markets why not. find out what's really happening to the global economy cause a report on our key. this is our team from moscow my name's kevin thanks for being with us top stories tonight serbian general rug chip peels is a tradition of the european court with widespread public anger over his arrest crowds rallied in belgrade accusing the government of giving up a national hero to security membership. british apache helicopters prepared to cruise the libyan skies as the u.k. steps up pressure on colonel gadhafi but his feared nato personnel could also be put in significantly more danger. than the u.s.

government has got a system that can send a much in c. text alerts to everyone but critics say it's just perpetuating a climate of fear in the country and. this is all to you just fifteen seconds away from the people of ellis gets some crosstalk tonight's debate in the future of the international monetary fund. live. lives. can stand. alone and welcome to cross talk i'm peter lavelle issues of relevance and even legitimacy as the jostling continues as you will succeed now disgraced dominic

strauss kahn at the international monetary fund many still question the usefulness of this global financial institution is the i.m.f. a political tool of the west or an unfortunate necessity. to keep the same. cross-talk the role of the i.m.f. today i'm joined by peter chola in london he is a program manager at the bretton woods project also in london we have daniel ben-ami he is a journalist and author and in cambridge we cross to jeffrey frankel he's a professor of capital formation and growth at the harvard kennedy school ok gentlemen this is crosstalk that means you can jump in anytime one and i very much encourage it but first let's look at some of the issues surrounding this global financial institution. in the wake of the scandalous departure of its former head. of the international monetary fund has been faced with the tough task of self-examination as the money lending parthenon seeks to find

a new managing director that regarding its effectiveness and commitment to internationalism has continued unabated i expect that the next president of the world bank will be an american in the next manager of the i.m.f. and the european broadly construed and that's the same path we've had since those situations were established a pattern so ingrained in the fabric of the supranational giants and so resented by emerging economies that representatives of brazil russia india china and south africa issued a joint statement calling the process of selection obsolete unwritten convention and saying that adequate representation of emerging markets and developing members and the funds management is critical to its legitimacy and effectiveness there are other reasons that should prompt the i.m.f. to revisit its record and possibly revamp some of its policies just ask latin america which suffered a massive debt crisis in the one nine hundred eighty s. or asia which near the necronomicon meltdown in the one nine hundred ninety s.

all while the i.m.f. pushed those governments to adopt structural adjustment programs that consisted of draconian economic reforms we've really been looking at this through our problems in our lives and most of our countries have not been subject to have their programs whether these are reasons enough to dismantle the institution and do away with the economic examinee of the bretton woods system is still a matter for debate presently the i.m.f. is the only global financial institution with billions of dollars at his disposal that proved quite handy during the recent financial crisis we are one shock away from a full grown crisis the financial crisis taught us that prevention is better than cure. we cannot afford to forget that lesson regional lending institutions can provide an alternative to the dominance of organizations like the i.m.f. but such spin offs can hardly wield the same political and economic power in the time of crisis nonetheless the world is changing very quickly and it remains to be

seen if the i.m.f. in its current form will be able to keep up with the temple of our ever globalizing world russia charney for across r t. ok and i to go to daniel first thing because because you would have a provocative article a few days ago so i'm going to read one of the provocative sentences and i think it's the first sentence the i.m.f. has i.m.f. has function more like a medieval court than a modern organization danny what do you mean by that. well when i said time to write the article i thought i'd look at it from first principles somebody really believes in democracy how would i look and understand the i.m.f. and there are some ways in which it's very clearly undemocratic and some ways in which it's not so clear so on the clearest side i mean the fact that it's western european heads for fifty plus years and the next head is likely to be european as well i mean that's clearly under look i think the fact that america which has less

than five percent of the world's population has a veto of what the i.m.f. does is clearly undemocratic but also in other ways so for example one reason politicians really like the i.m.f. is that it often enables them to. abdicate responsibility for austerity so in other words if they screw up and there are problems with their economy or even if there are problems which are not of their own making rather than say the grain for it they bring in the i.m.f. and they can say well if the i.m.f. is imposing austerity it's not really my fault i would really like to do it so it's a way of type our think democratic debate and the democratic process ok jeffrey in cambridge would you agree with i mean i mean just from a purely democratic point of view idea who's got a pretty good point. well i would probably come out on the bottom line the same the same place which is i think it's time for a candidate from a virgin markets but i disagree completely about the reason if you have governance of the i.m.f. where to be completely democratic it will be run like the united nations and it

would be much less effect i think that emerging markets have earned. the right to have one of their own as a magic director of the i.m.f. and it's for a bunch of reasons and none of them are democracy ok people peter in london where do you come down on that is the is the is the i.m.f. practicing the principles that it claims to be to uphold. well i think on your direct question no doubt it's f. ing r. because there are degrees of agreement talk about what it was set up to do and that was to create high incomes to promote trade in to reduce unemployment and deal with social problems and it's certainly not what it's done it's actually done the opposite but i have to say i do think the market is important in our institutions and i think there are ways to create democratic institutions in particular accountable institutions which is an important element of democracy without having a u.n. style one nation one vote though i think you could certainly try that approach but if you look at most of the democracies in the world you look at the u.s.

