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Quest Means Business
Russia's Energy Pledge; Yellen on Ukraine Crisis; Fed's New Forecasts; Dow Down; Analyzing the Fed; MH370 Search Narrows; Looking After the Families; Dreamliner Safe; Toyota's $1.2 Billion Fine
Aired March 19, 2014 - 17:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(NEW YORK STOCK EXCHANGE CLOSING BELL)
RICHARD QUEST, HOST: The market may be down, but let me tell you a little bit about the Chicago Bridge Company over here. Founded in 1889, they're very big in the oil business, and they supply things. Well, they're very big, 189. It's Wednesday, it's the 19th of March.
Tonight, no plans for retaliatory sanctions. No plans to cut off the gas. We speak to Russia's economic development minister on the program.
Also tonight, time to taper. The Fed scales back stimulus further and loses forward guidance.
And a record fine for Toyota, a punishment for fraud and deception.
I'm Richard Quest in the middle of the week, and I still mean business.
Good evening. We have a very busy hour ahead together, including the latest on Malaysia Airlines Flight 370. First, though, you will hear from policymakers in three of the world's most important economies.
In Russia, we'll tell you from the economy minister that Moscow is still open for business with Europe and America despite the sanctions. In an exclusive interview with our emerging markets editor John Defterios, he says Russia will honor its energy obligations to the rest of the world.
Also, in the United States, the new Fed chairwoman Janet Yellen says she's closely monitoring the situation in Crimea. The Fed cuts growth forecasts and keeps trimming its stimulus package.
And in London, the chancellor of the exchequer, the finance minister, George Osbourne, unveils his budget and proclaims Britain is growing faster than any other advanced economy. So, as you can see, tonight's program very much in the realm of international economics.
We begin, though, in Moscow. Even in the face of sanctions from Europe and the United States, Russia says it will fulfill all obligations by supplying the West with gas. The promise was made in an exclusive interview with Moscow's minister for economic development.
Alexey Ulyukaev told CNN's emerging markets editor John Defterios Russia still represents an investment opportunity, but he admitted he doesn't know how much the country's losing because of the Ukraine crisis.
(BEGIN VIDEOTAPE)
ALEXEY ULYUKAEV, RUSSIAN MINISTER OF ECONOMIC DEVELOPMENT: Unfortunately, up to now, we have no information with March, but truly during January, February it was $35 billion as capital outflow.
Outflow and flight is different things, because outflow, paying debt and investment abroad, buying assets abroad is also capital outflow, but it's not capital flight. By the way, in the period 2014, the foreign direct investments was growing anyway. So, we'd hope that this year we have more or less the same tendency.
But it's not the problem of global tension. Of course there's some part of the capital outflow is very much concerned the stock market. And in case of the stock market, the political environment is very important for investors, but it concerns only stock market, not the direct foreign investments, which are most of all concentrated on.
JOHN DEFTERIOS, CNN EMERGING MARKETS EDITOR: What is your plan if the sanctions by the European Union and the United States are intensified? Are you working out a response economically against Europe and the United States? Do you just move east looking for growth?
ULYUKAEV: I think we hadn't seeking for symmetrical reaction. So the proposition of our American and European colleagues is up to them, but we will be concentrated in our investment policy, creating more attractive environment, creating better possibilities for investors, explain them the possibilities. But not keeping in mind some measures of economic policy against our partners.
DEFTERIOS: Is there still an option here for Russia to retaliate by perhaps shutting off gas supplies to the Ukraine and Europe if the sanctions from Europe are, in fact, intensified.
ULYUKAEV: As far as I understand, there is no discussion or plans about that in Russia. So, we are going to fulfill all our obligations for our partners in Europe as well as in other regions of the world. But unfortunately, we cannot control all the transport -- gas transportation system, especially the part of that system which is in Ukraine.
DEFTERIOS: Vice President Joe Biden said that Russia is heading down a "dark path to isolation," both politically and economically. Do you think that is the case after what we've seen in Crimea and the position that President Putin has taken?
ULYUKAEV: I think that in the future, we will be in contact with our partners and we will explain once and once again the situation, the rights of the population of Crimea and others. But also, as I said before, the very important thing is direct contact with the businesses, with the companies in Europe and America and other parts of the world, explaining the possibilities of profitable investments.
(END VIDEOTAPE)
QUEST: That's Moscow's minister for economic development in an exclusive interview with John Defterios, setting out the position as seen from Russia.
Obviously, the rest of the world is extremely concerned by what may be happening there and its longterm economic implications. The chair of the Federal Reserve, Janet Yellen, spoke about the risks emerging from the Ukraine crisis a short time ago.
(BEGIN VIDEO CLIP)
JANET YELLEN, CHAIRWOMAN, US FEDERAL RESERVE: Obviously, there are geopolitical risks here that it's very important for us to be attentive to and to keep our eye on. And we're not seeing broader global financial repercussions, but if this were to escalate, that would certainly be something that would be on our radar screen. But we're not seeing that now and we're monitoring it closely.
