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Quest Means Business
IMF Warns Global Growth Not Enough; IMF Holds Annual Meeting in Lima; Global Economy Faces "Triad of Risks"; FIFA Suspends Blatter, Platini, Valcke; New VW CEO Blames Rogue Engineers; French Economy Minister Says France's Business Imagine Improving. Aired 4-5p ET.
Aired October 08, 2015 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[15:59:55] (NEW YORK STOCK EXCHANGE CLOSING BELL)
RICHARD QUEST, HOST: Very strong day on Wall Street, trading is sharply higher. The Dow Jones Industrials showing a robust, good, late,
weekly rally as the -- as timing brings trading to a close. Listen to the noise from the Stock Exchange on Thursday, it's the 8th of October.
Tonight, Christine Lagarde tells me growth is falling short. You'll see our special debate on the global economy.
Sponsors one, Blatter nil. FIFA's president is suspended from office.
And the pressure mounts on Volkswagen on both sides of the Atlantic.
I'm Richard Quest, live at the IMF annual meetings in Lima, Peru, where of course I mean business.
Good evening. Tonight, investments, confidence, and global growth all seem to be in short supply as the IMF has warned once again of the
possibilities resulting from emerging market slowdown, issues over China's growth, the prospect of liftoff for interest rates in the United States.
It's all led to, perhaps some would say, a bit of a gloomy IMF as it meets for its annual meetings in Lima, Peru. Every second year, the IMF's
annual meeting is held out of Washington, DC.
Today, I chaired the global debate, and on the panel, the managing director of the IMF, Christine Lagarde. We had the finance minister of
Brazil, Joaquim Levy, and the governor of the Bank of England, Mark Carney. Three officials with very different agendas and responsibilities, all of
whom stand to be in the way of some of the headwinds and forces of the global economy.
(BEGIN VIDEOTAPE)
CHRISTINE LAGARDE, MANAGING DIRECTOR, INTERNATIONAL MONETARY FUND: Richard, I think the most worrying thing at the moment is the lack of
investment, is the shortage of confidence, and although there is recovery, it's a bit modest and it's a bit uneven.
So, with 3.1 percent growth in 2015 and a forecast of 3.6 percent in 2016, it's just not enough to respond to the demand of 200 million people
unemployed and poverty which has significantly reduced in this continent, in Latin America, but needs to continue to go down.
QUEST: You got through that answer without mentioning China.
LAGARDE: That was on purpose.
QUEST: Now talk about China. How serious is this slowdown that we're seeing in China?
LAGARDE: Our forecast is 6.8 --
QUEST: Cumulative?
LAGARDE: -- for this year, 6.8 percent, and 6.3 percent. It is a slowdown, but it's a moderate slowdown and one that is actually expected,
healthy, because that country at that stage of development where it is cannot continue to grow at such a high rate as we have seen a few years
ago.
So, it's a transition from being very much investment-driven from being very export-focused to being more domestically-focused and more
consumption-driven. If that happens, it will have been a great transition, and I think the world will be better.
MARK CARNEY, GOVERNOR, BANK OF ENGLAND: First point: I agree with Christine in terms of the relative success of the Chinese transition. You
take a broader perspective, what's manifest is a transition to more domestic-oriented, more services-oriented economy. There are bumps along
the way, but that's there.
I think the most worrying thing, though, in the global economy right now is that we're seeing the consequence of some of the policies in
response to the crisis manifest themselves, specifically big build-ups of debt, a lot of it funded outside the formal banking sector in a number of
countries, mainly emerging market countries. That debt and the policy response to that debt is going to be crucial to the trajectory going
forward.
QUEST: And an emerging market, how concerned -- I mean, we'll deal with your own domestic political issues in a moment, but in terms of the
spillover from China, how concerned are you, bearing in mind the enormous effect it seems to be having?
JOAQUIM LEVY, BRAZILIAN FINANCE MINISTER: Well, with that, of course, the changes in China are important, but when you look at most emerging
markets, and in particular in Latin America, I think one important consideration is that the strength of our economy is very different than it
was 10 or 15 years ago at the time of the last big turbulences.
[16:04:58] So, we are in many ways prepared to face the changes, the liftoff in the US, the -- all the consequences of the rebalance of China.
In particular, for instance, most of our countries, we don't have financial problems. We don't have bubbles, we don't have even excessive leverage.
This gives us conditions to face and adjust to the new environment.
QUEST: But you -- Brazil is in a particularly bad situation to handle this slowdown from China.