or even the way the european union is set up they operate on ways to have democratic accountability under multiple metrics of doing that in the u.s. you have a congress and the senate in europe you have a european council which has multiple metrics of voting so you don't necessarily only have to have one country one vote like you might have at the u.n. you can have other ways of balancing that using. multiple majorities or double majorities as a way to vote for things at the i.m.f. and that's one of the first things we've asked for in this new selection process for a new managing director because if you go strictly on the voting rights that are currently in place at the at the i.m.f. europeans have are heavily overrepresented and will be able to install their candidate without any real debate about it and instead we need to have a system which gives a global majority which means to give vote to both economically weighted countries but also to a one country one vote system so that you can balance the competing interests and have much more accountability for the way the i.m.f. operates so i looked at the figures i mean if i'm not a mistake in brazil has

a list of awaiting voting rights in belgium does i mean how can that be realistic ok a lot of people even say that belgium isn't even a country anymore it's breaking up and brazil is up there is it it's charging out there economically i mean what kind of institution allows us to stand so. first off the governance of the i.m.f. like the united nations it's the members of the. the government so you don't blame it on the institution and its members it has been recognized for a long long time that developing countries are emerging markets do not have adequate weight at the i.m.f. and the world bank and there's been a lot of words and communiques and rhetoric paper that there's been a few steps in the right direction one is a creation of the g twenty the governance is moving in the right direction the shares are the emerging markets are larger than they were before we still have anomalies like you said but the progress is in the right direction the important point let's keep our eye on the ball are rather than talking a lot about a lot of principles for the very first time the merging market countries do have

shot at managing director of the i.m.f. and they won't get it if they don't unify behind a single candidate it's going to be european and it's going to be christine lagarde who's perfectly respectable but. if they don't unify behind a single candidate it's just not going to happen for elementary political reasons that aren't mocker see or west versus east or anything else ok peter if i can go to you i think then can i just be a good. he poured point here is not actually about which countries have which votes and what do they represent because i think if we look at the reality of the situation is many of the candidates that are mentioned as coming from emerging markets are equally problematic in terms of how they would run the fund as you would think of most of europeans prickly christine legarde so if you're talking about a candidate who is educated if university of chicago with a ph d. in in orthodox macroeconomics which as we've seen from the last five years based on

theories which are completely flawed then we don't want that kind of person running an i.m.f. which needs to update its thinking to update its policies into the twenty first century and if you look at all the work that's been done across many countries looking at the development process you can see that there are many development trajectories in many development tracks which can use multiple policies and you talk about things like capital controls financial repression industrial policy all right gentlemen i'm going to jump in here daniel and i do. well you earlier we heard not only is it not a democratic and this has been debated on this program but what about its entire approach i mean the i.m.f. originated as something very different than what it's trying to do now i mean is it keeping up with the times and how the global economy is changing. i don't think it's keeping of the times at all no i mean it started in a near all fixed exchange rates and clearly we no longer have fixed exchange rates but i think the more fundamental problem is that it tends to put stability over economic growth so low of course it pays lip service to economic growth. whenever

there are problems the kind of immediate response is to try to stabilize things which might sound sensible but what happens in reality often is that fundamental economic problems are resolved and they just come in people coming back and back and back so you see that happen time and time again whereas i think all international institutions not just the i.m.f. should really be focusing on strong dynamic and long term growth that really should be their main jeffrey would you want to pick up on that do you agree or disagree with what we just heard here. well i mean to begin with of course choosing a managing director of the i.m.f. is that it is very different depending on whether you think the institution is everything it does is all wrong and you want to tear it down or completely change its aims first. question is different in there for the answer is going to be different i believe that we've had a period of remarkable growth over the last fifty sixty years i think we've had

countries that were very poor become rich and i think this is unprecedented in history and i think part of the reason for it is a global system of governance including free trade and other institutions that i think the i.m.f. has been part of that doesn't mean i've had enough has done everything right but i think it is on that helps i think if you talk to the eastern european countries and others who have been forced to return freely jump in here will continue please find out i'm going to break here after a short break we'll continue our discussion of the i.m.f. state party. to see if you can. but did i kill him as. i was the calm face

a crisis and that's never and said. mom a song from the skull spoke with me i think of it every day. the flashbacks from the memories. i know so much so long time this year trying to tell. i was ashamed. i was ashamed that i didn't. i was ashamed that i had been a hero why i got my arm i got my legs i'm a law. in the my. heart i like the vietnam i was a cardboard. cutout believe what i was going on once or i think. that i was a good soldier. but now most soldier on the other side and i think i'm just a nice but.

