the international monetary fund is indeed one of the key player at this very time in these very days in terms of the greek issue for over 30 years at the international international management fund he's the senior fellow of the center for international governance and innovation and canada an organization that has contributed to this meeting as well until 2012 he's had a successful career at the international monetary fund so he's worked for 20 years from 1922 to 2012. devoted to playing as the active historian of the fund and that led to the publishing of two important books devoted to two key times in the history of this institution the first book is a silent revolution years of the international monetary fund between the 1979 through 1989 and then the following decade that was the arbitration of another publication tearing down the walls the international military fund at the time of the collapse of the berlin wall many of you probably know how the national military fund was incorporated at the end of the second world war thanks to the agreement that have been reached in uh place in new hampshire bretton woods in 1944 that was the release of political determination to put an end to a time of upheaval and disruption not only in terms of wars but also in terms of economic disruption and um the decision probably finds its route to some decade earlier than that so the fund has taken up a challenge just um many years away from the incorporation the international monetary fund is still extremely global topical in managing capital market which is very open which is based on the free movement of goods and people a world that is still divided up um in the different national national states the national states are the ones that are still legitimate by the votes so the prerogatives are always going to be different from state to state it seemed a very difficult challenge in 1944 when most of the world were suffering the end of the world war was not even over then and it is uh still a very difficult task for the international monetary fund as is well known to many the bretton woods agreement um for many years were based on the converging and competitive action of american dexter white and john maynard keynes the british economist that perhaps is the main inspirator of the many uh main players also at this festival indeed there were many festive many people here in the festival that were the action of the uh public authorities attested white was for the uh adoption of a financial institution to ratif and then the statute of the bylaws was signed in 1945. the losers of the war italy uh germany and japan were out of that but we were included we italy was a father to be included uh thanks to the rule that italy had played during the war at the end of the war more specifically against nazi this is perhaps a bit of an irony many of the communist parties and probably wouldn't have appreciated the result of that a long history started some 70 years ago during 70 years the fund has promoted uh mutual consistency among the monetary policies of the different member countries and the stability of the international monetary situation to promote economic growth in against the general background background of stability 70 years a very long time during this time the world has changed dramatically uh more than once the history of the international monetary fund crosses the cold war and the time of the golden age and capitalism that is uh that was often quoted by thomas speaker and oppressed deeply those 30 years that were characterized by a strong growth in manufacturing strong growth of income strong growth and development of quantity of life for the majority of populations so very positively looked upon by those who have the thinking but was something that was really true as all fathers could expect their children to have a better lives than themselves and this is very much the history of our own families that um dated to those 30 years and many are still living based on what had been done during those 30 years in the 2021st in the 20th century but the during the science revolution years at the time of the relational markets with the still the international monetary fund again um stuck to its role as the champion of um then at the end of 2007 we had the uh financial crisis his effect are still deeply felt especially on this side of the atlantic throughout this extraordinary development throughout these years of the history of the of the world where countries have become increasingly intertwined we still believe that the politics is very much connected to national states but the interdependence of national states is still a truism but in the international monetary fund there's also stuff it's always stuck to its bylaws so much so that um a gentleman working at the radio where i work and commenting on the situation in greece said uh well the united nations are over they cannot act like they're not to be effective at all just look at what is happening with syria the only institution which is truly international which really has a bearing on facts for the good or evil according to the different points of sight is indeed the international monetary fund well perhaps that gentleman at the radio was uh overdoing it a bit well it will be interesting to understand what mr james thinks about that well the action that has been carried out by the national monetary fund is based on those to be granted to countries to make them stable especially the borrowers but that is based on two uh basic concepts i.e conditionality and ownership the first means the need for individual government borrowers those are to be assessed on a regular basis by experts of the international monitoring fund and objectives are to be reached in agreement with the experts of the imf for those conditions again our prerequisite to obtain such loans so we'll see what is about to happen now in greece anyway those conditions are uh the requirements and those loans obviously do not cover all the need for financing of a little country but just the minimum part as for the rest of the actors guarantees so that they can this money can reassure potential investors and guide further investments are towards that country by public authorities or privates funds conditionality is the uh is one key word and ownership is the second one the need for individual for individual borrowers to own the reform plans as agreed upon with the imf and this is a process of ownership which is very sensitive it requires also a close relationship of powers with their one public with the voters i think for example about the dramatic situation of the greek government interfaced with the promises they've made during the campaign that they led the cyprus again to be appointed as a prime minister in that country the case agrees the austerity measure measures that we're taking the publishment of the most vulnerable that many are referring to and that is what they recognized well all that related to the consolidation of an opinion that perhaps existed even before the great case the imf has promoted not only the poorer countries by means of the criticized the program of structural adjustment that were imposed as conditionality to many poor countries in africa latin america and elsewhere even in europe at the time of crisis and that has promoted uh rigor and austerity the public expenditure on the one side and privatization and deregulation of the market on the other side so much so that and this is what um the critics of the fans say apparently this has contributed to make the stronger elements stronger and the weaker even weaker even even more weak this setting was not the objective of the experts of the fund but this indeed apparently is one of the result of the action of the fund in different areas and this is why i believe that this lecture is going to be so important i'm eventually leaving the floor i believe that there are many people in the country professors that the family believe sometimes that the imf despite being an agency that was set up to fight against inequalities worldwide and as a guarantor of international financial stability in the end did the opposite of promoting