LEVY: Well, not necessarily. We have some, let's say, autonomous situation now that has had an impact on GDP, basically because people were
a bit restrained in some actions and GDP's a flow, so if you don't move, GDP looks smaller.
But when you think that Brazil's a really broad-based economy, we have a lot of flexibility to respond to China. And for instance, with the
change in exchange rate, the industrial sector that had been slow for the last few years is recovering.
QUEST: Madam Director, do you think the Fed was listening to your advice --
(LAUGHTER)
QUEST: -- when you told them not to raise interest rates, and they didn't?
LAGARDE: Well, I'm sure, given how conscientious Janet Yellen is, she must have read the Article 4 that we produce annually on each and every
large economy.
And we did produce one on the US economy in which we did say very clearly that, given that we didn't see much movement in inflation, didn't
see much movement in wage increases, we thought that to comply with her recommendations that it be data-dependent, that the data should be solid
and consistent before any decision to raise interest rates be made.
So, I think she's looking at her numbers, she's looking at her data, and she's drawing the right conclusions.
QUEST: You're also look -- I'll get the phrase data-dependent in before you get it in.
(LAUGHTER)
QUEST: You're data-dependent, but are you also Fed-dependent, Governor? Would you go before the Fed?
CARNEY: You don't even have to finish that question. No, look, we are -- the health of the US economy is important to Brazil, it's important
to the United Kingdom, it's important to China, it's important to everybody in this room, so it's relevant.
The exact timing of the Fed move is not decisive for the timing of a move by the Bank of England. We will take our responsibilities and we will
determine the timing for the start of the process of monetary policy normalization consistent with the UK.
But let me bring this back to where you've been, which is on China and the impact of China on the globe, impact on the US and us. China's
important for the UK, but it's not decisive. I'll point out Chinese growth is about 0.1 off UK growth, all things being equal, provide this is in an
orderly fashion.
And I think the important thing in terms of looking at a decision by the Fed, whether it's -- had been in September or is by the end of the year
or is in the following quarter, those are tactical decisions, tactical considerations, around the exact timing that are driven by data.
As opposed to the strategic orientation of monetary policy in the United States and in the United Kingdom which, given domestic strength in
the face of global weakness is consistent with the prospect -- not the certainty, but the prospect -- of limited and gradual increases in interest
rates over time.
And those determinations will be made by the sum of all factors, including the UK. And last point. There's been five rate cycles since
inflation targeting began in the United Kingdom. On two of those rate cycles, the Bank of England preceded the Fed, three they followed. It
comes down to the specific circumstance.
LAGARDE: Three to two?
CARNEY: Yes.
QUEST: All right.
CARNEY: We're not counting, but it's three to two.
QUEST: Is the market right in its -- the way it's priced in? I mean, there's no easy way to say when are you going to raise interest rates, but
let's just simply say when are you going to raise interest rates?
(LAUGHTER)
QUEST: Is the market right in believing it's into next year now? Into next year?
CARNEY: Well, I think anyone who states with certainty the time is not right, because there are tactical considerations around the timing. So
what I have said personally -- I'm not speaking for the entire committee, but what I've said personally -- is that I think this decision comes into
sharper relief around the turn of the year.
In other words, we have to make more progress, growth above trend for a while longer. We have to see domestic costs pick up, we have to see core
inflation pick up, all to be consistent with the conditions being there, potentially, to raise interest rates.
[16:09:55] So, I'm not going to say with certainty when I think we're going to raise interest rates. I can tell you the necessary conditions,
and broad-brush the timing when those conditions might be in place to really think about it, but that's as far as I will call down.
LAGARDE: You know, Richard, the other thing that I would like to add to what Mark said, which I completely agree with, is that it will be better
to do it right than to do it too early and to have to come back.
(END VIDEOTAPE)
QUEST: Christine Lagarde, Mark Carney, and Joaquim Levy. You'll hear more from them later in the program. Now you're going to hear from
Professor Stiglitz, the Nobel Laureate. Sir, good to see you.
JOSEPH STIGLITZ, ECONOMICS PROFESSOR, COLUMBIA UNIVERSITY: Nice to be here.
QUEST: Let's -- before we talk about the issues of taxation, this economic conundrum, emerging markets, we're in Lima, how serious do you
think the issue facing emerging markets from China, liftoff, all the other issues?
STIGLITZ: Very. And there's one more element that you haven't listed, which is the weakness in Europe. The eurozone crisis has been put
on the back burner as the refugee problem has been -- but the Greek crisis has not been solved. The program that they've given Greece almost
guarantees a continuation of depression.