(END VIDEO CLIP)
QUEST: We're not seeing it now and monitoring it closely. It was the first meeting for Janet Yellen as head of the Fed, and she delivered surprises in varying degrees. The top line, as expected: tapering continues. Another $10 billion goes off the Fed's bond purchases.
However, she moved the goalposts when it comes to raising interest rates. The bank is ditching the figure of 6.5 percent unemployment. That was the guideline previously indicated, not so much as a trigger point, but as the moment when the Fed would look at raising the rate from zero bound.
And the Fed shaved its GDP guidance just a tad, bringing the top of its forecast range for 2014 down from 3.2 to 3 percent. It stayed the same at the lower end, it just lowered at the top end.
The Fed says bad weather slowed the economy in the winter when growth numbers came in lower than expected and the chairwoman explained why these changes to forward guidance had to be made.
(BEGIN VIDEO CLIP)
YELLEN: The committee's actions today reflect its assessment that progress in the labor market is continuing, but that much remains to be done on both the jobs and inflation fronts. Unemployment is still elevated, underemployment and longterm unemployment remain significant concerns, and inflation is running significantly below the FOMC's objective.
(END VIDEO CLIP)
QUEST: Looking at the markets --
(RINGS BELL)
QUEST: They seemed unimpressed with what the Fed had to say. The Dow was off 114 points. And you can almost follow the time: 2:00, there's the statement. They teetered around zero change, and then all of a sudden, they fell out of bed. Well, maybe not out of bed, but they certainly had a few restless moments.
Randall Kroszner, the former governor of the Fed system, he's in Chicago. Randall, sir, look, let's -- we don't -- we're not going to talk about tapering. That went exactly as we would expect. But the decision to drop forward guidance and come up with this potpourri of qualitative stuff, what do you make of it?
RANDALL KROSZNER, FORMER GOVERNOR, FEDERAL RESERVE SYSTEM: So, I think it makes sense to move away from the 6.5 percent, because we've basically hit it, and they don't want to say that we're going to be starting to raise rates anytime soon. So, they needed to change that.
They could do one of two things. They could either keep moving the goalposts using the unemployment target or unemployment rate and say 6 or 5.5. I think that would start to lose credibility. I think it's better that they move to these more qualitative measures, looking broadly at the labor market indicators, like longterm unemployment, like the part-time employed who really want full-time work.
QUEST: But they are the things that they would have looked at normally pre-forward guidance and pre-Great Recession, isn't it? They are exactly the things you look at if you're going to see whether you've met your dual mandate of price stability and full employment.
KROSZNER: Well, for sure they were looking at those before, but remember in the statement, they were trying to have a simple number to look at, like the unemployment rate.
QUEST: Right.
KROSZNER: But the unemployment rate fell much more rapidly than they had expected, and unfortunately, not for the right reasons. It's because fewer people are working and wanting to work in the US, since the unemployment rate's falling for those reasons.
So, they wanted to move away from emphasizing that because they wanted -- they basically said conditions have changed, the unemployment rate's fallen, although the labor market's really not looking that good, and we don't want to use an indicator that would give you a false sense of us moving sooner than we really want to move.
QUEST: The other things from the statement and from today's meeting that you found particularly interesting?
KROSZNER: Well, I think from the -- in terms of the press conference, when asked what "a considerable period" meant, because the statement says that they will wait "a considerable period" from when they stop the additional asset purchases until they raise rates, the chair gave --
QUEST: Right.
KROSZNER: -- a little bit more color than had been expected, said roughly six months, on the order of six months. And that, I think, surprised market participants a little bit because --
QUEST: Right, right --
KROSZNER: -- that would mean perhaps early next year.
QUEST: Right, but that follows, if you look at the little dots on the diagram on the -- we got from the --
KROSZNER: That's right.
QUEST: There's a technical name for this chart, and I can't remember what it is, but I'm sure you'll remind me.
KROSZNER: Connect the dots.
(LAUGHTER)
QUEST: Well done. But anyway, these dots show when the FOMC believe rates will hit 1 percent or at least rise. And although most are still --
KROSZNER: Right.
QUEST: -- in the same area, it's the next chart -- there's only one chart on that one, but it's the next one with the little dots, and what it basically shows then --
KROSZNER: Moved up a little.
QUEST: -- it moved up a little. Well, it moved up quite a lot. There's quite a lot more who believe rates will hit 1 percent by the end of next year.
KROSZNER: Yes, and so I think that suggested to the markets that maybe the tightening is coming a little bit sooner than had been expected, and I think that's why you saw the change in the ten-year interest rate immediately upon the --
QUEST: Right.