wealthy british style seinfeld's that's not on the. markets why not scandal. find out what's really happening to the global economy in these kinds of reports on our. welcome back to cross talk i'm peter lavelle to remind you we're talking about the i.m.f. and emerging countries. steves. we flew into the break jeffrey made an interesting comment is that we've seen an

unprecedented go out of an amount of economic growth over the last six years and i guess we all agree minus the great recession began you know if i can go back to you again what great examples are out there with the i.m.f. help countries become rich. well i don't agree with the premise of the question and i don't really think it's that the method has got just become rich i think it's misleading to look at the past sixty years as a whole i think if you look at the world economy since the early one nine hundred seventy s. particularly west you can see that economic growth rates have tended to slow down and also when they have grown they've grown quite often because of expending a huge amount of credit rather than trying to work out how to have real dynamic organic growth i think that is the fundamental problem and what we've had in recent years is a tendency to try to back away from growth so i mislead is not the politicians will say of course i'm in favor of growth but we might damage the environment of course

i'm in favor of growth but we want to make people happy of course i'm in favor of growth but what about inequality so what happens is that the dynamics of growth weakens and these undermined i think that's what's really come to the fore in the last few years and that's something i really worry about peter if i go to you about also in london he can't wear good what is there a good example out there where the i.m.f. can wave the flag and say we did a good job here with this country or this situation. i think there's very few particular in the last thirty years or thirty five years and that's the problem because where the i.m.f. has been the most heavily involved have been the countries that have been the slackest of the weakest performers over the course of the last couple decades and the ones that have been the strong performers china india brazil are generally the ones who have not followed rigorously the i.m.f. device or the world bank's advice the ones who experimented with their own kinds of economic policy in their own kinds of reforms and melded a form of some kinds of capitalism with some kinds of state control or state regulation and that's really i think that's the lesson and that's the lesson that's

been drawn by the commission on growth a number other institutions that have looked at how developing countries have grown now i want to bring that back to what that means for the i.m.f. leadership right now because we're choosing a leader for the i.m.f. or i should say the heads of state of europe are trying to choose their leader on their own and as they're doing that they're not thinking about what we want the i.m.f. to do for the next five or ten years and what we really want the i.m.f. to do and what i think its added value as an international institution is is that it can be there to serve as a neutral arbiter or an independent voice on economic policies particularly in rich countries the i.m.f. has spent much too long focusing on developing countries and telling them how to run their fiscal and monetary policies and should be spending more time thinking about what's going wrong in the u.s. or in germany or in china and what's creating global imbalances and the i.m.f. singularly failed to do that in the last ten years it should have been out there saying look what's happening on this financial deregulation agenda is really dangerous you shouldn't be doing it and we need to stop these kind of policies

otherwise it's going to blow up in our faces in the i'm a failed to do that because it's been in hock to rich countries and it's going to have to special interest on wall street and instead we need to have an i.m.f. with an independent head who doesn't have any ties to be kind of special interest and who can be out there doing what's called an i.m.f. speak surveillance who can do really rigorously on the most systemically important countries as they call them meaning the u.s. . germany and japan and china and that's where the i.m.f. needs to be focusing its attention and to do that you need somebody who's not from europe or u.s. time or germany or japan to leave the institution right jeffrey cambridge that's pretty but it's a really amazing indictment there from peter in london do you want to react to some of those comments. well again i actually think we agree on the bottom line that time for what there are no eight excellent candidates for emerging markets and so that's and they're who are. you jeffrey and why is it something just like really it's not it's not the who's going to be i think we've got past that i mean it's the

it is is it's the ideology that's coming out of the i.m.f. because what we peter said is that these countries are going very very successful. so head to head. let me add to the comment the united states over the last decade followed an irresponsible policies of the budget deficits during the bush administration and the regulation and all the rest of it did the i.m.f. say oh that's fine because they were an ad hoc know the i.m.f. article forward consultations he had no reports criticizing us for that nobody paid any attention nobody cares americans don't care the media don't care but that's a matter of power politics has got nothing to do with who's managing director of the i.m.f. they said the right things but nobody cares there are certain power realities in the world and you can't blame them on the i.m.f. by the way sort of this issue of growth with something that's unfair i don't want it lousy i mean they are going to school deficits go ahead peter. the i.m.f. said very little about the american financial deregulation agenda and it was an

