Times have changed. A communist country is now a top creditor of the largest economy on this planet. Alas, neither the IMF nor the World Bank has evolved with the times, choosing instead to defend their sprawling bureaucratic maze. It is time to reform both organizations, perhaps along with the United Nations and its own sprawling structure. It might be prudent to merge both organisation into the World Trade Organization and remove the old-fashioned vetoes, appointment privileges and assortments of other perky pre-emptions enjoyed by European and American that run this cozy club.

The World Bank group set out to serve as a development bank after the war. The original vision was narrow and the first loan to France was for post-war reconstruction. It grew to be several large organisations operating at a crawl in an isolated fictional world, removed from the issues on the ground in developing countries. One of its subsidiaries, the International Finance Corporation, is essentially a venture capital firm on par with Wall Street. The Bank's bureaucratic machine has a small lending base of less than $30 billion a year – about $6 per person outside the industrially advanced OECD. The Grameen Bank of Bangladesh and its microcredit scheme is proving to be a successful competitor to the world’s premier development bank. Breaking up the Word Bank and merging its parts into regional development banks could redirect resources to more practical applications.

The IMF has beached itself with different pastimes. Stable markets and exchange rates balance electronic trading and convergence of management principles. The EU has unified diverse financial disciplines and the arbitrage of “hot money” market players has gone away. Special Drawing Rights are relics of the past as world trade is denominated in a handful of currencies.

Having little to do, the IMF tried to expand itself and nurse developing markets in the 1990s. It embarked on preaching economic experiments in the name of reform in a trial-and-error laboratory for economic policies: rapid devaluation of currencies, crawling peg exchange rates, parity schemes with U.S. Dollars, wholesale tax increases, and shortsighted expectations from privatisation at fire sale prices. In practice, however, the IMF proved to be the angel of rescue for all reckless lenders to least qualified borrowing countries. As a result, many countries are stuck in the “emerging” mode and none has emerged from their mountains of debt.

The structure and relevance of the IMF might potentially test itself in two financial Katrina storms. Either one could test the old firewall between the capitalist and the socialist economies that formulates thinking within IMF. The first one is America’s fast growing debt in private, corporate and public sectors. These debt volumes exceed the IMF’s professed standard of debt-to-GDP ratios; a massive refinancing scheme might be necessary. The IMF will probably prescribe a national sales tax to patch it all up.

The other issue is the rise in bad loans and lax internal credit controls in China. Sustainable growth in China without continuous consumer demand from America is uncharted territory and mere exuberance.

Each of these will likely become massive headaches for the rest of the world. Moreover, they will prove to be a modern test of the old fashion doctrines still nursed by the children of the Bretton Woods system: Can we isolate and fence in the capitalist camp from the impact of other economies, in our ever-shrinking world?