International trade tensions. That’s one of the big global risks on Christine Lagarde’s list. Lagarde has been the managing director and chairwoman of the International Monetary Fund since 2011. She’s keeping a close eye on the current trade negotiations between the United States and China.
“I cross my fingers every morning and my toes every evening because I hope that it is going to end up with a way to fix the system, not break it. Because I do believe that the system needs fixing,” she told Marketplace’s Kai Ryssdal. “So if the outcome of the discussions between the U.S. trade team and the China trade team leads all of us in the direction of an improved framework where subsidies are well defined, where state-owned enterprises are well defined, where intellectual property is protected, where there is an encouragement to a rules-based system that provides free fair and mutually beneficial trade, then this is really an improvement.”
Ryssdal spoke with Lagarde at the IMF’s headquarters in Washington, D.C. They covered a wide range of topics, including economic anxiety and social mobility.
“What we are seeing in many countries — predominantly advanced economies — is this sentiment that globalization, new technologies are a threat, are going to take your job, are not going to improve the future of your children, are taking you out of control of your destiny," she said. "That's what a lot of people perceive.”
Below is an edited transcript of the full interview.
Kai Ryssdal: I don't want to start sounding trivial, but I do want to know how much time you spend, and your staff, explaining to people what the IMF does.
Christine Lagarde: You know, I have rehearsed very carefully, what is the IMF, what do we do. And I don't spend an awful lot of time ...
Lagarde: No. What I often have to do is to explain what is the difference between the World Bank and the IMF.
Ryssdal: Give me that, give me 15 seconds on that.
Lagarde: So the World Bank finances development and projects. The IMF does three things: One, we give financial support to countries that have a balance of payment issue — in other words, they can't pay what they're buying. No. 2, we give policy advice. And No. 3, we give technical assistance and training to countries that are trying to improve their financial management. We never, ever give grants. We always lend, and we always recover the money that we have lent.
Ryssdal: You've been at the highest levels of global economic policy for a long time now both in France and now here at the IMF. Describe this moment for me.
Lagarde: Which moment?
Ryssdal: This moment we're in right now.
Lagarde: Oh I see ...
Ryssdal: … because it's an interesting time for multilateralism in the global economy.
Lagarde: You know, it's a strange moment because it's one where we still see growth: 3.5 percent is the focus that we have, a small 3.5 percent. But we're seeing major risks on the horizon that could undermine that current growth position.
Ryssdal: Say more on the risks you see.
Lagarde: The three categories of risks: Risk No. 1, the tensions that we are seeing in international trade, particularly between [the] U.S. and China. That has an impact on trade — minimal but an impact. It has a significant impact on confidence, and it has an impact on markets. So the combined three impacts —trade, markets, confidence — actually reduce global growth and certainly explain our downsided projection. The second cloud on the horizon, second risk, is the financial risk where we are currently in a position where many countries, many corporate, many households are heavily indebted, in many countries in nondomestic currencies, and where we know that the financing costs will probably go up and the dollar is strong. The third risk is that of an accelerated slowdown of growth in China, which given the size of the Chinese economy would have an impact outside of China. And then you have some related risks, such as uncertainty of the outcome of Brexit in the U.K. and what impact it will have on the global economy and predominantly on the European Union. And ... any geopolitical risk that we have around.
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Ryssdal: So to that subject of geopolitical risk and more specifically the role of the United States in the global economy today. You are dealing with an administration that is, if not openly hostile, then deeply skeptical of what you and this organization and the World Bank and many other multilateral institutions do. How do you deal with that as a woman whose job it is to promote multilateralism? I mean, that's your thing now, the new multilateralism.
Lagarde: You know, I tell you, it is not the case that the Treasury Department, with whom we have a relationship — because the Treasury is representing the United States at the board of the IMF — so it is not the case that we have a bad relationship. We actually have a good relationship with the Treasury Department, and I'm still to see a situation, a case, a country where we work, where we are engaged and where the U.S. authorities at whichever level will say, “We are not happy with what to do. We really do not support the institution.” I have seen, like in the case of Egypt, in the case of Ukraine, in the case of Jordan, in the case of Argentina significant engagement on the part of the U.S. authorities to support the work that we do in those countries.
Ryssdal: Do you then discount the president's public position on multilateralism and institutions that work toward that goal. Because he's ...
Lagarde: You know, I'm a very practical person. The IMF is an institution that includes 189 countries, that is both a firefighter when there is a big financial crisis and an architect when it tries to give policy advice to countries. And whether I'm labeled a multilateralist institution or not is to me irrelevant. What is relevant to me is the mission that we have to conduct, which is to maintain and help financial stability around the world, [to] maintain and encourage prosperity, and those are the driving forces of my mission. Of course, I believe myself that multilateralism is the only way to deal with threats like cyberthreats, like terrorism, like pandemics, like climate change because those issues know no borders, and you can only address them and solve them and chase the threats if we act collectively in a multilateral setting.
Ryssdal: You know, this is interesting because you're being very positive in your outlook for multilateralism. But you wrote in a blog post — first of all, you're a blogger at the IMF website — you wrote a blog post last November called "When History Rhymes," and you hearken back to the First World War in 1918 and the rise of inequality and the conflict and all of the horrible things actually that happened around that time. And you say if we're not careful, we're looking at that again. Reconcile what you just said with what you wrote in November for me.
Lagarde: I think those threats are there. And certainly what we are seeing in many countries — predominantly advanced economies— is this sentiment that globalization, new technologies are a threat, are going to take your job, are not going to improve the future of your children, are taking you out of control of your destiny. That's what a lot of people perceive.
Ryssdal: There are millions of people in the United States who believe that.