QUEST: With that in mind, do you have confidence in the policy formulas, if you like, that are coming forward from places like the IMF,
from the governments involved?
STIGLITZ: No, I -- it's very clear that what is needed is an increase in aggregate demand, and that monetary policy can't do it.
QUEST: No more. It's done enough.
STIGLITZ: It's -- it hasn't done that much, but it has -- there has to be reliance now on fiscal policy. That is where we will have to be
going.
QUEST: You're here talking about taxation as well. This has been a big issue, not only the ability of companies to pick and choose their
various tax systems, if you like, jurisdictions, but overall, what do you want to see with taxation, with your commission that you're involved with?
STIGLITZ: Well, we want the multilateral corporations to pay their fair share of taxes. It's really that simple.
QUEST: But they -- you can't blame them for taking advantage of a system that's in their favor.
STIGLITZ: Absolutely. But they helped create the system. And the exciting thing that's going on right now is the G20 realized -- the
advanced countries realized that something was wrong when Apple, Google, Starbucks, were able to move their profits around and then pay almost no
taxes.
You have Apple, the largest corporation by capitalization in the world, paying almost no taxes. And so the question is, something is wrong
with the system, and that's what we're focusing on.
QUEST: But repairing that system is very difficult, because you have got the Goliath and the David, you have got this wall of money, and you
have an enormous, vested interest by these companies to prevent you from doing it.
STIGLITZ: That's right. Now, the good news is the OECD has this process called BEPS, Base Erosion, where they're trying to figure out how
can we deal with the base erosion, the disappearing of the base -- tax base? And they've actually come up with some very good ideas.
Our commission argues that it hasn't gone far enough, particularly with respect to the developing countries. The problem is, we told the
developing countries, open up your markets to the multinationals and they will contribute. But they are not paying the taxes they should be paying.
QUEST: So, in a final thought, how much of this is a moral question for the companies themselves not to make their issue and say we're going to
pay their taxes -- Amazon did, or somebody somewhere -- but to actually say we will always pay the tax we should pay?
STIGLITZ: Very much so. You know, corporations have talked about corporate responsibility. The most important corporate responsibility is
paying your taxes, including the taxes that are associated with the economic activity occurring in the country.
QUEST: Good to see you, sir.
STIGLITZ: Nice to see you.
QUEST: Nice to see you, thank you for joining us here at the --
STIGLITZ: Thank you.
QUEST: -- at the IMF. As we continue, corporate responsibility. What about transparency? Accountability? Dishonesty? We'll talk about
the FIFA goings on after the break. QUEST MEANS BUSINESS, we're in Lima, Peru.
[16:14:20] (COMMERCIAL BREAK)
QUEST: Welcome back. Now, that's the beauty of Machu Picchu, of course one of the seven new wonders of the world. The only problem, of
course, with the seven wonders of the world is that you get absolutely bitten, mauled, by mosquitoes when you actually go there. I cannot keep
telling you, completely and utterly, totally, I have been bitten.
Talking of being bitten in the last few days, the suspension of FIFA's president, Sepp Blatter, was rumored last week, and today became official,
along with two other of FIFA's officials, including Michel Platini of UEFA. The issue, of course, is they have been suspended for 60 days. And Michel
Platini will also have to give up his UEFA job for the same period.
How FIFA now deals with all of this issue is a day of reckoning indeed. It all comes about because of the way in which the sponsors
decided to put pressure. Last week, McDonald's, Coca-Cola, AB InBev, and Visa called for Blatter to go. This Thursday, AB InBev said, "The
turnaround should consist of an adequate, robust, transparent, and independent reform program."
Michael Hershman joins me now from Washington. He's a former member of FIFA's independent governance committee and CEO of the Fairfax Group.
Mr. Hershman, the decision of FIFA's ethics committee finally to suspend Blatter et al, how much of this was because the sponsors were now getting
angry?
MICHAEL HERSHMAN, FORMER MEMBER, FIFA INDEPENDENT GOVERNANCE COMMITTEE: Well, I don't think too much of it was because of sponsors.
When the sponsors made their statements just in the recent week, Sepp Blatter, through his attorney, said that he would not step down, regardless
of what the sponsors said.
I think this is a natural outcome of an investigation that, you may recall, started some years ago when Chuck Blazer, the --
(CROSSTALK)
QUEST: Whoa!
HERSHMAN: -- secretary general of CONCACAF, turned to whistleblower. It was inevitable.
