i know what's really happening to the global economy with much stronger no holds barred look at the global financial headlines. welcome back without you live from moscow where it's now a half past the hour for headlines now. in his home town in libya despite claims the coalition is not involved in helping rebels the colonel down that's us concerns grow over who will get their hands on the country's weapons of mass destruction. gloomy forecasts for economic growth in france despite the country announcing new austerity measures of twelve billion euros in cuts and tax hikes for the rich but fears about it could lead to public outrage across the country. rather a public office for

a new president with much of the country lying in ruins after years of struggling to maintain independence from georgia over half of all causing voters at this point have already cast its. daughters here in half an hour's time but for now it's cross talk here on alt. q. hello and 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 company 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 messy. came. 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 and 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 had an extra hour 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 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. will be european broadly construed and that's the same time we've had since those institutions were established

a 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 obsolete unwritten convention and saying that adequate representation of emerging markets and developing members and the friends 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 neck anomic meltdown and 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 shark away from a 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 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 ever globalizing world . for 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 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 sat down to write 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 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. 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 it's the i.m.f. it's imposing austerity it's not really my fault i would really like to do it so it's a way of bypassing 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 guess it was 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 if governance of the i.m.f. were to be completely democratic it will be ground like the united nations and it would be much less effect of 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 really is the i.m.f.

practicing the principles that it claims to be out of to uphold. well i think on your direct question no the answer is often not because there are because of agreement talk about what it was set up to do and that was 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 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. 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 that i imagine 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 if 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 global majority of which means if you vote 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 in 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 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 that do. 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 others 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 then porton 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 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 are the mocker see or west versus east or anything else ok peter if i can go to you i think i'm just being good. at the porton point here is not actually about which countries have which votes and what did 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 particularly christine legarde so if you're talking about a candidate who's educated at the university of chicago with a ph d. in orthodox macroeconomics which as we've seen from the last five years is based on theories which are completely flawed and you don't want that kind of person running an i.m.f. which needs to update its thinking and 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 and 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 i'd like to. so 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 is 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 up the times at all no i mean it started in an era of 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 under solved 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 long term growth that really should be their main aim 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 that everything it does is all wrong and you want to tear it down or completely change its aims first. person 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 that i have enough has done everything right but i think it is and that helps and 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 a break here after a short break we'll continue our discussion on the state party. wealthy british style. restaurant. market finance scandal find out what's really happening to the global economy with my scotcher for a no holds barred look at the global financial headlines tune into cars

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welcome back to crossfire our computer would help remind you we're talking about the i.m.f. and emerging countries. can start. we've done i went to the break jeffrey made an interesting comment is that we've seen in one president i know out of item out 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 where the i.m.f. help countries become rich. well i don't agree with the premise of the question i don't really think it's the i.m.f. and its top down just become rich i think it's misleading to look at the past sixty years as a hollow i think if you look at the world economy since the early one nine hundred seventy s. i think in the 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. unami 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 now 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 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 about also in london he can't lose 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 particularly 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

lines who have not followed rigorously the i.m.f. device of the world bank's advice and 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 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 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 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 it's 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. . 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 cambridge that's pretty that'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 create in the bottom line that it's time for what i know of eight excellent candidates for emerging markets and so that's and there who are. geoffrey ending point is that if somebody just agrees that it's not there who's going to be i think we've gotten past that i mean it's the it is it's the ideology that's coming out of the i.m.f. because what we're peter said is that these countries are going very so you have to be very successful with science early on in math so head to head. let me add to the comment the united states over the last decade followed an irresponsible policies of the budget deficit story the bush administration and deregulation and all the rest of it did the i.m.f. say all that's fine because they were and i thought no the i.m.f. article forward consultations the annual reports criticized 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 then director of the

i.m.f. they said the right things but nobody cares there's certain power realities in the world and you can't blame them on the i.m.f. i by the way sort of this issue of growth that's not true i don't want to learn saying they are going to do is going to fix it go ahead peter i meant in 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 wild 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 completely missed the ball jeffrey you want to see if i can put in there the i.m.f. and i mean it could be that was turning off that cat i wish to read you jeffrey so let jeffrey speak and then we'll go back out to daniel go ahead jeffery. the i.m.f. cannot dictate to the u.s. you go look at the back and look at what they are and have said about housing prices five six years ago if it doesn't matter if that's not going to have any

effect. there are having a fight 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 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 now m.f. is like a doctor of course you see doctors around sick patients you can't make a correlation and say all these doctors there are you see the sick patients 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 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 all responsible for that growth and that i agree with the other people in london that they'd be much more pragmatic but i disagree with peter nandan 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 that only exist is very heavily regulated trade is very heavy straight spending we do not live in a free market economy certain because that is if we do it 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 already so it's about the town of course it's going it's not that 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 important 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 in yes you know 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 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. is 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 as

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 perfect even for. that kind of economic theory one note again if you'd like to believe in a higher call milton friedman you might know but no one is saying that chicago university does not have the great influence there you give it credit for the people who really influential really happening is that you've got a greening of the outlook of leaders of international institutions and politicians where they've taken up ideas like 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 are really welcome risks being undermined by the book and now look it's being imposed by the i.m.f. by the world bank and allow them to multilateral institutions it's not the chicago i think the green school we should be worried about i. mean i don't recognize that

that is true. and i think right now let's take one of the one of the most important issues that guy in that he's doing 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 then be 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 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'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 brazil

and others who are looking at i want to give to i want to and we're almost out of time gentlemen i want to give geoffrey the last we're going. 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. 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 they taken some controls well targeted can be can be useful but that's really beside the point i want to conclude on that point that 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 and i guess again cambridge and london and thanks more viewers for watching us here in r.g.c. unix time remember crosstalk.