There is only one star at this year’s Washington financial gatherings. As much as Rachel Reeves likes to make a splash, it is the US Treasury Secretary Scott Bessent.
His appearance before bankers at the Willard Hotel, which hosted an 1861 peace congress to try to avert a war between states, needed a video feed as it was so oversubscribed.
The big hope among those gathered here is that Bessent is for real and is able to moderate the social media flow from his boss President Trump.
In the last 72 hours he is credited with calling a pause to the campaign against Jay Powell at the Federal Reserve.
Just hours after Trump had labelled him a ‘loser’ and called on Powell to step down, the President was back on social media saying he had no intention of sacking the Fed chair. The markets had tanked and Bessent helped to engineer change.
He also has offered an olive branch to China of sensible trade negotiations not conducted under the threat of ever more hostile trade barriers.
Calming influence: US Treasury Secretary Scott Bessent’s appearance before bankers at the Willard Hotel needed a video feed as it was so oversubscribed
At the International Monetary Fund (IMF) and the World Bank, there is relief that Bessent has decided to work on reform rather than tear them down, as proposed by the Right-wing Heritage Foundation in its Project 2025 blueprint for ‘Trump Two’.
Bessent and the US, the founding and controlling shareholder in both the Fund and World Bank, are demanding real change.
Visitors to Washington might be puzzled at why these two institutions occupy so much space in the heart of the city adjacent to the White House.
Bessent must have been reading too many Chancellor Reeves speeches with his reference to ‘restoring the foundations’ of the Fund and the Bank.
That is code for paring back the IMF mission to something closer to what its founders envisaged at Bretton Woods.
He wants a close focus on surveillance, making sure country policies are effectively policed, and resolving balance of payments imbalances.
In the mid to late 20th century resolving trade deficits, of the kind the US has with China, was a critical mission. In recent times the IMF broadened its horizons, focusing on fashionable issues such as climate change, gender and social reforms.
Anyone who has read an IMF Article 4 report on the annual inspection by fund officials of member countries will be aware of mission creep beyond the macro to social policy.
In the UK, for example, it has been an advocate of charging for health services. That may be sensible but it is an appropriation of a wider agenda which thrusts it into politics.
No one in the UK will forget how Christine Lagarde, now president of the European Central Bank, thought it her duty as managing director of the IMF to interject herself into the Brexit debate.
Taking some lessons from Elon Musk’s Department of Government Efficiency, Bessent wants a clampdown on remuneration and staffing. Managing director Kristalina Georgieva’s weak defence is to insist Fund budgets have remained frozen for several years.
The World Bank faces different issues. Before leaving office, the Biden administration backed new funding for the International Development Association (IDA), the arm of the Bank which provides grants to the poorest countries.
The US pledged $4billion (£3billion), but there are doubts as to whether it will be paid in full, or at all.
Behind closed doors the World Bank is becoming a proxy battleground for the struggle between the US and China.
The Americans see no justification for China’s receipt of $1billion (£752,000) of loans from the Bank, down from $2.5bn (£1.9billion).
If the US were to remove funding for IDA, where it is the biggest shareholder, it would open up a path for Beijing to be ever more dominant, both as a borrower and funder. Bessent and Trumpers insist the Bank use its ‘triple AAA’ credit rating to maximise market funding.
Reform rather than demolition of the Bretton Woods institutions is what is on offer from their most influential funder.
The grandees running the show, Kristalina Georgieva at the Fund and Ajay Banga at the Bank, are being forced to ingest some nasty medicine.
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