this follows a 1982 picasso path of power. i suppose, that is where i am up to now. >> watched the rest of this interview online at the c-span

the video library. watch for our upcoming interview on sunday, may 6. >> imf managing director spoke thursday at the brookings institute in washington, d.c. they will meet in washington this week. this is about one hour and five minutes.

thank you for being here. thank you for the support you have given your wife, cause, and your institution. it is also the first time madame lagarde has been here in her capacity as managing director of the ims. she obviously knows the fund very well. she knows this book of business. she knows this town very well. she was an exchange student off of river road once upon a time. we will not dwell on how long ago. around that same time, she worked as an intern, i would guess, in the office of then-

congressman bill cohen of maine, during the watergate and nixon impeachment. that must have been a busy and exciting time to be in the congress. madame lagarde also knows this is a tough town, and even g.o. economics is sometimes a contact sport. i just hope the fact of it being a tough town is not connected with her limited mobility here today. she also knows, as we do all, that this is a season in washington distinguished by two things, cherry blossoms, and the fund-bank meetings. the latter of those is what she will talk about this morning. she will give us insight into the activities and the meetings that will take place here during the week ahead.

she will be talking about the state of the global economy. she will be giving us some thoughts on what it will take to keep the recovery on track, what it will take to assure there will be growth and indeed smart growth in the global economy, and i suspect the subject of europe will also come up, which makes it particularly appropriate that a distinguished fellow of the brookings institution and another great european would be with us here to participate in this conversation. this event is sponsored and under the aegis of our global economy and development program. the director of that program knows all of these issues very well, among many other associations that make him the perfect person to enter into a conversation with madame lagarde after she finishes her remarks.

he has been deeply involved in the g-20 process. after a bit of back and forth between them, the meeting will be open to all of you. madame lagarde, thank you so much for being with us all today. [applause] >> i'm fine. i'm fine. thank you. thank you very much, and good morning to all of you. i am delighted to be here, and i can assure you my slight disability has nothing to do with the hardship of working and living in washington, d.c., which is a very nice town to begin. i would like to think the brookings institution, as well as you, kamal for inviting me to speak today. this institution applies the

ideal forum to address the issue of the global economic future, and to look beyond the immediate imperative of dealing with the crisis. expect me to look beyond the crisis, and have a slightly longer term view of what we are facing and how we should face it. in fact, talking about the ideal form, i think both brookings in the imf were formed by visionaries at a time of the big crisis as well. robert brookings' here, as well as at the fund, they took the opportunity to think about the future in the midst of a crisis, to think beyond the crisis, and they seized the day, to use the carpe diem.

you are also characteristic decided to seize the day, seize the moment. you, with the work you did at the time when the soviet union fell into pieces, and you, in turkey, when you implement the reforms that helped your country to be in a better position following the crisis. that spirit has also inspired the g-20 leaders at a time when they congregated in 2008 and later on in 2009 in london. that was called the london moment. they decided they should seize the moment, address the issues courageously, and look beyond the immediate urgency's.

now, i believe that we may be at another one of those moments, possibly the washington moment. in recent months, important actions have been taken, particularly out europe. thank you for being here today. as a result, we have seen some improvement in the economy client, but let's be under no illusion, the risks remain high and the situation fragile. let me also identified that we probably have at the moment a little bit of breathing space. not much, but a little bit of breathing space where we can actively pursue what needs to be done. who knows?

perhaps not the cherry blossoms, but the spring meetings might be an occasion for us to actually take a chance at that washington moment. what do i need by the end? we need to address three important issues. what are the next steps needed to keep the crisis at bay? second, what are the building blocks needed to achieve more lasting growth and stability not to keep the crisis at bay, but to put the crisis behind us. third, what a strengthened imf be able to help and take advantage of the tectonic shift that has happened across the world?

actively pursuing what still has to be done to keep the crisis at bay -- let's backtrack a few months ago. remember, we were staring into the abyss? more recently, some data, particularly arising out of this country, are telling us that the united states are probably beginning to turn the corner. actions taken by the europeans have also led to a little bit less stress on the financial markets, a little bit, because clearly what has happened in the last few days tells us turning the corner is not an easy thing to achieve. in the meantime, he merging and

developed the developing economies have been and continue to be -- emerging and developing economies have continued to be a source of strength. as nelson mandela once said, as you pass one hill, you suddenly realize there are more hills to climb. that is exactly where we are -- more hills to climb. clearly the risk that looms largest on the horizon is that sovereign and financial stresses return with renewed crisis in europe, not to mention the price of oil.