KROSZNER: -- the statement coming out. And then, it's continued to move up a little bit more as the chair gave a little bit more color and said, well, you know, it might be sooner that we start this, not just at the end of 2015, but perhaps in first or second quarter of 2015.
QUEST: A final quick one, Randall. What's your -- when do rates for you, when do rates go up? Come on, nail your colors to the mast.
KROSZNER: So, I think the most likely time that we see the first movement up would be the second quarter of next year.
QUEST: Two-Q of 15. Randall, good to see you. Thank you, sir, for joining us. I appreciate it, from Chicago.
Now, after the break, this is really absolutely heartbreaking. They've waited so long for news, they've been given so little. So, it's not surprising --
(BEGIN VIDEO CLIP)
(WOMAN CRYING)
(END VIDEO CILP)
QUEST: Under the glare of the world's media, patience finally snaps amongst the passengers' loved ones. This is QUEST MEANS BUSINESS.
(BEGIN VIDEO CLIP)
(PEOPLE SHOUTING)
(END VIDEO CLIP)
(COMMERCIAL BREAK)
QUEST: The search area is finally narrowing for Malaysia Airlines 370. Australian search teams are now focusing on the southern Indian Ocean based on new information about how far the plane could have flown.
Allow me to update you with the other developments. It's now believed that some data had been erased from a flight simulator that was at the home of the captain of the missing plane. That's according to Malaysia's transport minister. The data may have been wiped or erased in the early part of February.
Law enforcement official says that on the night of the disappearance, the westerly change in course was almost certainly programmed into the flight deck computer at least 12 minutes before radio contact was made with air traffic controllers. That was pretty much denied at the morning news conference in Kuala Lumpur, but there's some confusion over exactly what that denial was about.
Relatives of the passengers on Wednesday staged a protest at the hotel used by journalists out of frustration at a lack of information. Now, CNN's Kyung Lah was there and witnessed some disturbing scenes.
(BEGIN VIDEOTAPE)
(WOMAN SHOUTING IN CHINESE)
KYUNG LAH, CNN INTERNATIONAL CORRESPONDENT (voice-over): One woman's desperate protest. She wails, "My son, Li Li, was on the plane!" As cameras rolled, police and the Malaysian military move in.
(WOMAN CRYING)
LAH: Through a crush of reporters, police forcibly carry her away from the cameras to another room. We were all here for the government's daily news conference.
(WOMAN SHOUTING IN CHINESE)
LAH: Two other Chinese women hold up a protest sign, crying out to the cameras. "We need the truth," she says, "and want the international media to help get information from the Malaysian government." But police move in again.
LAH (on camera): What are you doing? What are you doing?
LAH (voice-over): Pushing us, forcing us out of the way.
LAH (on camera): Back off! Back off!
LAH (voice-over): I'm yelling because we're getting crushed. Police also carried those women away.
LAH (on camera): That's just one sense of the frustration that's mounting here, not just in Malaysia, but also in Beijing. Families extremely distraught. They just don't know what happened to their family members.
UNIDENTIFIED FEMALE: Excuse me, you were in the room with them. What happened, sir? What happened?
LAH (voice-over): Back inside the conference room, the government started its news briefing on time, referring to the women's protests only briefly.
HISHAMUDDIN HUSSEIN, ACTING MALAYSIAN TRANSPORT MINISTER: I fully understand what they are going through. Emotions are high.
LAH: Back outside in the hallway, the door opens and closes for the police and officials.
LAH (on camera): But where did you take the family?
LAH (voice-over): Ignoring our questions until finally --
(CROWD SHOUTING)
LAH: Once again, blocked by police, officials refusing to talk to us.
UNIDENTIFIED MALE: No comment.
(CROWD SHOUTING)
LAH: Li Li's mother was taken away from the building by police. We don't know where, but could see that she was still sobbing.
Kyung Lah, CNN, Kuala Lumpur, Malaysia.
(END VIDEOTAPE)
QUEST: Atika Shubert joins me in Kuala Lumpur. Atika -- there's no easy outcomes here, are there? The police clearly had to deal with a situation that was threatening to become dangerous for all concerned. At the same time, this woman's grief is palpable. Help me make sense of it.
ATIKA SHUBERT, CNN INTERNATIONAL CORRESPONDENT: I think, unfortunately, what it just shows is that the level of frustration and anger has now reached a point that, in some cases, like yesterday, the Malaysian authorities simply can't control it.
They came to make to make a statement at the press briefing. When they unfurled the banner and began speaking, more press came into the room, and it became an absolute scrum. And the more people came, the more emotion there was, the more angry they got.
And so they had to -- security felt they had to come in, extract the woman. But in the end, they were literally dragged out. And the sort of heart-rending scream that you could hear was just -- it was just -- you could hear the anguish and despair.
Now, they did -- Malaysian officials tried to address the situation by saying that they were sending a high-level delegation to Beijing, including a senior 777 pilot, a member of the -- a high-ranking member of the Malaysian air force.
