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tv   British House of Commons  CSPAN  April 16, 2012 12:00am-12:30am EDT

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give them a modern communications network and that is exactly what this legislation does. congress created -- indicated that $7 billion would be made available to first net to go ahead and design and construct this network.
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>> thank you for the support you've given not just to your wife but to a cause and now a great institution. it is also the first time that madame lagarde has been here in her capacity as managing director of the imf. she obviously knows the fund very well she knows its book
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of business. she knows this town very well as well. she was an exchange student at holton arms up off river road once upon a time. we won't dwell on how long ago and around that same time, she worked as an intern i would guess in the office of then congressman bill cullen of maine and that was at the time of the watergate and nixon impeachment period so that must have been quite a busy and exciting time to be in the congress. i might add, madame lagarde knows that this is a tough town and even request geo 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 do we all
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that this is a season in washington that is distinguished by two things, cherry blossoms and the fund bank meetings so that's this latter of those is what she's going to talk to us about this morning. she's going to give us some insight into the activities and the meetings that will take place here during the weekend 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 a sure that there growth and indeed smart growth in the global economy, and i suspect that the subject of europe will also come up. which makes it particularly appropriate that javier solana a distinguished fellow of the brookings
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institution and another great european would be with us today 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 these issues very well. among many other association thas 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 and after a bit of back and forth between two them kamal will open the meeting up to all of you so madame lagarde thank you soap for being with us today. [applause] >> i'm fine. thank you. thank you very much and good morning to all of you.
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i'm delighted to be here and i can a sure assure my slight disability has nothing to do with living in washington, d.c. which is a full-time town to be in. i would like to thank the brookings institution as well as you kamal for having invited me to speak here today. this institution actually provides an ideal forum in my view to address the issue of global economic future and to look beyond the immediate imperative of dealing with the crisis so expect me today to actually deal with the short term issues we are facing but also try to look a little bit beyond that and have a slightly longer term view of what we are facing and how we should face it. in fact, talking of the ideal forum i think both brookings and imf were
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formed by visionarys at the time of a big crisis. robert brookings here and john keynes as well as harry dexter white took the opportunity even in the midst of a crisis to think about the future and beyond the crisis. they seized the day to carpe diem that is known to probably most of you. now, you are characters who decided to embrace that spirit of seizing the day, seizing the moment or carpe diem with the extraordinary work that did you at the time when the soviet union actually fell into pieces and you kamal as a courageous brave minister of economy and finance in turkey when you implemented reforms that actually helped your country to be in a much
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better following its crisis. now, that expert of seizing the moment has also inspired the g-20 leaders at the time when they all con gre gated in washington, d.c. in 2008 and later in 2009 in london and that was called at the time the london moment they all decided that collectively they should actual -- actually seize the moment address the issues courageously and look a little bit beyond what was the immediate you are general si. -- urgency. i believe that we may be at another one of those moments, maybe not a london moment but possibly the washington moment. because in recent months, important actions have been taken, particularly out of europe, javier and thanks for being with us, i'm so pleased that you're here and as a result we have some improvement ns the economy,
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climate, but let's be under no illusion the risks remain high and the situation fragile. let me also identify 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 still 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. now, what do i mean by that? we need to address three important issues and ask three important questions: first of all, what are the next steps needed to keep the crisis at bay? second what are the building
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blocks needed to achieve more lasting growth and stability, not to put to keep the crisis at bay but to put the crisis behind us? and third, wouldn't a strengthened corporation particularly a strengthened imf be an advantage to take advantage of the techtonic shift around the world? those are the three questions i would like to take in turn. 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 but more recently some data, particularly arising out of this country are telling us that the united states are probably beginning to turn the corner, and some actions taken by the europeans have
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tickles -- 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 that turning the corner is not an easy thing to achieve. the meantime, emerging and developing kmoens -- economies should be a relative source of strength but we should not let down our guard and as nelson mandela once said the secret is that when you pass one hill you suddenly realize that there are more hills to climb and that's exactly where we are. more hills to climb. and clearly the risk that looms largest on the horizon is that sovereign and financial stresses return with renewed force in europe,
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not to talk about the increased price of oil. the steps take been the europeans in recent months are a timely reminder of the power of policy resolve and action, and yet as i said, there are still risks. the situation is still fragile and there are still hills to be climbed. europe in particular must keep up and build on the efforts that it has undertaken. continued strong policies at country level. we have good examples of that. italy, spain most recently. continued support from the european central bank which has been critical in the last few months, continued efforts to build a healthier banking system and continued stops towards more fiscal integration, the much expected european decision made bid the euro area partners to strengthen their firewall was indeed crucial.
