its problems are the world's problems but the world's problems are not Europe's problems."

Much of this huffing is overdone. Nobody can fault the Europeans or the Americans for seeking broader condemnation of Russia's brutal and unprovoked invasion. Nor would anyone question how many of their own resources Western nations choose to pour into helping Ukraine defend itself.

But when global institutions break their rules in support of this effort, their actions deserve more scrutiny. Most notably, the IMF's board last month decided to allow lending to countries facing "situations of exceptionally high uncertainty."

In all its eight decades, the IMF had carefully avoided lending to countries embroiled in conflict. This was underlined as recently as two years ago, when money promised to Ethiopia failed to arrive after the northern part of the country exploded into civil war.

Somehow, though, just four days after the board's decision, the IMF exploited these new funding rules to lend $15.6 billion to Ukraine, which is already the Fund's third-largest borrower, a crown it has held for well over a decade.

To the West, this may look like a praiseworthy example of an established institution moving nimbly to deal with an urgent new threat. To the rest of the world, it looks like blatant favoritism  — and worse, using our money as well as the West's, given all we pay into the IMF.

Asia and Africa have been irked by apparent biases at the IMF since the European-run institution deployed vast funds to help European nations during the eurozone crisis. The Fund's own report at the time warned that the aid "had created the perception that European member countries had excessive weight in the IMF's decisions relative to their economic power and that the IMF's programs in the European Union had more lenient conditions than those in Asia."

The impression of bias, the report continued, was undercutting the organization's mission: "Almost half of [the IMF's country] mission chiefs considered that perceptions of lack of even-handedness had adversely affected their work with emerging-market economies."

It's hard to argue from South Asia against the notion that the IMF's conditions are more stringent in Asia than in Europe. Three countries here are receiving or are trying to get help from the IMF: Bangladesh, Pakistan, and Sri Lanka. All are going to have to go through painful restructuring just to access a few billion dollars in lending. How do you think they feel when they see the Fund's third-largest borrower receive far more aid, even though it can't possibly meet similar conditions?

When Greece needed help a decade ago, the IMF paid instead of Germany and France. That was a mistake. Today, Ukraine needs and deserves help. The country shouldn't have to surrender its sovereignty for lack of money.

But its friends in the West can afford to keep Ukraine solvent. They should help directly and transparently, instead of subverting global institutions.

That would be better in the long run for Ukraine than adding to its already huge debt burden. And if the price seems steep to Western governments, they should remember the costs of breaking an 80-year covenant will be far, far higher.

Mihir Sharma is a Bloomberg Opinion columnist. A senior fellow at the Observer Research Foundation in New Delhi, he is the author of "Restart: The Last Chance for the Indian Economy."

Disclaimer: This article first appeared on Bloomberg, and is published by a special syndication arrangement.