QUEST: But surely they have been talking -- well, you say it's inevitable. They've been talking about doing something and not doing
something, then all of a sudden, the sponsors say we're going to -- really, we want him gone or we're going to pull out or we make threats, and the
next week, the FIFA actually does something. There has to be a link somehow between those two events.,
HERSHMAN: I don't think there was a strong link. I think the sponsors who have been pushing for reform, at least some of the sponsors
for some time, had a certain impact. But this is a broader issue.
I think this has more to do with the Swiss investigation and the fact that the ethics committee within FIFA has their own investigation going,
and they've come to the conclusion there's reason to believe that Sepp Blatter, Platini, and Chung indeed violated the code of ethics at FIFA.
[16:19:59] Look, and the larger issue is, these sports organizations cannot be allowed to self-regulate. We have to see an independent
organization in the future to oversee sporting.
QUEST: Right. Now, let's -- I want you to play, and I want you to listen to what Christine Lagarde, who in many ways, of course, head of the
world's financial policemen, at the debate today, I asked Madam Lagarde what the FIFA fiasco told us about the issue of governance. Have a listen.
(BEGIN VIDEO CLIP)
LAGARDE: I think in terms of good governance, the same principles apply in many corners, be they countries or organizations, and that has to
do with transparency, balance of power, no creation of excessive asset prices. When they are perceived, then maybe the right way to deal with it
is macro prudential measures.
(END VIDEO CLIP)
QUEST: Now, she just said in a somewhat humorous way, macro prudential regulation, but to Mr. Hershman, that's what you're saying,
isn't it? That there has to be a regulator of the regulators. So who is that regulator?
HERSHMAN: It has to be an independent monitor or it has to be an independent organization. This FIFA thing has gone on for too long, now,
much too long. There doesn't seem to be anyone in that beautiful building in Zurich that really understands the meaning of the words "transparency"
and "accountability." And there's certainly no one in leadership that is willing to take responsibility, to stand up and say, "Look, I made a
mistake."
QUEST: Michael Hershman, thank you for joining us. We'll talk about this many more times in the days and weeks ahead. We appreciate you coming
to us from Washington.
We are in Lima in Peru. It's been a very rough day for the Volkswagen motor company. The police raided Volkswagen headquarters in Wolfsburg
searching for information about who is responsible. The United States chief exec testified before Congress. Michael Horn said a few rogue
engineers in Germany, those are the people who are to blame.
(BEGIN VIDEO CLIP)
MICHAEL HORN, CEO, VOLKSWAGEN GROUP OF AMERICA: To my understanding, this was not a corporate decision. This was something individuals did.
REP. JOE BARTON (R), TEXAS: Do you really believe, as good, as well- run as Volkswagen has always been reported to be, that senior level corporate managers, administrators had no knowledge for years and years?
HORN: I agree it's very hard to believe --
BARTON: Yes.
HORN: -- and personally, I struggle as well.
(END VIDEO CLIP)
QUEST: And that, of course, could end up becoming the smoking gun as seen from the Volkswagen scandal.
As we come back in just a moment, despite all that's been done to improve France's image, the views of executives being attacked at Air
France has left lasting, damaging evidence. But the French finance minister tells us that France is improving.
(COMMERCIAL BREAK)
[16:25:56] QUEST: The magnificent views, along with the pan flute music. It must be, of course, Peru. Magnificent, even with the
mosquitoes.
As we continue the coverage from the IMF and World Bank, we'll have more from the panel a little bit later on. On the question back in Europe,
France's economy minister says a few stupid people were responsible for the appalling scenes that took place at Air France when senior executives of
the company found themselves under attack by protesting workers.
You'll be well aware, of course, that as part of those protests, they had literally the shirts ripped off their back, and the men had to run to
escape. Now, the economy minister, Emmanuel Macron, spoke exclusively to Jim Bittermann and says that action will be taken against those
responsible.
(BEGIN VIDEOTAPE)
JIM BITTERMANN, CNN SENIOR INTERNATIONAL CORRESPONDENT (voice-over): Just days after Air France workers attacked their bosses, who have been
pushing reforms to streamline the company, after dramatic conflicts between taxi and Uber drivers, which led Uber to close down part of its French
operation, and after any number of strikes and social conflicts, the 37- year-old French economics minister gathered venture capitalists from the US and other countries for two days of meetings hoping to convince the
financiers that economic reforms are taking hold here, as he explained in this exclusive interview with CNN.
BITTERMANN (on camera): What's the point of this?
EMMANUEL MACRON, FRENCH ECONOMICS MINISTER: The point is first to explain our policies, to explain what we are doing here in terms of
reforms. To explain how, basically, our ecosystem in terms of innovation and start-ups is increasing and improving, and how attractive it is.
