Africa decries hypocrisy of rich countries, as global economic paradigm-shift beckons.

Wealthy nations advocate for robust industrial policies domestically, while giving outdated policy recommendations to the Global South

Rich countries worldwide have by enlarge adopted economic policies towards supporting and subsidizing domestic industries, yet they are pushing the international financial institutions such as the IMF to impose an outdated prescription of the “Washington Consensus” towards developing economies in Africa. Recent conversations among various debt distressed developing countries highlights this dissonance.

A majority of developing countries are currently debt distressed and the G20 common framework is failing them in a big way. This in turn is reversing years, if not decades of developmental gains made by the global south. It is also leading many to lose trust in global institutions such as the IMF and World Bank.

Speaking to the Guardian News, World Bank Chief Economist, Indermit Gill expressed skepticism about the global economy’s trajectory, particularly for low-income countries facing substantial debt burdens. He emphasized the detrimental impact of debt payments on essential sectors like healthcare and education, calling for sustainable solutions to alleviate financial strain.

Due to rising debt burdens, advocating austerity, and unbridled capitalism policies for developing nations is losing favor, particularly among developing countries. As a result, many now perceive traditional Western-led economic strategies as hypocritical.

During latest spring meetings in Washington, unbeknownst to the public, IMF & World Bank came under siege as leaders from the global south decried the hypocrisy of rich-country creditors demanding austerity from borrowers while running up huge debt loads and deficit financing themselves. Meanwhile, in Brussels, former European Central Bank president Mario Draghi advocated for an EU-wide industrial policy. This stands in stark contrast to EU policy recommendations given to countries in Africa for example.

In the United States, the Biden administration proposed tripling tariffs on China and addressing labor unions’ concerns regarding shipbuilding trade relief to counter Chinese state support, according to a recent report by the Financial Times. However, cross-border business continued as usual, with German Chancellor Olaf Scholz leading industrial leaders on a trip to Beijing for joint ventures, and US Commerce Secretary Gina Raimondo facilitating a $1.5 billion artificial intelligence investment in the United Arab Emirates by Microsoft.

Washington is increasingly adopting similar industrial policies it has criticized China for. It is also employing sovereign wealth to support American corporations like Intel, Microsoft, and Boeing, encouraging local production and global expansion. Additionally, the US is implementing stringent import restrictions, formalizing a “Buy American” policy. Ironically, these are all policies the West has discouraged poor countries from taking.

The disconnect between these economic policies and market realities underscores the ongoing struggle between long-term development goals and short-term profit maximization. While Draghi highlighted the detrimental effects of post-2008 austerity measures on domestic demand, prompting the EU’s pursuit of a new capital markets union, in Africa the same European institutions are pushing mostly the opposite.

In the US, there appears to be growing recognition of this. The inadequacy of free trade market proposals in addressing key issues such as climate change and infrastructure development is becoming clear, particularly in developing countries. The White House can no longer ignore concerns raised by the global south. Recently, Daleep Singh, the US deputy national security adviser for international economics, urged for increased utilization of America’s sovereign loan guarantee authority to help restructure loans provided to developing countries.

At an Oxfam panel, Adriana Abdenur highlighted the contradiction between rich countries advocating for industrial policy while imposing outdated prescriptions for developing nations. This is exactly what renowned South Korean economist Ha Joon Chang warned against in his best-selling book, Bad Samaritans, The Myth of Free Trade, and the Secret History of Capitalism.

The US is beginning to acknowledge this mismatch, with Deputy National Security Adviser Daleep Singh proposing initiatives to lower interest rates on developing countries and boost investment domestically. But more is needed from developed countries to help poor societies.

We are now at a pivotal moment in global economic policymaking, with no single country possessing all the answers, but still, stakeholders including the IMF and World Bank cling to outdated modes of thinking, risking further global economic disruption. As the world transitions to a new economic paradigm, the path forward remains uncertain but what is clear is that business as usual is not working anymore, and a serious shift in outlook is needed.