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these actions will help slowly but surely to restore confidence, to restore stability, and to reduce vulnerability, but we also need a broader approach, simply because our economies are interconnected. that broader approach means a stronger global firewall if we are not only to keep the crisis at bay, but push it back. in today's global economy with its dazzling array of interconnections a stronger european firewall will be part of the solution but part of the solution only and in my view we need something which is stronger in which the imf can play a role. why is that? because that stronger global firewall will help put a circle of protection around each and every country that needs it, and here the imf can help. it can help because it is here for all its members,
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the entire membership not just the eurozone not just countries at the epicenter of the crisis but also all those countries that are bystanders. now we are of course 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. and the needs today may not be quite as large as we had estimated earlier this year. if only because action was taken by those european institutions that i mentioned earlier. but let us make no mistake. the risks and the needs are still sizeable and it would be very imprudent to ignore that fact. in this context i've been
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encouraged by the expression of support by many of our members to increase our resources and i'm hopeful that during the spring meetings that are coming up next week we will see developments and we will make progress. and we shall seize the moment, and that brings me to my second point, and 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, but to do that, it's not going to be just about short termism. it's going to be about anchoring medium term long term diseaseive well anchored -- 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
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growth have been shared bid too few. growing inequal 'tis and weak financial markets left the world prone o'to instability and crisis. in the nine months that i have been managing director of the imf i have traveled across our membership. that was one of my objectives, to see it for myself and in most places whether advanced economy, developing economies, emerging markets i've seen the same thing, the cost of instability, the face of unemployment, the hardship the loss of dignity the economic loss it's the same in all countries to different degrees, and we saw the painful conclusion of social exclusion and high unemployment especially with young people, especially with countries that full of hope would have liked to transition from the arab spring to a better future. in those countries, a
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generation is at a grave risk of being lost in transition, an it is imperative that the reforms across their regions succeed and it is imperative that all the people in the middle east have an opportunity for a fairer and more properous future an 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. particular appropriate financial support will be critical to prevent the risked of near term economic instability, jeopardizing the future. the cost of inaction for that region would be much higher than the cost that is needed to help them help themselves. in the million-dollar and elsewhere the global economy must help deliver the right type of growth and the jobs that people need, and it is not happening even as we
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grapple with the crisis we must take the opportunity to rethink the framework an harness a new type of growth. now, what does that mean in practice? i wish i had the answer. and 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. and it's going to include policy action recommendations. it's going to include key factors that we see likely to produce that more stable sustainable and solid growth and it's going to make some short term needed actions as well as mead yumd and longer term ones. -- medium and longer term ones. what is clearly need sed more confidence, more stability, more demand.
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the immediate focus of policies therefore should be to support growth where it is still weak. let me be clear. in many countries, especially in the advanceed economies fiscal adjustment is essential but the base of adjustment matters and it must be country-specific so the imf is saying it not only has to be demand therefore any policy it supports demand will be fine. neither is the imf saying it has to be fiscal consolidation across the board without specificity. we are saying there is a base to be had and it has to be country specific. let me be clearer. yes. some countries have no choice but to adjust now sharply and quickly but it's not true across the board. other countries can actually let out matic stabilizers
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play their role, let revenue reduce and public spending especially if it's about safety nets increase and there are some countries although a limited number that can actually slow the pace of consolidation in order to let growth actually take root, rather than harm growth. but that short term caution that i've tried to articulate that by identifying those that have to take the hard measures, those that can let the stabilizers work and those that can slow the pace, particularly this year, that should not be an excuse to delay efforts to restore sound public finances. grounding adjustment in medium term plans as is particularly needed for the united states and for japan for example will not only help address fiscal concerns,
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but also reinforce confidence and growth. the expectations will be there. turning to monetary policy now, it can also support growth where inflation remains in check, which is pretty much the case in all advanced economies. for emerging economies, a bit more caution is required, especially if rising oil prices that were referred to earlier and extended credit booms begin to test the bounds of inflation. again it has to be country-specific. low income countries must also strike the right balance, even as they're being hit by reduced aid flows and probably reduced remittances. they must guard against europe especially out of europe. they will have to rebuild the policy buffers they had
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during the crisis. these kinds of policies will help to get growth restarted over the short term. now over the longer 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 adrift in demand from external deficit to external countries is key and this is something that the imf has been advocating a long time. a little bit below the radar screen lately but that is keyed if we want in the long term to address the imbalances. we are seeing some promising finds. in china for interest for the current account of balance has moved from a little over 10% to probably a little less than 3%. that's good but it's only
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partial because when external factors abate then it will hike again so more needs to be done. we also know based on imf research that a more equitable distribution of income can help promote economic and financial stability and more lasting growth will let me take one example, the example have brazil which since the 1990's has taken significant steps to transfer from the more privileged to the less privileged. if other countries were to reduce inequality by as much as brazil has done in the last two decades our analysis those that periods of uninterrupted high growth could be 50% longer than there might otherwise be. analysis, research, that actually can help, and it sets standards.