BITTERMANN: Do you find that they have a bad image of France?
MACRON: Roughly speaking, I would say that our image has improved, and we have to do a lot of things. As for Air France, we are speaking
about a few isolated people, extremely violent, who decided to do so after the announcement of an important restructuring plan.
So, the government backs management, and all the unions condemned, ethically, this fact. So I want to be clear, it's not about France, it's
about stupid people, and they were condemned for that.
BITTERMANN: It was a little curious to me that you've got to go outside to get investors, to get venture capital. This is a rich country.
Why do you need to go to outsiders to invest in France?
MACRON: If we want to accelerate this new, new economy, I would say especially this disruptive economy in a lot of sectors, we need to be much
bolder and much more aggressive in terms of financing.
And you know, historically speaking, when you look at the French situation, we were largely driven by financing through debt or through
banks. And we have to shift the model towards a much more market-driven financing, and a much more equity financing. Our people are extremely
aware of globalization of disruption, and of the fact that we have to change our model.
(END VIDEOTAPE)
QUEST: The economy minister of France, Emmanuel Macron, talking to Jim Bittermann. We will be talking to the governor of the Bank of England,
Mark Carney; the finance minister of Brazil, Joaquim Levy; and the managing director of the IMF, Christine Lagarde.
The second part of our panel discussion, when we get to grips with the individual issues facing the various countries. QUEST MEANS BUSINESS, we
are live, tonight, in Lima.
(RINGS BELL)
[16:29:33] (COMMERCIAL BREAK)
[16:32:39] QUEST: Coming up on "Quest Means Business" as we continue in Lima.
The president of the World's Bank told me time's running out for emerging markets to put their house in order.
Ngozi Okenjo-Iweala joins me here and talks to me about life after being finance minister in Nigeria. All of that's ahead because this is CNN
and on this network the news always comes first.
FIFA's ethics committee has suspended President Sepp Blatter after allegations of corruption. The UEFA President Michel Platini and Secretary
General Norwin Bulkhead have also been suspended for 90 days. Those suspensions are effective immediately and could be extended.
As we continue with the headlines, NATO secretary general says he's prepared to defend Turkey as Russian airstrikes in neighboring Syria
continue.
Jens Stoltenberg has criticized for violation of Turkish airspace by Russian fighter jets and says NATO will not back down in the face of
aggression.
(BEGIN VIDEOCLIP)
JENS STOLTENBERG, NATO SECRETARY GENERAL: We will show once more that we are united in defending our values of democracy, human rights and the
rule of law, that we are committed to supporting our partners and that they are ready to defend every ally against every threat.
(END VIDEOCLIP)
QUEST: The chief executive of Volkswagen America has told lawmakers that the faking of emissions tests was not a corporate decision.
Testimony before a congressional hearing in Washington Michael Horn admitted it was hard to believe that senior management didn't know about
the cheating.
Earlier in the day German police raided the company headquarters in Wolfsburg as part of the ongoing investigation.
The vote to decide the next U.S. Speaker of the U.S. House of Representatives has been postponed after the frontrunner unexpectedly
dropped out.
The majority leader Kevin McCarthy decided he did not have enough support to replace John Boehner who is resigning as Speaker at the end of
the month.
[16:35:01]The IMF Managing Director Christine Lagarde says the world is lacking economic confidence. Speaking to me at an IMF debate here in
Peru, Ms. Lagarde says she's concerned the recovery isn't going fast enough.
(BEGIN VIDEOCLIP)
CHRISTINE LAGARDE, MANAGING DIRECTOR, INTERNATIONAL MONETARY FUND: Richard, I think the most worrying thing at the moment in the lack of
investment is the shortage of confidence.
And although there is recovery, it's a bit modest and it's a bit uneven.
So with 3.1 percent growth in 2015 and forecasts of 3.6 percent in 2016, it's just not enough to respond to the demand of 200 million people
unemployed and poverty which has significantly reduced in this continent in Latin America but needs to continue to go down.
(END VIDEOCLIP)
QUEST: Brazil's finance minister says his country's accounts are in proper order and transparent. It comes after a tribunal ruled and said
there were illegal accounting principles had taken place in the Brazilian books.
The court says that deficits coming up in a run-up to the election and there are calls growing for Dilma Rousseff to be impeached and it's widely
expected in Brazil that the opposition will in some way begin impeachment proceedings.
Brazil's Finance Minister Joaquim Levy joined me on the panel along with the Governor of the Bank of England Mark Carney and the Managing
Director of the IMF Christine Lagarde talking about their global economy and the various independent issues they all face, such as Brazil's problems
with the accounts.