Lagarde: Yeah. No, no, no. And, you know, it's not specific to the United States. You know, a movement in my country, France, like the "yellow vest," is also an expression of this anxiety about the future.
But this is not going to be solved appropriately by turning inwards, by looking at your belly button. It's going to be addressed by looking at the size of the problems, the nature of the threats, how it can be addressed and cooperation between countries. As I said to you earlier on, terrorism — not a domestic issue. Climate change — not a domestic issue. Cyberthreats — not a domestic issue. International trade — obviously international by nature.
But what is domestic and what is critically important is to make sure that there is in place the protection, the adjustment mechanisms, so that people feel that they have control over their destiny [and] people feel that it's going to pay back for them as well, and that it's not because there is more robots, more digitalization, more artificial intelligence applied to their work, their work site and their workplace that they're going to lose out. That's where domestic policies meet international cooperation, if you will.
Ryssdal: What do you make then of the trade negotiations that are happening now between China and the United States? Well, I guess actually, do we make too much of that? Should we just bank on them being solved?
Lagarde: I cross my fingers every morning and my toes every evening because I hope that it is going to end up with a way to fix the system, not break it. Because I do believe that the system needs fixing. There are multiple areas that are not covered by international trade rules. There are many instances where trade is at risk of not being fair, not being mutually beneficial. The multiple instances where the definitions are out of date and needs to be improved and changed and adjusted to the present. There has to be some realism applied to the trade relationship, and I think that that is to the great benefit of what is happening at the moment.
So if the outcome of the discussions between the U.S. trade team and the China trade team leads all of us in the direction of an improved framework where subsidies are well defined, where state-owned enterprises are well defined, where intellectual property is protected, where there is an encouragement to a rules-based system that provides free fair and mutually beneficial trade, then this is really an improvement.
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Ryssdal: Do you believe though that the president of the United States has a grasp of economic policy at that level?
Lagarde: He's got terribly competent people around him to do that job. You know, I would not expect all presidents of all countries to actually master all these technicalities: [World Trade Organization] rules, trade principles, the zillions of tariff lines, you know. No president should be expected to know all that. But to give the impulse of fixing the system and doing it in a collaborative way, that's where a president has a decision in his hands.
Ryssdal: Grade yourself for me, would you? You've been on the job now going on eight years. Right? You got a couple of years left. How are you doing so far?
Lagarde: You know, I might even have a third term. Why not?
Ryssdal: Well, we'll see how this interview goes. I don't know. People are listening.
Lagarde: It's not for me to say. [Crosstalk.] Look, the fact that the membership decided to reappoint me for a second term unanimously, I took that as a token of appreciation and recognition of the effort that I put in every morning and the focus that I have on delivering on the mission.
Ryssdal: Here's a better way to ask the question, and I should've done this the first time. You came on this job in 2011, the world and certainly the American economy barely climbing out of the Great Recession. Have you been able to do what you wanted to do when you took the job?
Lagarde: You know, when I took the job I was — and everybody else was — under the impression that the situation was improving significantly, and that we were out of the great financial crisis. And then suddenly the European sovereign debt hit our radar screen, and we were back into the saddle of addressing those issues and putting, you know, more programs in place in order to help countries around the world.
So my job, as I said, is a bit like being a mixture of an architect helping frame policies focusing on what is macro critical — including unusual subjects like participation of women in the workplace, reducing excessive inequalities, fighting corruptions — and being a firefighter whenever there is a crisis on the horizon, and a country knocks at the door to say, "I can't refinance myself. I'm in real trouble,” and we're — I have to help.
Ryssdal: So we are here 10 years plus or minus after the crisis, and I want to ask you about something you said early in your tenure at the IMF, that if Lehman Brothers had been Lehman Sisters, the crisis either would've been different or might not have happened at all. Elaborate on that now sitting here 2019.
Lagarde: OK. A few years later, what has changed for me is that the IMF now recognizes that the role of women in the economy can be macro critical, and therefore warrants our focus, our attention, our research capacity and our policy recommendations.
What we have done very recently — I just want to mention two numbers for you — is a thorough study on the banking sector to see how many women were in executive boards or boards. Twenty percent only are women. How many women are CEOs or chairmen of banks? Two percent. And then we tried to correlate the solidity of banks with the number of women sitting on the board. And it's very interesting to see that those banks which have a significant number of women on their board are stronger, are less likely to file for insolvency, have bigger capital buffers, have less nonperforming loans and are less risky. Interesting, isn't it?
Ryssdal: It's totally fascinating. And I will share another anecdote with you. We have just come from an interview with Janet Yellen, former Fed chair. She said to say hi, by the way.
Ryssdal: We're going to air that on Monday. And my producer and I were chit-chatting with some of your staff before this interview, and we said, “You know, it's really interesting when you get those big group pictures of international economic meetings. You have a whole bunch of guys, and it used to be just Christine Lagarde and Janet Yellen.”
Lagarde: It's raining men.
Ryssdal: And you have that picture now, and it's just you.
Lagarde: I miss Janet. I do. You know, I'm doing my best in my own capacity to encourage and support women, because I think that they are huge contributors. They can bring a lot to the table. And in this institution, for the first time, I was privileged to appoint a chief economist, who is a woman.
Ryssdal: Right. Just recently, right?
Lagarde: Gita Gopinath. Just recently. And I will keep at it. But I think that the economy professions, particularly the macroeconomy professions, has a serious shortfall in women. And it's time that the economists actually look at it themselves, and I trust that Janet in her position will do that, too.
Ryssdal: We had that actual conversation about her role as president of the [American Economic Association] and 2020. Christine Lagarde, thanks very much for your time.
Lagarde: Thank you.
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