But for many families, that's not enough. It's not enough just to send a delegation there. They want to know exactly what happened. They want information --
QUEST: Right.
SHUBERT: -- that's consistent, that's confirmed, and right now, that's not what they're getting. They're getting a very inconsistent narrative.
QUEST: Bearing in mind that's the same narrative that we are getting and that we are listening to from the Malaysian authorities, what this really comes down to, Atika, is a -- lack of trust and a belief in what the Malaysians are saying and a feeling that they are hiding something.
SHUBERT: That's exactly it. And family members that I've spoken to say they feel like they're not being told the truth, that they're being lied to, that there are political and diplomatic reasons why information is not being shared.
And unfortunately, what they're seeing unfold in these press briefings is conflicting information, where one day the timeline is like this, the next day it changes. One day it seems as though the plane could be, for example, landed on the ground.
This was what happened when they said that they were getting satellite handshakes and it was possible to still get a handshake if the plane was on the ground. So this raised the hopes of so many relatives.
But then, the next day, they're told they're focusing their search efforts in the Indian Ocean, which would of course mean it most likely crashed into the sea. So, it's this roller coaster of emotions --
QUEST: Right.
SHUBERT: -- that's really affecting the families. And at this point, they say they just want some sort of closure.
QUEST: Atika Shubert, it's quarter past 5:00 in the morning, if I'm not mistaken, where you are. Thank you for joining us in Kuala Lumpur. They'll obviously have been on the news conference on Thursday morning, and we'll bring it to you, the details, when it happens.
One other aviation note to bring to your attention tonight. In the United States, the Federal Aviation Authority, the FAA, says it has concluded Boeing's newest jet, the 787 Dreamliner is safe. The review lasted more than a year. The FAA says the aircraft meets its intended level of safety.
A team was formed to review the system's lithium batteries, which caught fire aboard a parked Japan Airlines jet, and there were many other incidents. The cause of the battery problems remains unclear.
When we come back, and this isn't aircraft in trouble, this time it's motor vehicles, motorcars. Toyota accepts it's misled the American public and members of Congress over safety defects in its cars, and now it's being made to pay the price. QUEST MEANS BUSINES.
(COMMERCIAL BREAK)
QUEST: The Toyota Motor Company has agreed to pay the largest-ever fine imposed on an automaker. The sum involved is $1.2 billion. The US Justice Department says the Japanese company admitted committing a fraud on the American public, concealing information about safety problems in cars and misleading consumers about what it knew.
The defects caused some cars to accelerate unexpectedly, and that was blamed for a number of fatal accidents. The US attorney general said Toyota violated the trust of its customers.
(BEGIN VIDEO CLIP)
ERIC HOLDER, US ATTORNEY GENERAL: Toyota's conduct was shameful. It showed a blatant disregard for systems and laws designed to look after the safety of consumers. By the company's own admissions, it protected its brand ahead of its own customers. This constitutes a clear and reprehensible abuse of the public trust.
(END VIDEO CLIP)
QUEST: Calls for Toyota do something about the problem go all the way back to 2007. They grew louder in 2009 when a family of four was killed after the accelerator was stuck, caught under the floor mat of their Lexus.
In November of that year, Toyota recalled 4 million cars for a fix. The company now admits it provided misleading information over the issue. And in February 2010, the US government announced its first investigation into steering wheel issues -- or steering issues with the Toyota Corolla.
By then, the company had recalled more than 8 million vehicles. And you'll remember, of course, on this program, we talked about the issues many times. Let's bring in CNN justice reporter Evan Perez for more. He's with us live from Washington.
Evan, at one point, to me, it's an extraordinarily large amount of money. The attorney general calls their actions "reprehensible," but all right. Beside punishment, what purpose does such a large fine serve to a company that's already said they've changed what they're doing?
EVAN PEREZ, CNN JUSTICE REPORTER: Well, Richard, one of the things that the Justice Department was trying to do was to set a lesson for other companies that have safety recalls.
The problem is that under US law, there's very limited actions that the regulators can take against these companies. And so a lot of times, these companies just drag their feet and just refuse to do recalls simply because they don't want to damage their brand.
And so the message that the Justice Department is trying to send here, according to their statements today, is that it's a warning to other companies that if you've got complaints, if you've got regulators who are telling you you have issues, then you've got to deal with it, and you've got to deal with it quickly.
The Justice Department charged Toyota today with wire fraud, and basically the company has to agree to three years of internal -- of a monitor to come in and basically just oversee the company to make sure that's fixed what it says --
QUEST: Right.
PEREZ: -- it's fixed, and not do this again.
QUEST: Good old wire fraud. It's the one they go for, isn't it?
PEREZ: Yes.
QUEST: Whenever you're not sure what to prosecute a white-collar criminal with, you always go for wire fraud, don't you?