(BEGIN VIDEOCLIP)
JOAQUIM LEVY, BRAZILIAN FINANCE MINISTER: And we do have the, I would say, the most transparent statistics for a fiscal thing. You get monthly
date or you get, say, weekly date in some case.
Now what is the question being discussed there if given some obscure areas, there was an infringement on a clear - on lending the banking sector
lending to the government.
I mean, and in Europe that is also an issue and is being addressed. And I think that overall the - what the process show is there's extreme
care with the way the government uses its instruments. And this had been so far -
QUEST: It's going to turn into a political (AUDIO GAP).
LEVY: Well in democracies very often things turn in a political thing (ph), and you talk about impeachment procedures.
I remember -
QUEST: Do you expect impeachment proceedings?
LEVY: I don't know but I remember I used to the U.S., I remember President Clinton had to go over a long process -
QUEST: I'm not sure that's an analogy you wish to use.
(AUDIENCE LAUGHTER).
LEVY: I don't know. They say democracies are democracies and you may like or may not like, but the important things that you have to go through
these things and we have to be clear.
Our main challenge now is how we will adjust some changes in the economic environment that are being discussed there.
And you have the keep the focus on that.
QUEST: Governor, --
LAGARDE: I just want to -
QUEST: Please.
LAGARDE: -- say a few words about what Minister Levy's doing. Because what he's really trying to do with his fiscal policy
recommendations is to reinforce, restore a business-friendly climate so that investment is redirected out of Brazil stays in Brazil.
And I think to give creditability to say what the reality is - how much deficit there will be, what measures are necessary, what fiscal
horizon you set for yourself and to put it all in the balance of the country. Not off-balance sheets but in-the-balance sheets are recipes for
improvement.
QUEST: Mark Carney, the question of Brexit - Britain leaving the European Union which the referendum is going to be held in the next two
years. The prime minister said so.
Now, I'm not going enmesh you in a political debate about that and I suspect you wouldn't be enmeshed anyway.
But in terms of managing the economy from a monetary standpoint, how difficult is that going to be for you as the debate picks up steam?
MARK CARNEY, GOVERNOR, BANK OF ENGLAND: Clearly in terms of the issues around Britain's place in Europe, the only thing we will - we will
say on that as an institution is to provide a perspective of the impact of being a member of the European Union, how that affects the keeping of our
objectives which are monetary and financial stability which is quite a narrow but important foundational item.
And since you started with the theater, it's the - these are things that very much backstage and will be back-staged to the bigger debate
around that issue.
QUEST: Well on the bigger issue, we are now in a low inflation world, and managing monetary policy - and fiscal policy in this new environment -
is providing challenges that we've not seen before because you've got, you know - you couldn't be putting much more money into economies if you tried
and still inflation isn't getting started.
So I ask you, how difficult is this new environment of low inflation, low unemployment but a need to normalize monetary policy?
LAGARDE: Well, it's a difficult combination of factors and one that I think, you know, monetary authorities were not particularly used to.
But they are demonstrating the ability to create, to innovate, to move into new territories whether it's with quantitative easing, with court
guidance, with negative interest rates on various instruments.
And they are doing everything they can. They've all said, and - you know - I'm referring to Mark on that - that it cannot be about monetary
policy alone. It has to be also supported by the other two parts of my trilogy which is demand support and structural reforms.
And if the three are combined and harmonized and there's a good level of international cooperation as well, you know, we can get out of that.
(END VIDEOCLIP)
QUEST: The debate - the global debate - at the IMF. It wouldn't be the IMF, it wouldn't be a national event if we didn't have Ngozi with us to
talk us through some of the issues.
When we come back, we're going to be discussing sustainability and what corporations can do to make sure they play their role ahead of Paris
(ph).
"Quest Means Business" - we are in Lima.
(COMMERCIAL BREAK)
QUEST: That's Cusco which is of course the place where you start your trek if you're doing the Inca trail up to Machu Picchu.
Cusco's just about an hour and something flying time from Lima and there's the three hours on the train to Machu Picchu - well work it
Look, Ngozi Okenjo-Iweala's with me. Now, normally we would have been in the - in the past who we'd be talking to is Nigerian finance minister.
Out of office now, looking relaxed, enjoying life I think.
NGOZI OKONJO-IWEALA, NIGERIAN FINANCE MINISTER: Absolutely.
QUEST: But now you haven't just put your feet up.
OKONJO-IWEALA: No-no-no.
