Global Power and Cooperation: IMF and World Bank

Introduction

The design of international institutions reveals much about their nature, possibilities, and obstacles. This is evident in the creation of the two leading international financial institutions, the World Bank and the International Monetary Fund (IMF), which were created at the Bretton Woods Conference, and their constitutional frameworks have been only slightly amended since then (IMF.org; WorldBank.org). This suggests that their design reflects the global political and economic context of that era. As a result, the fact that the IMF and the World Bank were established in a particular historical equilibrium means that the agreement on their design functioned more like a contract, or even a constitution, with limited consideration for changing geopolitical and economic dynamics. The gap between the current distribution of global power and the structure originally agreed upon for the IMF and the World Bank after the Second World War creates an obstacle to effective and fair international cooperation through these institutions.

Many scholars and practitioners argue that preserving the IMF and the World Bank in their original Bretton Woods form creates a range of problems (Ghosh, 2024). The outdated governance structure, the imbalance of power, the rigid adherence to a neoliberal economic model that benefits wealthier countries, and the persistent Western bias are often cited as reasons for comprehensive structural reform (Ghosh, 2024). To reassess their design, it is important to understand the main theoretical approaches that underpin both institutional structure and international relations. This article will therefore explore several of these approaches in order to better understand international cooperation and institutional design, with a focus on the IMF and the World Bank. It will also address the theoretical and practical challenges involved in reforming these institutions.

Figure 1: IMF headquarters in Washington, D.C. Photograph by Marek Ślusarczyk (2013). Wikimedia Commons.

Why States Cooperate

For centuries, realism has been a dominant paradigm in efforts to understand international relations and cooperation. However, the traditional realist assumption that international relations exist in "a state of relentless security competition" (Mearsheimer, 1994/1995, p. 9) is increasingly regarded as insufficient for a variety of reasons.

The main theoretical counter-argument to realism is presented by the rival rational-functionalist approach, which holds that states are rational actors who recognize the economic benefits of cooperation and participation in international organizations (Keohane, 1984). Furthermore, cooperation among states has become increasingly institutionalized and formalized through international organizations, which offer a practical challenge to the realist perspective (Martin and Simmons, 2012). The very existence of international organizations and the fact that states actively create and deepen cooperation within them fundamentally contradict the core premise of realism.

While it remains true that international relations operate in a condition of anarchy (Mearsheimer, 1994/1995), the existence of institutions such as the IMF and the World Bank highlights the significance of international cooperation in achieving mutually beneficial outcomes. At the same time, although rational functionalism is correct in critiquing realism for failing to acknowledge the rational basis for cooperation, it may understate the complexity of institutional cooperation. Rational functionalism holds that certain global problems exceed the capacity of any single state and thus require collective action. In this view, states—acting as rational entities—cooperate and construct international frameworks to pursue the economic benefits offered by institutional participation (Martin & Simmons, 2012).

Figure 2: Board of Governors, International Monetary Fund. Photograph by IMF (2009). Wikimedia Commons.

This perspective stands in contrast to the realist belief that states are primarily concerned with the balance of power and relative gains (Mearsheimer, 1994/1995). Rational functionalists, by contrast, argue that states are motivated by absolute gains (Keohane, 1984), meaning that states are willing to benefit from cooperation regardless of how much others may gain in comparison. The IMF and the World Bank support this view to some extent, as states have collaborated to create institutions designed to facilitate cooperation and solve shared problems such as economic crises and postwar reconstruction (IMF.org). However, the design and functioning of these institutions also suggest that states remain concerned with relative gains and power projection.

This indicates that a more nuanced and complementary approach is required, one that moves beyond the traditional divide between realism and rational functionalism. Such an approach is essential for understanding the current role of the IMF and the World Bank and for proposing effective future reforms.

The role of power in institutional cooperation

The discussion of the design of international organizations relies heavily on established theoretical foundations in the broader field of international relations. Accordingly, the rational functionalist argument on the design of international organizations builds on the rational functionalist theory of international cooperation. The basic premise is that states engage in international cooperation through organizations to advance their own goals, guided by the logic of absolute gains, and they design institutions accordingly (Koremenos et al., 2001).

Figure 3: The Mount Washington, Bretton Woods, New Hampshire. Postcard by Tichnor Brothers (ca. 1930–1945). Wikimedia Commons.

One implication of this approach is that, although rational functionalism departs from traditional realism, it still relies on the notion of self-interest. States are seen as having incentives to pursue their rational, primarily economic, interests (Koremenos et al., 2001). However, the distinction lies in the fact that rational functionalists view state behavior through the lens of absolute gains. In other words, states design international organizations with the aim of achieving benefits regardless of the power distribution or the gains of other states.