PEREZ: Well, yes. And this is part of an agreement. And keep in mind, according to the Justice Department and the findings that Toyota itself has agreed to --
QUEST: Right.
PEREZ: -- they misled the Congress, they misled the public, they misled regulators for several years. Even after that Lexus incident that you pointed out --
QUEST: Right.
PEREZ: -- they kept lying and saying that nothing was wrong. And so, this -- according to what people that I've talked to today, this could have gotten a lot worse. There were e-mails between employees saying if we don't stop lying, someone's going to go to jail.
QUEST: Right.
PEREZ: And so, no one's going to jail on this, and so they're pretty lucky.
QUEST: So, pull the strands together for me, briefly. In the same week, we've heard Mary Barra do a mea culpa on GM --
PEREZ: Right.
QUEST: -- and safety issues. Now we have Toyota paying a large fine. There's a moral here to the auto industry, isn't there?
PEREZ: Well, there is. The GM case potentially is even bigger, and I think GM looked at what is happening with Toyota and realized that they are facing, perhaps, the same problem, because the Justice Department is now investigating.
And they're saying, from what we were told, that GM has mishandled this recall, was not paying attention when people made these complaints. And so, GM is probably trying to figure out how to avoid the same fate that Toyota has met today.
QUEST: Evan, good to see you. Thank you for a concise explanation on this difficult and important story. Evan Perez joining us from Washington.
After the break, the British government says its new budget is one for makers, doers, and savers. So, are you a maker, a doer, or a saver? Well, after years of austerity, growth is coming back and still the belt- tightening isn't over. We'll talk about that after the break. This is QUEST MEANS BUSINESS.
(RINGS BELL)
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest. There is more "Quest Means Business" in just a moment. This is CNN, and on this network the news always comes first. Australia says it's zeroing in on the southern part of the Indian Ocean as the search for Malaysia Airlines flight 370 continues that's based on work down by U.S. investigators, estimating how far the jet could have flow on its fuel reserves.
Ukraine's acting president issued an ultimatum after pro-Russian forces seized a naval headquarters in Crimea and detained the commander. Aleksandr Turchinov said if all hostages were released and all provocations halted, authorities in Kiev would take action of a tactical nature. The deadline passed two and a half hours ago. The director of Ukraine's state television network was assaulted on Tuesday in his office in Kiev by members of a radical right-wing party. The TV chief says the he wasn't injured in what he described as a quarrel. The men forced him to sign a letter of resignation.
London police investigating the disappearance of Madeleine McCann say they're now looking for a man suspected of assaulting five young British girls who were on holiday in Portugal. Madeleine McCann was three years old when she went missing during a Portuguese vacation with the family in 2007.
At the murder trial of the South African athlete Oscar Pistorius, the trial took a surprising turn with the prosecution asking and being granted a short adjournment. The prosecution is expected to finish presenting its case next week.
Britain's economy is growing faster than expected. And the U.K. government says that's due to its dedication to stable finances. The chancellor George Osborne announced measures that would help savers and pensioners as well as cuts to duties on beer and Bingo in the government's budget. He also unveiled the new one-pound coin - that is rather attractive with Her Majesty on it. The redesign is meant to make it much harder to counterfeit the coins. It will be introduced in 2017, and a competition will be deciding what goes on the other side to the head of the monarch. So while they don't have the answers, let us show you (RINGS BELL). The chancellor is calling it a resilient coin for a resilient economy. The government today raised its forecast for growth to 2.7 percent for the year. That's up from 2.4 percent. Now, while the recovery is stronger, the treasury's warning austerity measures will continue. CNN's Jim Boulden is in London for us tonight.
(BEGIN VIDEOCLIP)
Male: There are a few surprises in store, Chancellor!
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Budget day always begins with ritual.
Male: The Chancellor of the Exchequer, the Right Honorable George Osborne!
Audience: Hear! Hear!
BOULDEN: Then ceremony and a statement about how good things really are from the finance minister.
GEORGE OSBORNE, BRITISH PRIME MINISTER: I can report today that the economy is continuing to recover and recovering faster than forecast.
Audience: Hear! Hear!
OSBORNE: We set out our plan, and together with the British people, we held on after the mess we were left, we're putting Britain right.
BOULDEN: But in the spirit of never letting a good crisis go to waste, George Osborne said the country needs to stick to austerity to repair the economy after the global economic crisis.
OSBORNE: But the job is far from done. Our country still borrows too much, we still don't invest enough, export enough or save enough. So today we do more to put that right.
BOULDEN: Despite a pledge to crack down on the rich who avoid tax and raising the level of income before tax kicks in, and cutting 1/10th from the price of beer, the opposition said the conservative government was giving tax breaks to the rich while raising the pain for the working class.
(SHOUTS)
ED MILIBAND, LABOR PARTY LEADER: The working people of Britain are worse off under Tory! Living standards down month after month, year after year! 2011 living standards down, 2012 living standards down, 2013 living standards down!
