which brightened. some from phones to pressure. these for instance on t.v. dot com. welcome back you are watching our team live from moscow these are the top stories the u.n. calls for restraint in libya amid reports of abuses and an alleged summary killings by both rebels and gadhafi forces there's also concern the country's chemical weapons could fall into the wrong hands in the bloody civil war. france struggles to balance the books as stagnating growth and surging death bring about government cuts are fears public outrage could soon spill out into the streets. and the caucuses republican because he is electing a new leader in a vote triggered by the death of its president and

a lot is at stake for the new head of state of the country still recovering from its long and violent struggle for independence from georgia. i'll be back at the top of the hour with more updates for you the meantime a bring you heated debate and expert opinion peter lavelle is next with his crosstalk. you can. start. a low in welcome to cross talk i'm peter lavelle issues of relevance and even legitimacy as the jostling continues as you will succeed the 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. can see. 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 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 is here guiding 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 major for the i.m.f. will be european broadly construed and that's the same path we've had since those

institutions were established the pattern so ingrained in the fabric of the supernational 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 and the one nine hundred eighty s. or asia which neared an economic meltdown in the one nine hundred ninety s. the i must push 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 germany 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 shark away from a food crisis if any actual 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 organisations 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 i met in its current form will be able to keep up with that sample of our ever globalizing world charney across party. and ok and i to go to daniel first and he 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 imus's i.m.f. has function more like a medieval court in 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 who 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 sixty plus years and the next thirty is likely to be european as well i mean that's clearly under across the fact that america which has less than five percent of the world's population has a veto and it 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. or maybe they can say what is 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 i daniels 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 very key markets but i disagree completely about the reason if you have governance of the i.m.f. or 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 peter 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 know the answer to everything our articles of agreement talk about what it was set up to do and that was to create a 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 the mockers 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. start 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 so 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 but 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 or 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 of which means to give vote to both economically weighted countries but also to a one country one vote system so that you can bounce the competing interests and have much more accountability for the way the i.m.f. operates i looked at the figures i mean if i'm not a mistake in brazil has a list of awaiting voting rights and belgium does i mean how can that be realistic ok a lot of people even say the doldrum 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. 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 sherries of the emerging markets are larger than they were before we still have anomalies like you said but the progress is on the right direction and 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. then 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 not going to happen for elementary political reasons that aren't the mocker see or west versus east or anything else ok peter if i can go to you i think the internet. the porton 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 as 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 pretty christine legarde so if you're talking about a candidate who was educated at the 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 you 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 of 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 when you

talk about things like capital controls financial repression and just through a policy or a gentleman i'm going to jump in here genuine like to. 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 slipping out 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 pull its credibility 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 under solved and they just come in people coming back and back and back so you see that happen time and time again as i think all

international institutions not just the i.m.f. should really be focusing on strong dynamic long term growth that really should be the 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 going to 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 for. the depression is different therefore 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 or 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 that i have 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 this time they are going to break here after a short break we'll continue our discussion of the state party. the are. the limits. just

say. the beasts. come on some awesome. awesome on the rocks to a maximum efficiency. for the a maneuver ability most musicians suited the marks in my skills mold famous ear show on technology update cheer on a large in. the future coverage. and

. welcome back to crossfire computable remind you we're talking about the i.m.f. and emerging countries. and. we finally went to the break jeffrey made an interesting comment is that we've seen in one president i know out of an amount of economic growth over the last six years and i guess we all agree minus the great recession but daniel if i can go back to you again what a great examples 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 the i.m.f. it 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 and also when they have grown they've grown quite often because of extending a huge amount of credit rather than trying to work out how to have real dynamic organic growth i think that is a 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 that 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'm going to you about also in london he can't win but is there an 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 to 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 and the world bank's advice and the ones who've 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 of the institutions that have looked at how to go up the 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 to 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 an independent voice on economic policies particularly in rich countries don't have to 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 us or in germany or in china and what's creating global imbalances and 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 and i'm a failed to do that because it's been in hock to rich countries and it's been in hock 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 but can do really rigorously on the most systemically important

countries as they call them meaning the us. germany and japan and china and that's what i meant 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 cambridge that's pretty but it's a really mazing indictment there from peter in london do you want to react to some of those comments. well yeah i actually think we agree on the bottom line this time for what i know of eight excellent candidates for emerging markets and so that and there who are. you know jeffrey why is it something just like really it's not it's not there who's going to be i think we've got past i mean it's the it is is it's the ideology that's coming out of the i.m.f. because what with peter said is that these countries are going very very successful for the i.m.f. so head to head. let me answer the comment the united states over the last decade followed an irresponsible policies of a budget deficit starring the bush administration and the regulation and all the

rest of it the i.m.f. say all that's fine because they were an ad hoc know the i.m.f. article forward consultations the annual reports criticizing us for that nobody paid any attention nobody cares americans don't care that we don't have it that's a matter of power politics has got nothing to do with who's managing director of the i.m.f. i 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. i've got away sort of this issue of growth so that's unfair i don't want to learn saying they are going to school deficits go ahead peter i meant 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 the fiscal side but on the financial deregulation side have completely missed the ball jeffrey you want to do so you're talking to me in there

the i.m.f. and i mean that was your health care and 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 but it doesn't matter if that's not going to have any effect. there are having an 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 that all ping 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 down in the office 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 sick patients therefore they cause sickness of course they come in a crisis you can't judge them by saying they're very seen in the vicinity of crises ok do you want to jump in there. well you know if i can come in there. first of all i'd completely welcome 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 all responsible for that growth and that i agree with the other people in london that they'd be 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 is that as if we do is nonsense even if you

believe that we should always shouldn't i think this is the wrong way to go to the question here do you want to reply to that it's all right so it's about the pound 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 it was fifty years ago here go ahead. sure but i think i think important point that i was trying to make is that it's not about whether it's free we're 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 in 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 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 economic schools and then we're putting into that 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 is described by new liberal or it's more orthodox economics schools is just floored it doesn't work with the way our real world economic systems work markets don't but more appropriately than the no no i agree with that kind of economic theory no no again you can i believe in a higher call milton friedman you might know but no one is saying that chicago university does not have a great influence but you give it credit for the people who really influential i really happening is you but i greening of the outlook of leaders of international institutions and politicians where they've taken up my dislike environmentalist them 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 hard work and the look is being imposed by the i.m.f. by the world bank and other you're about to institutions it's not the chicago's i think the green school we should be worried about i. mean i don't recognise that that is true if you. and i think right now let's take one of the one of the most important issues to him that he's 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 owned 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 and it 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 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 fall 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 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 brazil and others who are looking and i want to i want you to i want to and we're almost out of time gentlemen i want to give jeffrey 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. now has moved more in a direction which i agree 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 you really. run out of time completely out of

time many thanks and i guess again cambridge and london thanks for viewers for watching us here on r.g.p. see you next time and remember cross talk. if you. still. want to.

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