A summary of rational functionalism and its approach to institutional design highlights several important points. First, states are consistently motivated to engage in and deepen international cooperation, driven by rational self-interest (Koremenos et al., 2001), as illustrated by institutions such as the IMF and the World Bank. Second, states are also strategic in shaping the design of these institutions to reflect their own interests. This includes decisions regarding the scope of the organization, its autonomy, voting mechanisms, and other structural features. Although the theory emphasizes absolute gains, power considerations are not entirely absent. Rather, they are secondary to the pursuit of utility and long-term interests. In this way, states balance the advantages of cooperation with the need to protect their positions through institutional design.

While rational functionalism presents strong arguments for why states engage in institutional cooperation, it does not fully capture the complexity of how these institutions are designed and how they function. A more nuanced perspective is offered by modern realism, which blends the rational functionalist emphasis on utility with a realist understanding of power dynamics.

Figure 4: Gold Room, Bretton Woods. Photograph by Barry Livingstone (2014). Wikimedia Commons.

Modern realism provides a useful framework for analyzing international organizations by acknowledging the role of both functional cooperation and power projection (Stone, 2011). Unlike traditional realism, which downplays the value of international institutions, modern realism recognizes their importance by asserting that "international organizations had become an essential instrument of effective statecraft" (Stone, 2011, p. 1).

At the same time, it builds on rational functionalism by asserting that power dynamics are embedded in the very structure of international institutions. States do not enter into cooperation on equal footing, and these inequalities are reflected in the institutional design (Stone, 2011). As a result, more powerful states retain significant means to advance their interests.

According to modern realism, every international organization rests on a combination of formal and informal rules (Stone, 2011). Formal rules are codified in the organization's founding documents and include elements such as voting procedures, decision-making processes, and veto powers. Informal rules, by contrast, consist of unwritten norms and practices that emerge over time. This dual structure allows institutions to function in a way that accommodates both weaker and stronger states.

In practice, the formal design of international organizations is more egalitarian, providing weaker states with recognition and incentives to participate, thereby legitimizing the institution. Meanwhile, powerful states are reassured by informal mechanisms that allow them to influence decisions when their core interests are at stake. The interplay between these two dimensions enables broad participation while maintaining the influence of dominant actors (Stone, 2011). However, the informal and unwritten nature of these mechanisms of influence means that the extent of power projection by stronger states depends on how central a particular issue is to their interests.

In sum, modern realism offers a valuable perspective for understanding how international institutions are created and how powerful actors shape their design. These insights are especially relevant when analyzing the structure and functioning of the IMF and the World Bank.

Figure 5: White and Keynes at Bretton Woods. Photograph by International Monetary Fund (1945). Wikimedia Commons.

The cases of the IMF and the World Bank

The IMF and the World Bank are products of the same geopolitical context and often operate in parallel, as reflected in their similarly structured institutional designs (IMF.org; WorldBank.org).

The Articles of Agreement of the IMF serve as the organization’s de facto constitutional framework. At its core, this framework follows the logic of the rational functionalist theory. This is reflected in the delegation of power and rational institutional design aimed at achieving absolute gains. For example, the Executive Board is granted significant autonomy (IMF Articles of Agreement, Article XII, Section 3), and the IMF and its personnel enjoy a range of legal privileges and operational immunities (Article IX). These features align with rational functionalist assumptions about states designing institutions to achieve collective goals while insulating decision-making from domestic or political interference.

Yet a more detailed examination of these examples reveals critical limitations that are better explained by modern realism. While the Executive Board operates with autonomy, it is appointed by the Board of Governors, whose members are designated by individual states at their own discretion (Article XII, Section 2a). Similarly, the privileges and immunities of the IMF and its personnel are subject to national enforcement, meaning that their practical implementation depends on the willingness of member states (Article IX). These examples suggest that although the formal design reflects functionalist principles, state power remains deeply embedded in how these principles are enacted.

Figure 6:The World Bank Group headquarters. Photograph by Victor Grigas (2012). Wikimedia Commons.

Other aspects of institutional governance more directly illustrate the power asymmetries central to modern realism.. One prominent example is the voting structure of both the IMF and the World Bank, which gives disproportionate influence to economically powerful countries (IMF Articles of Agreement, Article XII, Section 6; IBRD Articles of Agreement, Article V, Section 3). Only about 5.5 percent of voting power is distributed equally among all member states, while the remainder is weighted by financial contributions.

At the time of their founding, the United States agreed to limit its voting share to avoid an outright majority, thus encouraging participation from smaller states (Stone, 2011). This concession is an example of how informal incentives were used to make participation more acceptable. Nevertheless, the United States still holds nearly 20 percent of the votes, and when combined with its European allies, the bloc controls close to 50 percent (IMF.org). This concentration of voting power effectively ensures control over both the Boards of Governors and the Executive Boards of the institutions.