the steps taken in europe are a reminder of policy action, but yet, as i said, there are still risks, the situation is fragile, and there are still hills to be climbed. europe must build on the efforts it has undertaken. continued strong policies that country levels -- we have good examples of that. italy, spain, most recently. continued support from the european central bank, which has the critical. continued efforts to build a healthier banking system, and continued steps towards more fiscal integration. the much expected european decision made by the euro area partners to strengthen their firewall was indeed crucial. these actions will help slowly, but surely, to reduce confidence, restore stability, and reduce vulnerabilities. we need a broader approach that means a stronger, global approach if we are when to keep the crisis at bay and push it back.

in today's global economy, with interconnections, a stronger european firewall will be part of the solution, but part of the solution only, and in my view we need something stronger in which the imf can play a role, and that will put a circle of protection around each country that needs it. hear, the imf can help because it is here for all of its members, not just the eurozone, countries at the center of the crisis, but all of those countries that are bystanders. we are constantly assessing and reassessing global risks, taking into account developments in the global economy, in the economic climate, on the markets, as well as all policy actions taken around the world, particularly out of europe. the needs today might not be quite as large as we estimated earlier this year, if only because action was taken by the european institutions that i mentioned earlier.

but, let us make no mistake, the risks and the needs are still sizable, and it would not be prudent to ignore that fact. in this context i have been encouraged by the expression of support by many of our members to increase our resources, and i am hopeful that during the spring means coming up next week we will see development, and we will make progress, and we shall seize the moment. that would lead to my second point in my main point -- the opportunity we have to build a stronger foundation for growth and stability, to put the crisis not at bay, but to put it behind

us. to do that, it will not just the about the short-term. it will be about anchoring medium-term, long-term, decisive, well-anchored action that will restore confidence for all. the crisis has indeed shaken the foundation of our traditional economic framework. for too long the benefits of growth have been shared by too few. growing inequalities and weak financial markets left the world prone to instability and crisis. in the nine months that have been managing director of the imf, i have travelled across our membership. that was one of my objectives,

to see for myself. in most cases, whether emerging markets, developing economies, developing economies, i've seen the same thing, the cost of instability, unemployment, the economic loss -- it is the same in all countries, to differing degrees. we saw the painful conclusion of exclusion and high unemployment, especially with young people, and especially in countries full of hope that would have liked to transition from the arab spring to a better future. it is imperative in those countries that reforms succeed, and imperative that all of the people in the middle east have the opportunity for a more fair and prosperous future, and it is imperative that we help them help themselves, otherwise not only would it be a lost transition, but it would be a lost promise. appropriate financial support would be critical.

the cost of inaction for the region would be much higher than the cost that is needed to help themselves. in the middle east and elsewhere the global economy must help deliver the growth and jobs that people need, and it is not happening at the scale it should. even as we grapple with the crisis, we must take the opportunity to rethink the framework and harnessing new type of growth. now, what does that mean in practice? i wish i had the answer. some of the best economic minds in the world are struggling with this issue, including here at brookings, including at the fund.

let me share with you some of our thinking. it is going to include policy action recommendations. it is going to include key factors that we see likely to produce that more stable, sustainable, and solid growth, and it will take some short- term actions as well as long- term actions. in the short term, what is clearly needed is more confidence, more stability, more demand. the immediate focus of policies therefore should be to support growth where it is still weak. but maybe clear. in many countries, especially in the advanced economies, fiscal adjustment is successful, but the base of adjustment

matters, and it must be country specific. the imf is not saying any policy that supports and demand will be fine. neither is the imf saying there is to be fiscal consolidation without specificity. we see there is a base to be had and it has to the country- specific. let me be more clear. yes, some countries have no choice but to adjust now, sharply and quickly, but it is not true across the board. other countries can let automatic stabilizers play their roles. let revenue redos, and public spending, especially if it is about safety nets, increase, and there are some countries that could lead growth actually take root. that short-term portion that i have tried to articulate by identifying those said have to take the hard measures, those

that can let the stabilizer's work and those that can slow the pace, that should not be an excuse to delay efforts to restore sound public finances. grounding adjustments in medium- term plans, as the dearly needed for the united states and japan, for example, will not only address fiscal concerns, but restore confidence and growth. expectations will be there. monetary support can also support growth. for emerging economies, a big portion is required especially if rising oil prices and extended it extended credit booms test the bounds of inflation -- and extended credit blooms test the bounds of inflation to low-income countries have to strike the right balance.

