The IMF’s number two official, Dan Katz, made headlines in April 2024 with a scathing speech about institutions like the IMF and the World Bank, which he claimed should be reserved for Western countries. China was explicitly singled out as having no right to participate in the work of these two organizations. This is a form of casus belli that has strengthened China’s resolve to develop its own institutional framework. The BRICS summit and the Shanghai meeting at the end of August are trial balloons.
This issue is not trivial. Institutions have contributed to reducing imbalances, playing a significant role, particularly during the Great Recession of 2008/2009. The IMF and the newly created G20 facilitated discussions on solutions to address the biggest crisis since the Great Depression of the 1930s. This concerted action ultimately proved effective. It is also worth noting that Washington no longer considers the G20 an important institution, as evidenced by the complete boycott of the last meeting in Pretoria, South Africa, on November 22nd and 23rd.
Institutions are defined by a set of rules that govern the relationships between their various members. By facilitating economic exchanges and the flow of information, they stimulate activity and growth. This is why this challenge by the White House is so worrying.
However, this separation trend is set to intensify.
The latest UNCTAD (UN Conference on Trade and Development) report, published in early December, shows a rebalancing of trade between the South and the North, to use the report’s somewhat outdated terminology.
A gradual rebalancing of trade in goods is underway, with South-South trade now representing 25.7% of transactions, compared to 10% ten years earlier. Trade in services is also growing rapidly, accounting for 30% of all services transactions.
The key point is the growing importance of Foreign Direct Investment (FDI) in the global dynamic. South-South FDI (from one Southern country to another) averaged 9% between 2000 and 2004. It is projected to represent 32% of global FDI between 2020 and 2023. By comparison, North-North FDI stands at 36% (69% in 2000-2004), and North-South FDI represents 26% (14% in 2000-2004). This means that 58% of FDI flows are destined for the Global South. This inevitably changes the way we think about the evolution of growth and future markets.
China, in particular, and India play a major role in all of these figures. However, this validates a rapidly evolving global architecture that no longer leaves a monopoly to the countries of the Global North.
This legitimizes the idea of institutions led by the Global South, but at the risk of hindering overall growth through a confusion of rules. The world is diverging.