This imbalance poses significant barriers to reform for two reasons. First, the contractual and consensus-based nature of both institutions makes them slow to adapt to global shifts in power, including changes in economic influence. For instance, the combined GDP of the European Union is now smaller than China’s, yet EU member states hold five times more voting power than China (World Bank Open Data; IMF.org). Second, the limited share of equal voting rights restricts meaningful participation by economically weaker regions, such as many African countries. Their collective influence remains marginal despite being among the most affected by global financial decisions.

To address these structural imbalances, structural reform has been widely proposed. One possibility is to significantly increase the equal share of votes allocated to all members. Another approach would be to revise the quota system so that voting power better reflects not only economic size but also geographical representation and global needs.

igure 7: IMF Managing Director Kristalina Georgieva at the 2022 Annual Meetings. Photograph by Grant Ellis for the World Bank (2022). Flickr.

Power asymmetries and resistance to reform are especially pronounced in the informal governance structures of these institutions. Modern realism explains this through two mechanisms. The first is the principal-agent framework, in which states delegate authority to independent agents to improve decision-making efficiency (Stone, 2011). The second is the theory of informal governance, which suggests that powerful states use their influence over supposedly independent agents to steer outcomes when their core interests are at stake.

In the case of the IMF and the World Bank, informal mechanisms of informal influence. are deeply entrenched. The disproportionate voting shares of the United States and Europe allow them to determine the composition of Executive Boards, thus influencing the very agents that are supposed to operate independently. In addition, long-standing informal practices, such as the unwritten rule that the Managing Director of the IMF is always European and the President of the World Bank is always American, further institutionalize their influence (Keating, 2011). These leading figures also hold decisive voting power in the event of a tie, which enhances the ability of powerful states to shape institutional outcomes (IMF Articles of Agreement, Article XII, Section 4).

Together, these formal and informal mechanisms reflect a post-World War II distribution of power that continues to shape decision-making within the IMF and the World Bank. This entrenched imbalance makes the institutions resistant to reform and undermines efforts to make them more inclusive and representative of current global realities.

Conclusion

In sum, the traditional realist assumption that states act solely in the pursuit of relative power is insufficient for understanding the nature of international cooperation and institutional design. Rational functionalism more convincingly explains why states come together to form international organizations like the IMF and the World Bank—namely, to realize mutual economic benefits. However, this theory overlooks the influence of power dynamics embedded within both the formal and informal structures of these institutions. Modern realism offers a more balanced perspective by recognizing that powerful states continue to shape institutional outcomes through voting mechanisms and informal practices, while still engaging in cooperative frameworks. 

Bibliographical references

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Visual references

Cover Image 

John Maynard Keynes and the Safe Harbor of Bretton Woods. Painting by Werner Horvath (2009–2011). University Library of the Medical University of Vienna. Retrieved from https://ub.meduniwien.ac.at/blog/?p=8034

Figure 1

IMF headquarters in Washington, D.C. Photograph by Marek Ślusarczyk (2013). Wikimedia Commons. Retrieved from https://commons.wikimedia.org/wiki/File:11_International_Monetary_Fund_IMF_in_Washington_DC_USA_-_Creative_Commons_CC-BY.jpg

Figure 2

Board of Governors, International Monetary Fund. Photograph by IMF (2009). Wikimedia Commons. Retrieved from https://en.wikipedia.org/wiki/File:Board_of_Governors_International_Monetary_Fund.jpg

Figure 3

The Mount Washington, Bretton Woods, New Hampshire. Postcard by Tichnor Brothers (ca. 1930–1945). Wikimedia Commons. Retrieved from https://commons.wikimedia.org/wiki/File:The_Mount_Washington,_Bretton_Woods,_White_Mountains,_N.H_%2862497%29.jpg

Figure 4

Gold Room, Bretton Woods. Photograph by Barry Livingstone (2014). Wikimedia Commons. Retrieved from https://en.wikipedia.org/wiki/File:Gold_Room_Bretton_Woods_5.jpg

Figure 5

White and Keynes at Bretton Woods. Photograph by International Monetary Fund (1945). Wikimedia Commons. Retrieved from https://en.wikipedia.org/wiki/File:WhiteandKeynes.jpg

Figure 6

The World Bank Group headquarters. Photograph by Victor Grigas (2012). Wikimedia Commons. Retrieved from https://commons.wikimedia.org/wiki/File:The_World_Bank_Group.jpg

Figure 7

IMF Managing Director Kristalina Georgieva at the 2022 Annual Meetings. Photograph by Grant Ellis for the World Bank (2022). Flickr. Retrieved from https://www.flickr.com/photos/worldbank/52427940258