BOULDEN: The government says this is a budget for savers and for companies investing in new plants and people in exchange for the price breaks to boost production as the economy is now forecast to grow by 2.7 percent this year, faster than most other mature economies.
NICKY MORGAN, ECONOMIC MINISTER TO THE TREASURY: So all the conditions are right, and then the plan is that obviously today's budget will be adding to the measures things like business investment, helping people to export more so that we can see that growth rate continuing.
BOULDEN: With more than a year before the next election, this was a budget with few carrots and even fewer sticks. Steady as she goes. Jim Boulden, CNN London.
(END VIDEOCLIP)
QUEST: Earlier I spoke to Andrew Sentance, the senior economic advisor at the financial consulting firm PWC. Andy Sentance has been in the past a member of Britain's Monetary Policy Committee at the Bank of England, helping to set interest rates. I asked Andrew given the stronger than expected growth in the U.K., whether the chancellor should now be - pleased.
(BEGIN VIDEOCLIP)
ANDREW SENTANCE, SENIOR ECONOMIC ADVISER, PwC: Been upgraded for last year and this year, but actually looking to the medium term, the growth forecast haven't been upgraded and this will be the - the coming year will be the first year where borrowing has dropped below $100 billion after three - sorry, five - years above $100 billion. A hundred billion is still a very high level of borrowing. So, yes he can be pleased that things have improved, but he's still got quite a way to go in terms of getting his borrowing down.
QUEST: This is regarded as the penultimate budget before the next British general election. He described it as a budget for the makers, the doers and the savers. So it was a budget not about macroeconomics but about domestic U.K. politics.
SENTANCE: It was a budget perhaps a bit about politics, but also about perhaps trying to do more on the supply side of the economy. The chancellor didn't have much scope to change the dials in terms of injecting large sums of money but he was trying I think to try and do things that would help exports, help investment, help savings, help a bit on the employment front. The problem is that his room for maneuver there is pretty constrained. I think we have to wait until public finances are in much better shape before we can see some more fundamental supply side reforms and changes in the tax system in the U.K.
QUEST: So this was a tinkering-around-the-edges budget.
SENTANCE: I think I would describe it as being as it gets, you know, at this stage, both in terms of the growth outlook. The growth outlook is effected by as being in a new normal of disappointing growth, but also as much as the chancellor can really do in the constrained environment. We may see more radical moves perhaps in the next parliament.
QUEST: And when are you now looking for the Bank of England to start normalizing monetary policy, bearing in mind that the threshold has just about been reached and the knockouts are quite close and everybody's saying it perhaps should be sooner rather than later.
SENTANCE: Well that's my view, and it's very interesting - this is something that Mark Carney and other members of the Monetary Policy Committee have started to talk about more openly. And he's appointed a new deputy governor from the IMF whose job it will be to plan the exit strategy. So this is coming onto the radar for the Bank of England, and I'm still expecting the first rise in interest rates in the U.K. to be in the second half of this year.
QUEST: This year?
SENTANCE: This year, not 2015 as the markets are expecting. For the markets have been taken by surprise by the pickup in growth in the U.K. They've been taken by surprise by the fall in unemployment. And I think the economic situation will continue to improve. This is going to be the best year of the recovery so far, and if you can't start raising interest rates from half a percent, say to three quarters or one percent in that environment, you just wonder when the bank will actually raise interest rates.
(END VIDEOCLIP)
QUEST: Andrew Sentance talking to me earlier from London. The new budget including a welcome surprise for long-haul travelers from - and to the U.K.
(COMMERCIAL BREAK)
QUEST: The "Business Traveller" update. And at last - well worth a bell ring (RINGS B ELL), the U.K.'s giving long-haul travelers a boost with plans to reform air passenger duty APD. From 2015, all long-haul flights will carry the same tax as flights to the U.S. In other words, there's ultra-long hauls to Australia and beyond and all 'round there. The World Travel & Tourism Council says the British governments and governments around the world cannot afford to ignore travel and tourism as an engine for global growth. In its annual report released today there are a number of recommendations. Firstly, the governments follow intelligent rather than punitive policies for taxing travel. Secondly, the restrictive visa policies are relaxed which makes it easier for people to actually get out and travel about and then the public and private sector ensures growth is sustainable and not detrimental to the environment. David Scowsill is the CEO of the World Travel & Tourism Council - WTTC. David, it's always good to see you, sir. Thank you for joining us.
Well get the bunting out. It may not be a complete abolition of APD that you would have liked, but at least the top tier is gone and back down to sort of a medium tier. Even you can celebrate that.
