back to. the fleet of the stars true. rising russia to join north caucuses club engine had a record breaking paycheck. good for him now heated debates and acts that opinion which cross talk up next. and you can. start. to. follow him welcome to cross talk i'm peter lavelle issues of relevance and even legitimacy as the jostling continues as dual succeed the now disgraced dominique 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 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 is a professor of capital formation and growth at the harvard kennedy school ok gentlemen this was 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 dominic strauss kahn 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 was regarding its effectiveness and commitment to internationalism have continued unabated i expect that the next president of the world bank will be an american and the next manager of the i.m.f. will be european broadly construed and that's the same path we've had since those

institutions 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 and obsolete britain 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 mirrored an economic 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 i have met programs

whether these are reasons enough to dismantle the institution and do away with the economic a gemini 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 food 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 they i met in its current form will be able to keep up with the tempo of our ever globalizing world marcia charney for cross talk r.t. . ok and i to go to daniel first and we could 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. says 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 i enjoyed the article i thought i'd look at it from first principles someone who really believes in democracy how would i look and understand the i.m.f. . and there are some ways in which is 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 sixty plus years and the next head is likely to be european as well i mean that's clearly. the fact that america which has less than five percent of the world's population has a veto while 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 take the blame 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 bypassing the 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 daniel'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 emerging markets but i disagree completely about the reason if you if governance of the i.m.f. were to be completely democratic it would be run like the united nations and it would be much less effect and 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 peter in london where do you

come down on that is the is are they is the i.m.f. practicing the principles that it claims to be to uphold. well i think on your direct question no the answer to because the articles of agreement talk about what it was set up to do and that was to to create high incomes to promote trade and 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 democracy 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'll 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 that 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 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 double majority which means to give both 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 i looked up the figures i mean if i'm not a mistake in brazil has less of a list of awaiting voting rights than 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

a 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 that do. 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 paid to that there have 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 of 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 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 legarde

who's perfectly respectable but. if they don't unify behind a single candidate and what do they represent because i think if we look at the reality of the situation as many of the candidates that are on the road but we might damage the instruments 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 dynamic to growth weakens and is 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 also in london here you get what is serious example out there where the i.m.f. can wave the flag and say we did a good 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 we're 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 of 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 kind of state control or state regulation and that's really i think that's the lesson that's the lesson that's been drawn by the commission on growth a number other of 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 it's 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 thought 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 been in hock to special interests on wall street and instead we need to have an i.m.f. with an independent head who doesn't have any ties to these kind of special interests and who can be out there doing what's called an i.m.f. speak surveillance but can do really rigorously on the most systemically important countries as they call them meaning the u.s. in. 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 the u.s. china or germany or japan to lead the institution all right jeffrey in 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

it's time for what i want there are no eight excellent candidates for emerging markets and so that and there who are. geoffrey and that point is that it's the just like really it's not it's not there who's going to be i think we've got the past i mean it's the it is it's the ideology that's coming out of the i.m.f. because what what peter said is that these countries are going to marry so you have to be 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 deregulation 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 consultation scieno reports criticize the 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 cared there are certain power realities in the world and you can't blame them on the i.m.f.

by the way so it's issue of growth so that's one sure i don't want to lead the cia or want to think about i'm going to school deficits go ahead peter did the i.m.f. didn't the i.m.f. said very little about the american financial deregulation agenda there 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 wowed by the american financial system and their deregulation agenda so i think i mean yes you're half right on on the fiscal side but on the financial deregulation side the i.m.f. completely missed the ball jeffrey you want to do so if i can come in there the i.m.f. and i mean that was draft can i don't wish to read you jeffrey so let jeffrey speak and then we'll go back 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 and have said about housing prices five six years ago but it doesn't matter that's not going to have any effect. there are

having an effect in europe now it 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 developing 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 so some 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 down in memphis like a doctor you know of course you see doctors around sick patients you can't take a correlation and say all these doctors are all you see patients therefore they cause sickness of course they come in a crisis that you can't judge them by saying they're there is seen in the vicinity of crises ok do you want to jump in there. well you know if i can come in. first of all 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 that they'd be much more pragmatic but i disagree with peter in london is that i think this whole idea that we have. the free economy free market free trade is complete 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 there's very heavy state spending we do not live in a free market economy so to talk is that as 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 peter do you want to reply to that it's all right so it's about the balance of course it's going to have either we move a lot farther in that direction but it's much freer more often than it was fifty years ago peter go ahead. sure but i think that i think the porton point that i was trying to make is that it's not about whether it's free or not free it's about

degrees of of management and how countries can take their own domestic situations which are each unique and manage those and yes you know for example if you look at all the developments except 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 that the advice the i.m.f. was giving and the economic policies that i.m.f. economists learned of themselves at the university of chicago and other orthodox economics schools and then were in putting into that into economic policy advice to developing countries are the wrong kind of policies and advice for 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 is described by new liberal or the docs economic schools is just floored it doesn't

work with the way our real world economic systems work markets don't but aren't perfectly in. that kind of economic theory no no again is what i believe in a higher call milton friedman you might know but no one is pursuing that chicago university does not have the great influence the you give it credit for the people who really influential i really happening is that you've got a greening of the outlook of leaders of international institutions and politicians where they've taken up my dislike 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 the hallowed and the locus being imposed by the i.m.f. by the world bank i love the multilateral institutions it's not the chicago so i don't think the green school we should be worried about i. mean i don't recognize that that is true at the i m. and i think right now let's take one of the one of the most important issues that guy in that piece dealing with right now and that's

around the 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 owned the i.m.f. were trying to push the i.m.f. to amend its articles of agreement to men date free movement of capital around the world and that was rejected at the time and largely because the asian financial crisis hit and everybody said oh 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 that's a huge debate at the i.m.f. it's going to be a very important topic for the next managing director to take up and to mediate between the frankly the 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 is coming out of korea 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 word go ahead. well i think that capital flows issue i don't disagree with where it's coming from but that's what that's yesterday's war the i.m.f. 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 on the point that there is a chance if the emerging market countries could get together behind a single candidate already jeffrey you know we've run out of time completely out of time many thanks to my guest today in cambridge and london and thanks to our viewers for watching us here at r.t.c. you next time remember cross talk. and.

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