IMF Managing Director Discusses Organization’s Role
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JIM LEHRER: Finally tonight, a conversation with the man in charge of the International Monetary Fund. This week, the IMF was one of several financial institutions put on higher alert for a potential terrorist attack.
Our economics correspondent, Paul Solman, of WGBH-Boston recently talked to the new head of the fund about its mission and operation. The conversation took place before this week’s alert.
PAUL SOLMAN: The incoming head of the International Monetary Fund, Rodrigo Rato, at the IMF’S welcoming reception for him in mid-June. A politician with an MBA from Berkeley back in the ’70s, Rato has been Spain’s economic czar for the past eight years, managing to stir competition there, make it easier to fire and hire workers, cut taxes, and spur Spanish economic growth. He lost his job when his party lost in the recent Spanish elections.
Meanwhile, world economic growth is the IMF’s domain. Created near the end of World War II in Breton Woods, New Hampshire, to help Europe and the world economy recover from war and depression, the IMF Has become a sort of global financial firefighter, the lender of last resort to shaky economies from Turkey to Brazil, Mexico to Argentina.
Each of these countries came to depend on borrowed money in recent years, then found its lenders demanding the money back. In stepped the IMF to bail the country out, so long as it met certain conditions, often less government spending on the poor, who often protested; often blamed the IMF For the cutbacks.
Rato takes over after years of such criticism. We spoke with him soon after he arrived in Washington earlier last month.
Rodrigo Rato, welcome.
RODRIGO RATO: Thank you.
PAUL SOLMAN: I’d like to start with the Economist Magazine’s rather tough description of the job you’re taking on, and I quote: chief executive of a financial institution which has concentrated 70 percent of its lending on just three clients, whose corporate mission is in dispute, whose public image is poor, and whose board of directors is meddlesome, quarrelsome, and highly politicized.
Is that an unfair characterization?
RODRIGO RATO: I think it’s a little bit extreme. No, I don’t think that… I think it’s a very important institution, has played a very important role for many countries at different moments in different circumstances– Korea only a few years ago, Brazil, Argentina, Turkey, Uruguay.
PAUL SOLMAN: Doing what?
RODRIGO RATO: Doing what nobody else is willing to do at such a moment when countries are in difficulties, which is to give them the financial resources to get out of a difficult joint. And when a country gets into a difficult situation, like when a person gets into a difficult situation, its credit dries out.
And then you might decide that the country can just spend maybe years or decades to regain that credit, or maybe give that county the support, the financial support that the market is not willing not do.
PAUL SOLMAN: The IMF has been accused of putting overly stringent conditions on its loans. Has it?
RODRIGO RATO: I think that you cannot accuse… have such a generalized accusation. Most cases, I would say, in a huge amount of cases, countries that have worked with us and have used our financial facilities have come out quick… more quickly and in a better shape from a crisis than would have come out otherwise.
PAUL SOLMAN: You’ve been criticized for getting governments to stop spending money on their poor people, on their education, health care, and stuff like that.
RODRIGO RATO: Well I think that’s an unfair accusation. This is not that the fund says, “hey, here you have a program that will help poor people, let’s get rid of it.” I mean, that’s not the case.
The fund finds a country that has so much public deficit and public debt that doesn’t get credit in the market. So it’s not that this program against poverty or that program to construct a road are unfunded, it’s that the whole budget is unfunded. So we’ll have to fund the budget.
And when we decide that, of course, wages of public servants, construction of infrastructure, money dedicated to social problems, all of them suffer, but not because of the fund decision, but because of the situation. I accept that at some moments specific decisions that we have made maybe could have been better, sure.
PAUL SOLMAN: You shouldn’t have been as stringent as you were?
RODRIGO RATO: Maybe. I mean, we will have to look case-by-case.
PAUL SOLMAN: Americans have Iraq, terrorism, a host of domestic issues to worry about. Why should they be concerned with the IMF’S mission?
RODRIGO RATO: Well, I would say for two reasons. One, for ethical reasons, because they are citizens of the world and they feel that when there’s pain and hunger and catastrophe in societies, it’s part of their catastrophe; and another for selfish reasons, because they’re an open economy, they’re one of the biggest economies in the world with the European Union, and they gain a lot of money when there is more trade, there is more economic growth all over the world, people buy more goods from American companies.
So the American economy needs the world, and the world needs the American economy.
PAUL SOLMAN: You’ve called on the U.S. Government to reduce its budget deficit. Why?
RODRIGO RATO: Because the budget deficit is creating a situation in which the United States is not saving enough to finance its own… its own investment.
And it’s also producing a growth in debt to the United States that will weight very heavily in a country that has to address issues like having more old people to be covered by Social Security or by pension in the future.
PAUL SOLMAN: There is discussion of England and the United States now pushing to forgive the debt of the poorest countries in the world. Do you think that’s a good idea?
RODRIGO RATO: I think it’s a good idea. I mean, the world has already done a big, big effort to forget debt to countries heavily indebted and with low income. And that has given good chances to countries to get out of poverty.
PAUL SOLMAN: Aren’t you afraid that might set a bad example, and moreover, be unfair to countries that have handled their debt responsibly.
RODRIGO RATO: No. Because forgiveness is attached to a procedure of policy. The world countries decided to forgive very low-income countries of the debt.
But to be able do that, those low-income countries have to get in programs with the IMF to be able to complete that process. And so there… they change their economies, they liberalize their economies; they have sound financial and banking rules and systems. The help they’re going to get from international solidarity will not be wasted.
PAUL SOLMAN: No worry at all? I mean…
RODRIGO RATO: We’re human beings.
PAUL SOLMAN: Financial Times Correspondent Andrew Bowls writes that last November, when he asked you about the IMF job, you said, “I need a more manageable thing. The IMF job is one that is impossible to do well.
RODRIGO RATO: Well, I’ll tell you if I was wrong or right five years from now. (Laughs)
PAUL SOLMAN: Rodrigo Rato, thank you very much.
RODRIGO RATO: Thank you very much.