DAVID SCOWSILL, CEO, WORLD TRAVEL & TOURISM COUNCIL: Well, we're certainly celebrating, Richard, but it is only tinkering around the edges here. Last time we looked at this in detail, the chancellor was receiving about 2.8 billion income into the Exchequer, but we calculated the U.K. GDP alone was losing some 4.2 billion. But you're absolutely right in your introduction. It's certainly going to help tourism destinations like the Caribbean, Singapore through Malaysia and Australia and New Zealand. It'll help the U.K. consumer and it'll help those marketplaces that've been suffering quite dramatically from this tax.
QUEST: Looking at your report today, governments - you and I have discussed this on a few occasions -- governments still regard aviation as a cash cow and they still do - they still pay lip service to the idea that tourism is a real industry. Quite often many governments put in second- raters and no-hopers in or has-beens as tourism ministers.
SCOWSILL: Yes, you're right. I mean, it is a very, very large industry. We account for some trillion dollars globally. It's about 9 and 1/2 percent of global GDP. And we employ about 266 million people. We are much bigger than the automotive manufacturing for example and chemicals manufacturing sectors. But Taleb Rifai from the secretary general of the United Nations World Tourism Organization who you know very well -- he and I spent a lot of time going to visit with presidents and prime ministers to talk about their industry. And they really are very surprised by the extent of the industry - how many people we employ.
QUEST: Do you think - and this is no reflection on either the UNWTO or yourselves, both of - organizations - doing sterling work. Why then, doesn't industry itself, not the trade bodies, but the industry itself bang the drum better around the world? The airlines do. The airlines are the first person to try (ph) when unfettered (ph), but the rest - weak as water!
SCOWSILL: Well I'd have to disagree with that. Let's - I'll give you an example what happened in the U.S. If you go back to 911, for about ten years post-9/11, the U.S. was pretty reluctant to give visas for people to come and visit that particular country. And our colleagues in the states calculated the U.S. lost some $600 billion income from those potential consumers. But it took President Obama to get involved in that situation because he had a Commerce Department who wanted to welcome people into the country and the State Department was determined to keep people out. And in that situation that exists in many, many governments, you need the head of state to get involved for some sense to prevail.
QUEST: We'll talk more about this. David, good to see you. Thank you for joining us. I appreciate it.
SCOWSILL: Always. Always a pleasure, Richard.
QUEST: Good to see you. David joining us from London. One of the subjects that I find particularly fascinating is these issues on travel and tourism. The weather forecast now. Jenny Harrison is at the World Weather Center for us this evening. Good even, ma'am.
JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: Evening to you, Richard. I tell you what, some very nice weather -
QUEST: Oooh.
HARRISON: -- greeting all those tourists in Europe right now. It's been another very nice, warm day. Another warm day ahead I think and then things cooling back down to the average. But not cold, just getting a little bit cooler. Madrid 22, London 17, 16 in Paris - all above the average as you can see. And as I say, there's more of that on the way. Look at this. Very nice picture, here we are. Lisse in the Netherlands, not far from Amsterdam. This is actually the beginning of the 65th - it's an annual event - it's the International - what's the name of this city here? There you go - Keukenhof. It's their 65th Keukenhof International Flower Festival. And one of those like I said come from the North Sea of the Netherlands. And there we go, somebody else, a couple of people enjoying the beautiful flowers. They've actually bloomed a little bit early because it has been so mild of course for the last couple of weeks now.
This is the weather system coming through which will not only being some pretty strong winds - I hope those tulips are going to hold on nice and tightly - but also it will bring of course same rain and some cooler air coming in. So, it has been green, indicating average or above average temperatures. And when you see these blues and purples heading in, you know what that means. The temperatures aren't going to dip a little below of certainly what they were. But for the next few days, as I say, Thursday enjoy it again in Paris - 21 Celsius, by Saturday down to 12 which is the average. Similar story in London. Not quite as warm on Thursday. And still warm in Berlin, again, well above the average. Certainly on Friday 18. The average is 8 for this time of year. So, that's the culprit. Very windy as well. But for the most part it is dry, there's some - a good, nice sunshine in place as well.
And I want to show you this because this is just literally one of the ewes and one of her new lambs. This is from - one of the ewes actually was moved - evacuated - from the flooded area - the Somerset levels. You remember of course we'd been talking about this weeks on end. And many of the farmers here still really suffering and still can't get back to their land. So (inaudible) plans to really help them. But that is one little lamb born to his or her ewe mother, and as I say, all are survivors from the awful floods that really struck that region.
There are still a few flood alerts in place across the U.K. No severe flood warnings, just one flood warning in the southeast. But the winds will be stronger over the next couple of days. Look at this - in excess of 90 kilometers an hour. What it's been doing of course, this good strong wind is improving the air quality. Still at moderate though in Paris, so it could be better, could be better, Paris. I need to get you down into the green, particularly when I show you what Beijing was this day. It was very good. That was the temperature - not the temperature - the air quality there. These are current temperatures. So of course getting a little bit cooler as the day goes on. The rain heading into the northwest but for the most part Europe enjoying a very nice start to spring which, Richard, is of course tomorrow, the first day officially.