independent evaluation conducted earlier this year by the i.m.f. so an independent evaluation office which called the i.m.f. staff is susceptible to groupthink because they've been you know just wild by the american financial system and their deregulation agenda so i think i mean yes you're half right on the fiscal side but on the financial deregulation side have completely missed the ball jeffrey you want to do so if i can come in there the i.m.f. and i mean. that can i don't wish to read you jeffrey so let jeffrey speak and then we'll go back out to daniel go ahead jeffrey. the i.m.f. cannot dictate to the u.s. you go look back and look at what they are now said about housing prices five six years ago it doesn't matter that's not going to have any effect. there are already in effect in europe now with of course which is a brand new thing or new for the last thirty years but let's talk about the last thirty years among the top in countries it is a miracle in history that asians and some other developing countries have gone from poverty to wealth in the last thirty years and i think that's part of

a world trade system like i said free trade multilateral institutions of which the i.m.f. is a part it's completely a loser it's almost comical to say let's look at some country that the i.m.f. was heavily involved in ok not the u.s. because they're not heavily involved some country where they are exercising influence and look for a miracle of growth the i.m.f. is like a doctor you know of course you see doctors around sick patients you can't take a correlation in saying all these doctors there are you see a sick patient and so therefore they cause sickness of course they come in in a crisis you can't judge them by saying they're there is seen in the vicinity of crises ok daniel you want to jump in there. well you know if i can come in there. first of all what i've completely welcomed the rapid growth of china and india and brazil and other countries i'm all in favor of economic growth i would say the i.m.f. is not a tool responsible for that growth or not i agree with the other peter in london. they've been much more pragmatic but what i disagree with peter in london is that i

think this whole idea that we have. a free economy free market free trade is simply nonsense i mean whether or not you think that's desirable that does not describe the reality of the world economy for a very long time those things don't exist is very heavily regulated trade is very heavy state spending we do not live in a free market economy so to talk as it is if we do is nonsense even if you believe that we should we shouldn't i think this is the wrong way to look at the question here do you want to reply to that it's all right so it's about the balance of course it's going it's not either we move a lot farther in that direction but it's much freer and more open than i was fifty years ago peter go ahead. sure but i think i think the porton point that i was trying to make is that it's not about whether it's free you're not free it's about degrees of management and how countries can take their own domestic situations which are each unique and then it still isn't yes for example if you look at all the developments access stories you look at korea you look at taiwan you look at

china and japan they've all used their trading system to get where they want but they certainly are not by any means you know free market countries in any sense of the word and i think that's the important lesson is that the advice the i.m.f. was giving and the economic policies that i.m.f. economists learned themselves if university of chicago and other orthodox economics schools and then were inputting into the into economic policy advice to developing countries are the wrong kind of policies and advice from most countries in the world and that you need to have very very very differential situations for each country and they're not going to and as we all now know economic theory as described by new liberal or orthodox economics schools is just floored it doesn't work with the way our real world economic systems work markets don't it or it perfectly and that no no i agree with that kind of economic theory note you could write believe in a higher call milton friedman you might know but no one is saying that chicago

university does not have the great influence but you give it credit for the people who really influential i really happening greening of the outlook of leaders of international institutions and politicians where they've taken up ideas like environmental ism to argue that we shouldn't grow or at least we should be very very careful very cautious about growth so the real growth that we have over the last two years which i really welcome risk being undermined by that and now look his being imposed by the i.m.f. by the world bank and other multilateral institutions is not the chicago i think the green school we should be worried about i. mean i don't recognize that that is true of the i am. and i think right now let's take one of the one of the most important issues that is dealing with right now and that's around free movement of capital around the world and so you know ten years ago the i.m.f. or rich members of the i.m.f. let's be fair so rich countries that on the i.m.f. were trying to push the i.m.f. to amend its articles of agreement to mend the free movement of capital around the

world that was rejected at the time and largely because the asian financial crisis hit and everybody said all maybe we should take a break and not think about that right now and so and now but it's back again and again now the i.m.f. is having to think about what do we do about capital flows and do we manage them more carefully or do we let them flow more freely and i think what we're seeing right now is there is a huge debate at the i.m.f. it's going to be a very important topic for the next managing to wrap their to take up and to mediate between the frankly the orthodox economic thinking in europe and the us which is pushing the line that we must have free movement of capital and the more practical and you know you know problem oriented thinking that's coming out of brazil and others who are looking and i want to i want to give i want to and we're almost out of time gentlemen i want to give geoffrey the last we're going. well i think the capital flows issue i don't disagree with where it's coming from but that's not that's yesterday's war the i.m.f. dollar has moved more in

a direction which i agree is is that under certain conditions like brazil's controls on inflows are the ones chile most famously had. some controls well targeted can be can be useful but that's really beside the point i want to conclude the point that there is a chance if the emerging market countries could get together behind a single candidate already jeffrey really we've run out of time completely out of time many thanks my guess again cambridge and london and thanks more viewers for watching us here at r.g.p. see you next time remember cross-talk. keep.

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