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india and china too have made important inroads into reducing poverty, yet high growth in those countries has also exacerbated inequality so that needs more attention and the governments in those countries know i. -- it. so what will be the key factors that will help? i've gone through the policies, fiscal monetary, short term anchoring in the medium term. what are the factors? i see three of them amongst others but i'll mention those three. the first one in our view is financial system that supports rather than destabilizes the economy and that means repairing the financial system so it can deliver credit, growth, jobs. this means better regulation and supervision and coordination across countries because some
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countries have made progress in their supervision system. they have, but the coordination between supervisors, that is not at its best and it has to happen. it means getting the financial sector to pay its fair share as well and you know there are discussions on the 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 the coordination is still vastly lacking. two, we must improve competitiveness and have better functioning laner labor markets. it can work in parallel. it's tough indeed but it can work in parallel. and if we take one example
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again of such policies, i would take the example of ireland that i've actually focused on improving competitiveness but has also made sure that those people who are unemployed are getting specific training to make them able to access the job market and have put in place measures actually engaging innocent i havizing employers to employ the unemployed. nobody should pretend it's easy. labor market reforms are difficult. but it is essential for creating greater job opportunities in the future especially for younger workers. it needs to be done but it needs to be done according the specificity of the country, it needs to be done with care and it need to be done in a dialogue that is a solid dialogue with all the
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stakeholders. third, remember the financial sector that works that serves the economy? the competitiveness and the reform of the labor market, and finally, the appropriate safety net that will protect the less privileged. this is necessary because the reforms that i've just mentioned actually stretch the chemistry have -- of society and put them at risk. therefore safety nets are clearly important. i will take the example of kenya for instance with which we have worked hard where the volume of transfers, cash transfers to the underprivileged has moved from concerning only 200 families to 33,000 in just four years. and that has clearly helped keep the texture of society together and the imf will continue to work closely with countries with that in mind.
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jobs, inclusive growth, sustainable growth and that takes me to actually my final and third point. the need for us to coalesces around and take advantage of the major shift in global economy because my worry is that the lingering risk of instability may actually pull policy-makers apart and inwards rather than together and out wards looking at their own self interest and not the benefit of the whole, which will indeed serve self interest. my belief is that through a collaborative approach we have a better chance of success. what kind of shift are we seeing? we have seen the rise and fall and rise of the emerging markets and i think we can say that no longer
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emerging markets. they have emerged. we have also seen historic progress in reducing poverty in low income countries. during the past two decades emerging and developing countries have accounted forward 50% of global growth and in the same time span, more than 600 million people have been taken out of poverty. third shift. it's important what i was talking about emerging markets predominantly want to play an important role in our global governance structure. they have played a significant role at the g-20 level and at the imf we see 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 new ideas and they
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experiment and certainly ourd 2010 quota on vote reform is going to present a better representations and i consistently urge and i still do today all our membership to vote the quota reform to, ratify it, to make sure that there is appropriate representation. it is better for the global economy, it is better for the membership, it is better for the imf to continue to be relevant because our relevancy is going to be a factor of whether or not we properly represent our membership both in terms of quota and in terms of govern nens. grarb governance. what else do we see that is a shift? we see more and different methods of collaboration. just look at what's happening on the european scene, the euro group. there was no bailout posted. there was no way to deal

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