QUEST: What, you're now involved with Richard Branson's B team -
OKONJO-IWEALA: Yes.
QUEST: -- on sustainability?
OKONJO-IWEALA: Yes.
QUEST: Why?
OKONJO-IWEALA: Well, because we feel that the sustainable development goals such were (ph) just adopted by global leaders a week ago at the U.N.
to underpin the world development going forward until 2030.
And so critical that if businesses are not involved all over the world to deliver these goals, we'll never get there. And -
QUEST: As I look at those goals and we're talking about particularly the sustainability goal number 17 or whatever it is -
OKONJO-IWEALA: Yes.
QUEST: One of them that talks about economic growth and sustainability and corporate involvement -- how are you convincing
corporations? What will your role be?
OKONJO-IWEALA: Well I think that the role of this team of top businesses that Richard Branson put together is really to try and get a
business plan -- so that basic convincing case for businesses -- that this is good for them, good for the world and good for eradication of poverty
and for sustainability and fight on climate change.
QUEST: Isn't that difficult to convince people when you've got emerging markets? And you know better than anybody now, emerging markets
facing the worse problem that they've had since maybe 1998..
OKONJO-IWEALA: Well, that is true. But by the same token, it's often when things are very difficult, you know, in terms of the economic
environment that you are able to make the types of decisions that are needed for sustainability of the development.
So this is actually a good time
QUEST: How worried are you about emerging markets? And now you've just come out of office, so you know how bad things are.
OKONJO-IWEALA: (LAUGHTER). Well, you know, Richard, I'm not - I'm worried by not that worried. I mean, we've had these business cycles
before. When, you know, commodities plunged, countries go through a down cycle and they come up again.
But of course this time we've got the issue with China, we've got the issue with possible interest rate increases by the Fed, we've got the
oversupply of some products - commodities - on the market.
So we have these things. Nevertheless, I think emerging markets have really learned their lessons. Many of them did not reserve to cushion them
over this period of time.
QUEST: If they did the good work of restructuring -- and what Christine Lagarde was saying at the press conference and what President --
the president of the World Bank is going to say, the window for emerging markets has closed or is narrowing.
OKONJO-IWEALA: Well I strongly agree with them that what we need to focus on now is the restructuring needed to truly diversify the economies
of these emerging markets and strengthen them.
And we have to act quickly. I'm not sure about the window closing, but I know that if we don't act, we won't be able to withstand the next set
of blows.
QUEST: Right. You're out of government-
OKONJO-IWEALA: Yes.
QUEST: -- are you enjoying being out of government?
OKONJO-IWEALA: Can you -- can't you see the smile on my face? It is a big relief. I'm actually doing things that I really, really enjoy.
Of course I was very committed in government, and I think -
QUEST: Would you go back to government?
OKONJO-IWEALA: No. I'm focusing on fun things now. (GAVI) -
QUEST: Right.
OKONJO-IWEALA: -- I'm the chair-elect of the Global Alliance of Vaccines and I'm also doing some private sector work. It's fun.
QUEST: Good to see you as always.
OKONJO-IWEALA: Thank you, Richard.
QUEST: Thank you very much.
OKONJO-IWEALA: Thank you.
QUEST: When we come back, a packed program as you can tell. We have the president of the World Bank who does tell us emerging markets - the
window to get it right is rapidly closing.
Good evening.
(COMMERCIAL BREAK)
JOHN DEFTERIOS, CNN EMERGING MARKETS EDITOR: As a classic bricks and mortar bank, how do you handle the agile disrupters, if you will, (AUDIO
GAP) those online financial service companies that are coming into the market but don't carry your - your overhead fi -
FEDERICO GHIZZONI, CEO, UNICREDIT: I think at the very beginning a few years ago we were looking to them as a threat. Now I said but this is
not the case. I mean, let's turn our view.
And now, like you say, we see decent opportunity. We are actually financing a number of startups. We are helping them to develop.
[16:50:05] DEFTERIOS: That's very different thinking from a CEO in Italy of a large bank that says I'll embrace these players, and not only
that, I'll even invest as a startup player.
GHIZZONI: Well I don't know if it's different, it's what we strongly believe. And by the way, you saw internally we set up three years ago an
R&D department. It's quite unusual for the banking sector.
(END VIDEOCLIP)
(COMMERCIAL BREAK)
QUEST: Ten thousand feet up - Cusco - where you have to climatize before you go to Machu Picchu. I can honestly say a day in Cusco and you
feel like you've been running a mile at the very least, the air is so thin but beautiful to be there.