QUEST: Is it - well maybe tomorrow's program we'll have a rendition of "Tulips from Amsterdam."
HARRISON: Well, I look forward to it, Richard. Yes. You'd better start warming up those vocal chords because it won't be from me.
QUEST: I shall lead you in the communal singing.
HARRISON: OK.
QUEST: Jenny Harrison at the World Weather Center. "The Washington Post" makes the first significant changes to its business strategy since Mr. Bezos bought the paper. I'll be talking to the president of "The Post" next.
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QUEST: "The Washington Post" is undergoing its first shakeup under Jeff Bezos' ownership. From a subcribers of certain local U.S. newspapers will be able to access the post website and apps are free. It's meant to draw extra traffic to "The Post" website, and it could boost a subscriber base. Subscriptions are down in recent years. The Alliance for Automated Media says weaker circulation which is over 400,00 this year - 40 percent lower than a decade ago. So, here's the point. "The Washington Post" now giving away subscriptions online to readers of other newspapers with their permission and not making any money. "The Post" president says he wants the newspaper to have a stronger national presence. And I asked Stephen Hills if giving away the paper's premium product is about more than just getting new subscribers.
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STEPHEN HILLS, PRESIDENT AND GENERAL MANAGER, "THE WASHINGTON POST": We do have a newspaper we're very proud of and a website we're very proud of. And we have a long history of great journalism, great tradition of hard-hitting investigative reporting and we're actually investing more in that. So, we're sort of doubling down on becoming any even stronger national presence. So we have lots of paying subscribers today digitally and we'll expect to have a lot more in the future. But just as they can - if you're a local "Washington Post" subscriber to the newspaper, you get digital access for free. We thought the idea of allowing it for people who are in other markets who are subscribing to that premium product in other markets, for them to get for free would allow us sort of the best of both worlds which is to keep a large paying base and also expand that base.
QUEST: But what's in it for you because in all these markets you're giving I suppose arguably - in many of these markets you wouldn't get many subscriber directly to yourself anyway, so maybe your cost benefit analysis says that it is a win-win in, for example, the "Honolulu Star" advertiser or the "Minneapolis Star Tribune." Maybe there aren't too many people as in Minneapolis, but would just subscribe to "The Washington Post" as such?
HILLS: Well, it's a great question. Any business opportunity you have, you have to weigh the potential opportunity against cannibalization and tradeoffs, and so in this case, we really feel that although there will be people who pay us today and will - would pay us in the future who'll be able to get it for free that the added benefit of the scale we can achieve very quickly will help us. Because we just think that exposing the broadest number of people to the kind of journalism and kind of content production that we have will end up in the very long-term being very favorable for us.
QUEST: Does this program, this plan, project, whatever we want to call it, does it have Mr. Bezos' fingers all over it? Was it his idea?
HILLS: So, we don't talk about the internal deliberations (inaudible) -
QUEST: Oh!
HILLS: -- of anything we do. I know - that's. I'm sorry, you know I know that that's the most exciting thing everyone wants to know about, but I will say that certainly we've talked with him about strategy and he lets us run the business which is wonderful. But he's also been a great owner and he certainly is involved in all aspects - the major aspects - of our strategy.
QUEST: All right, you can't blame me, I'm going to have one more go at the Jeff Bezos line. Are you starting to feel the effects of his ownership? And I don't mean on editorial, I mean in terms of future strategic direction of "The Washington Post"? Are you starting to feel his presence?
HILLS: Oh, absolutely. We spend a lot of time with him and he's the ideal owner. You just could not ask for a better owner than Jeff Bezos. And one of the major things that's changed, that really has sort of changed everything from our perspective, is that his time horizon is different from almost an executive in worldwide business, and I think that we now have a new competitive advantage which is time, and that's courtesy of him. And so that's allowed us - that kind of orientation - really opens up a very wide range of options for us.
QUEST: And we'll be back in a moment.
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QUEST: Finally tonight, when I heard the report from Kyung Lah and I saw the pictures and heard the screams of the family and relatives of Malaysia 370, it reminded me of back in 1988 when I covered the Lockerbie crash. I was sent to Kennedy Airport to cover the relatives arriving to meet the plane. There was a moment when one of the relatives looked up at the board, saw "see agent" on the screen. Her husband came up and whispered in here ear, and at that moment there was that blood-curdling scream, and the woman went down on the floor. It's the sort of sound you hear and you never forget. It is the true definition of hearing a heart breaking when somebody realizes their loved one has died in such terrible circumstances. And that was the significance of what we heard today in Kuala Lumpur. Those relatives, those friends coming to terms with must be the awful truth that they will soon have to face. You hear that sound once, you never forget it. And that's "Quest Means Business" for tonight. I'm Richard Quest in New York. Thank you for your company. Join us again tomorrow.
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