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The head of the IMF, Christine Lagarde, discussed these issues today in Washington, and sat down with me this afternoon.
Christine Lagarde, thank you for talking with us.
CHRISTINE LAGARDE, Managing Director, International Monetary Fund:
One of your main messages today is that global economic growth is — yes, it's growing, but it's not enough, it's not as fast as you would like to see it.
And you went so far as to say growth in the near term is going to be pared down. What did you mean by that, and why is that happening?
Today's growth indicates that recovery is under way, and, unfortunately, it is too moderate and uneven. That's for the short-term.
But what we are also seeing is that the growth potential, that is growth for tomorrow and the day after tomorrow, has been seriously affected by the scars of the financial crisis, by something that we can't do anything about, which is the aging of population, and by a very low productivity.
So what we risk is the new mediocre to become reality. And it can be avoided. It can be avoided if the right measures are taken on the macroeconomy front, on the financial stability front and in terms of structural reforms to the economy.
I also want to ask you about the aging population. You said…
That, we can't do much about.
That you can't do much about — is that right? Is that really one where you just hope it gets better?
You know, the overall global population will grow.
The point I was trying to make is that, in the advanced economies and in some of the largest emerging market economies, like China, for instance, population is aging, and it is those countries that can unleash the most growth. A country like Japan, population is not growing. It's aging. Yet there is a huge working force potential that is untapped at the moment, the women.
So what I'm saying is that you and I will age. We can't stop that. But measures can be taken by policy-makers to bring more people to the job markets, where it will unleash value.
Well, we can't talk about Europe, which we have been talking about, in part, without talking about Greece. You got a much watched-for payment, the IMF did today, from Greece.
Were you relieved?
I was told by the finance minister, whom I saw on Sunday Easter, that payment will be made. And payment has been made. So that is good.
What I'm most concerned about is that the rest of our conversation be also implemented, that is, we activate and accelerate the dialogue, the discussions of the reforms that the Greek authorities proposed to do in order to reach the objectives of the contract that they have with the European partners.
Well, that's what I want to ask you about, because we know Greece, even as it makes this payment, is in the throes of some enormous economic and social and political turmoil still, high unemployment, 25 percent. These austerity measures have been imposed. Capital is leaving the country. I saw the number $25 billion worth.
Is the — what is the IMF doing, if anything, to ease up on some of the austerity that's been imposed on Greece?
You know, for the Greek economy, most of the difficult fiscal measures have been taken, so much so that the country, in 2014, most likely, and we hope in 2015, will deliver a fiscal surplus.
But what is badly needed and has not been implemented over the last few years is in-depth structural reforms to unleash the potential of the Greek economy, to unclog the product and service market, and to give access to jobs to the young people.
I will give you an example. Baby milk is only sold in pharmacies. There isn't a particular reason for that. It was tried. Retail market could sell it for a little while, prices went down. It reverted quickly back to the pharmacies. This is not a good idea.
Transportation is highly, highly regulated and prevents access to new players and newcomers. The pension system is doomed to weigh so heavily on the Greek economy that it will not be sustainable. It has to be reformed.
And just very quickly, for those Americans who are watching and saying, wait a minute, this is an ocean away, it doesn't really affect us, what's the answer?
I think the world is so interconnected, that instability in any corner of the world is going to affect all the other corners. And we all have an interest in stability, in predictability, in confidence-building, rather than risk of instability.
Another issue that I want to ask you about is one I know is going to be discussed next week, and that is the move by China to create a new bank to fund infrastructure projects in developing countries, the Asian Infrastructure Investment Bank.
I know you were diplomatic in your remarks about it today, but there are those who are looking at this and saying, this represents potentially something that could undercut the IMF, the World Bank. Do you share those worries?
I actually don't, because the IMF is not in the business of financing infrastructure. This is not what we were set up for 70 years ago.
Our mission is financial stability. So we don't compete at all with the activity intended by the AIIB. But, you know, it's an initiative that will fund infrastructure. And if it is done efficiently, projects well-selected, countries' growth lifted, it's good for the global economy.
And for those who say that this may be — should be a wakeup call to the United States that the days of American economic preeminence may be coming to an end because of this kind of thing that the Chinese can pull off, and dozens of other countries that even American allies are now joining, signing on to this bank?
Well, this is a new economic landscape. We're no longer in a situation where China was a low-income country, developing economy, and the same goes for many other emerging markets.
So with the new landscape, the United States remains the largest economic power in the world. And the United States has to play its role and has to exercise its leadership. For instance, it is my main shareholder, yet it doesn't ratify the reform that it itself engineered in order to reduce the representation of the Europeans and increase the representation of the emerging market economies, to strengthen the IMF, which is a tool of stability.
So I very much hope that the United States will actually deliver on its leadership commitment.
And that was a decision by the United States Congress. And it helped to lead to China's decision to create this bank.
It may have been in the back of the mind of Chinese authorities. I don't know what the process was, but it's certainly in the hands of the U.S. authorities, Congress and the executive, to actually implement the leadership that is so much needed.
Christine Lagarde, managing director of the International Monetary Fund, thank you.
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