Welcome back, it's Lima, Peru. We're at the annual meetings of the IMF and World Bank, and the window for emerging markets to put their house
in order is rapidly closing - so says the president of the World Bank, President Jim Yong Kim.
Speaking to me here in Lima, the president said all the factors that are working against emerging markets now must be dealt with.
(BEGIN VIDEOCLIP)
JIM YONG KIM, PRESIDENT, WORLD BANK: Richard, you know, if you look right now what's happening, there are things that happened even the last
couple of months.
We've just heard that the flight of capital out of emerging markets is the most severe in almost 30 years.
We know that the commodity price is going to be low. A lot of producers have simply reacted to lower prices by producing more commodities
which makes it feel like it's going to last longer than we might have thought.
You know, the Fed funds rate rise is going to happen and at that point the capital markets' going to look at emerging markets and say, `My
goodness, we have very little risk tolerance, who are the ones that we can even begin to think about investing in?'
What our message is, do the things you need to do now to send positive signals to the markets so that you can still have access to capital, you
still have access to some investment.
QUEST: Too late. The time to be putting your house in order, the time to be building the roof was two years ago.
KIM: And we were saying it two years ago, Richard. As you know, we were saying this two years ago - make the structural reforms now. You've
got a little window. The window's shutting, but, you know, the Fed fund has not gone up yet.
There's a little bit of window - now is the time to act.
The things that you do that you normally would think would have an impact in the medium and the long term, it could actually have an impact.
If you communicate what your intentions are clearly, it could even impact your short-term capital costs. We're telling people do it and do it
now.
QUEST: There's one extremely encouraging piece of news and that is the level of extreme poverty has gone under 10 percent.
KIM: Well it's great, Richard. You know, remember -
QUEST: But, dot-dot-dot . . ..
KIM: -- that we were asking before, you know, where's it going be. We're below 10 percent already. We had thought maybe by 2020, we'd get
below 10 percent.
We're there but the last 700 million are going to be the most difficult. All the low-hanging fruit have been picked, now by 2020, 50
percent of all people living in extreme poverty will be in the so-called fragile and conflict-affected states.
We've got to get better. Big issue for Europe right now - we know we've got to get better in the Middle East and North Africa in dealing with
fragility and conflict.
QUEST: Are you prepared to tell me now that Europe simply hasn't got a handle on this migrant crisis and is not doing enough?
KIM: You know, we're very impressed -
QUEST: Impressed!?
KIM: -- the conversation in Europe has been one about there's difficulty, there's great difficulty in dealing with influx of migrants.
But at the U.N. General Assembly I spoke with Prime Minister David Cameron and Chancellor Angela Merkel. They are thinking really hard about
creative solutions.
Not only for accepting the refugees that they can accept but also making it more livable where they are. Refugees are refugees for an
average of 17 years now.
So we're now talking with Jordan, Lebanon and Turkey about what can we do to improve education? What can we do to create jobs for the refugees?
We've got to think differently than we've been thinking before.
What we're saying is, look, as an economic strategy, advanced economies in which the aging population is growing, the working age
population is shrinking, birth rate is low - finding a way to think in a new way about accepting refugees is a good economic strategy.
[16:55:01] You need those workers. You know, the demographic bulge in young people is happening in one place, advanced economies are in another
place. They need to rethink their sense of who a European person is.
(END VIDEOCLIP)
QUEST: That's the president of the World Bank on the question of poverty, the question of rethinking economic strategies.
We will have a "Profitable Moment" from Lima after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's "Profitable Moment." The IMF meets every second year outside of Washington for its annual meetings, and this year it
happens to be Lima, Peru.
There couldn't be a better time to be in this country as emerging markets and the future of the emerging markets economy is at the top of the
global agenda.
Some say it's the third leg of the trilogy. What started with the subprime prices, then became a sovereign debt crisis and now it's an
emerging markets crisis.
But as you heard on this program, there are actions that emerging markets could take to ensure their stainability. Some countries like Peru,
like Colombia, like Chile have done the hard work and are reaping the benefits.
Others like Brazil, Argentina, certainly Venezuela all have problems and are likely to get a great deal worse.
Factor all this in over the next few days and the elephant in the living room is of course the U.S. Federal Reserve.
When, how and do they raise interest rates? That's going to be the discussion point and how everybody else here manages to respond.
And that's "Quest Means Business" for this Thursday night. I'm Richard Quest in Lima, Peru.
Whatever you're up to in the hours ahead, (RINGS BELL) - I hope it's profitable. I'll see you tomorrow.
END