even though there hit by reduced aid flow, they must guard against current risks, especially those radiating out of europe. they would have to rebuild the policy buffer's they would use during the crisis. this kind of crisis will get growth restarted over the short term. now, over the long term, we must also work towards growth that is more inclusive, more durable, and not just pay lip service to it. actually do it. clearly, the rebalancing of

global economy, from addressed in demand, external deficit, to surplus countries, is key. this is something the imf has been advocating. it has gone below the radar screen bailey, but that is the key if we want to address the imbalance. we are seeing some promising signs in china, for instance, where the current imbalance has moved from a little over 10%, to a little less than, but it is only partial. when external factors abate, it will hike again. more needs to be done. we also know that more equitable distribution of the income could promote growth. but we take the example of brazil, which since the 1990's has taken significant steps to transfer from the more- privileged to the less-

privileged. now, if other countries were to reduce inequality by as much as brazil has done, our analysis shows that periods of the uninterrupted growth could be 50% longer than they might otherwise be. analysis, research, that actually can help and it sets standards. india and china, too, have made important inroads in reducing poverty, yet high growth has also exacerbated in equality. those inequalities need more attention -- attention, and the governments in those countries know it. so, what will be the key factors that will help? policies through the

-- fiscal, monetary, short-term, and in the medium-term. what are the critical factors? i see three of them amongst others. i will mention those three. the first one in our view is the financial system that supports rather than destabilizes the economy, and that means of repairing the financial system so that it can deliver credit, growth, jobs. this means better regulation and supervision, and coordination across countries because some countries have made progress in their supervision systems. they have. the coordination between supervisors, that is not at its best, and has to happen. it means getting the financial sector to pay its fair share, and you know there are discussions on that particular matter. we dare not be complacent on financial sector reform.

the mission has not yet been accomplished. the mission is to be accomplished. steps have been taken. standards have been agreed. major pieces of legislation have been voted, but the implementation, coordination is still lacking. if we take one example of such policies, i would take ireland, which is focused on improving competitiveness, but has also made sure that those people that are unemployed are getting specific training to make them able to access the job market, and have put in place measures incentivizing employers to employee at the unemployed. no one should pretend it is easy. labor market reforms are difficult. it is essential for competitiveness in creating

greater opportunities in the future, especially for younger workers. it needs to be done according to the specific use of the country, he needs to be done with care, and in a dialogue that is a solid dialogue with all the stakeholders. third, remember the financial sector that works that served the economy? the competitiveness? the reform of the labour market? finally, the appropriate safety net that will protect the less privileged. this is necessary because the reforms that i had just mentioned actually stretch

society, and put them at risk, there for safety nets are important. i will take the example of kenya, for instance, where we have worked hard, and the volume of cash transfers to the underprivileged has moved from 200 families to 33,000 in just four years. that has helped. the imf will continue to work closely with countries with that in mind -- jobs, inclusive growth, sustainable growth -- and that takes me to my final and third point. the need for us to coalesce around and take advantage of the major shifts in global economy. my worry is that the lingering risk of instability might pull policymakers apart, looking at their own self-interest, and that the benefit of their whole, which will serve their best interest.

my belief is through a collaborative approach we will have success. what kind of shift have we seen? we've seen the rise, the fall, and the rise of the emerging markets. we can say that they're no longer emerging markets. they have emerged. we are also seen historic progress in reducing poverty in low-income countries. those countries have accounted for 50% of global growth, and in the same time span more than 600 million people have been taken out of poverty.

the third shift. emerging markets want to play a bigger role in the international scene, and they must play this significant role, which they have played at the g-20-level, and at the imf we see in it on a daily basis. they want to play a bigger role. fair enough. they are bigger players on the international scene, and they have a new ideas, and day experiment, and our 2010 reform will deliver a better representation, and i consistently urge all of our members to ratify our reform. it is better for the imf to be relevant because our relevancy will be a factor in whether or not we represent our membership