inequalities well i'm very curious to learn and eager to listen to your lecture i know that this opinion is widely maintained in many countries by many people so uh over to you professor okay pietro thank you very much uh it's it's really a delight to be here i've been listening to and many uh very interesting presentations over the last few days as i'm i'm sure all of you have um and and i think what we've learned is if if if we needed to learn it is that uh that's the lack of social mobility the the the persistence and even growth of inequality in the world inequality both of income and wealth is uh is a huge problem and and i think character i think you're absolutely right that uh if you took a survey uh probably people in this room certainly people generally as to whether the imf was part of the solution to that or whether it was part of the problem uh you probably find a big majority in people who who think that the imf is is part of the problem so i'm not here to defend the fun i mean my i always took my job as historian of the imf is not to defend the fund but to explain the fund and to try to understand where the fund was coming from when it uh undertook to try to solve certain problems and and i'll try to do that in in the next 40 minutes or so on this specific topic about uh whether the imf can reduce global inequality so certainly when i posed this question as a topic even some of my former colleagues at the imf i sort of looked at me very strangely and thought that's a dumb question of course the imf cannot do anything to reduce global inequality um but but i i don't think it's true and um i i i certainly don't think it's true that the imf has to be be part of the problem because in my view there is no long-run trade-off between financial stability and high quality growth growth that's sustainable and that that promotes uh employment and and and good outcomes for for the the population as a whole those are not incompatible goals in fact they are a very compatible goals uh that you cannot have financial stability unless you also have good sustainable growth in the economy if you don't have good sustainable growth then the pressures on the financial system will be great and and if you don't have financial stability by the same token you can't sustain good growth so you have to have both and and i think it's really just a matter of of trying to to make sure that everybody understands that now there is a short-term problem if you start off in an economy in a country that has that is stuck in a bad equilibrium then getting from a bad equilibrium to a good equilibrium very likely involves a trade-off if you want to try to reduce poverty in an economy that probably involves more public spending but if you want to re-establish financial stability in the economy that may very well involve less public spending so you've got a trade-off but it's a short-term trade-off it's a question of timing how much time can you buy to get from your bad equilibrium to your good equilibrium and if you do that job well then then there's no necessary uh necessary problem so i'm going to try to to make four basic points in in this talk this afternoon the first point i need to make is that the imf has in fact committed itself publicly over and over again to reducing poverty and inequality in the world that is a stated major goal of the imf secondly i want to show that although the imf is not formally an aid agency it's not like the world bank it's not like uh some u.n agencies and so it's not an aid agency but it does have some important tools that should enable it to help countries deal with inequality and poverty and the third point i want to make uh is that the imf has in fact had some success in along those lines it's not uh it's not all bad stories about the imf despite what you may have heard but fourth one this is the most important point because we have to be forward looking here and and have a positive outcome to this this afternoon is that uh the imf can do better and it should do better and i want to say a few words at the end of the talk about uh what it might take for the imf to do better okay so that's that's what i'm trying to to do here so let's go back to to the conference in the 1940s that pietro mentioned in his in his introduction this was a catchphrase in the franklin roosevelt administration during world war ii that prosperity like peace is indivisible you cannot have one country be rich and the other countries be poor because that's a totally unsustainable position in the world that was a very controversial statement but it was repeated over and over again and it was first articulated by harry dexter white who led the effort within the u.s treasury to establish the the imf in fact he made the link between that and the imf very clear in his original 1942 proposal for an institution that eventually became the international monetary fund so why do we need the imf we need the imac because the united states does not intend to desert the war-torn and impoverished nations after the war is won now that's a high sounding phrase but it was not altruism on the part of the united states harry dexter white and his colleagues in the u.s treasury understood very clearly that the u.s had become a very rich country rel certainly relative to the rest of the world because it held three quarters of the world's gold reserves it held uh the the only reserve currency in the world uh it accounted for the majority of international trade but if it was going to prosper after the war it had to have markets out there it had to have other prospering countries to trade with and to to share finance with so that was his view it was an enlightened view but it was an enlightened view based on self-interest but that was very much the rationale for creating the international monetary fund in 1944 now let me fast forward to 1990 because i'll come back to the early days in a few minutes but um but it was in 1990 that the fund really began to accept an explicit commitment to try to uh to deal with poverty and inequality and so i i've i've brought up this for your consideration this quotation from michelle condesu who was the managing director of the imf from 1987 to to the year 2000 and in a speech in 1990 he said that the imf was striving to improve the design of our programs and i was recognizing that all had not been uh sweetness and light between the imf and and poor countries up to that point but he said we're striving to improve the design of our programs to ensure that the plight of the poor is properly recognized uh so that was kind of an eye-opener for a lot of people you know why is the imf being concerned with this uh but he did a lot of things that i'll say about in a few minutes uh during the 1990s to try to make this happen and then i've got another quotation here from trevor manuel trevor manuel was finance minister in south africa under nelson mandela and he was also the chairman of the ministerial committee for the imf in the late 1990s and in a speech to the ministerial committee making the case for trying to do more of what michelle camdus had been talking about trevor emanuel said i see the thrust of the ims role in two major directions now the first major direction was what you all think of and we all think of as the primary role the imf is to ensure the smooth functioning of the international financial system and avoid financial crisis but there's a second arrow in the quiver here a second direction in which the imf needs to work and that is in manual's words to assist low-income countries in fighting poverty and in integrating into the world economy now of course trevor manuel was speaking as the representative of a low-income country himself becoming an emerging market but still with many pop problems of poverty to deal with but he was making this case to the to the world community in the context of this um of this this body and and insisting that this has to be a major part so i have a number of other quotes here i'll just uh throw these up on the board but without saying much about them um horse curler was the managing director after michelle condesu uh he was from 2002 to 2004. and uh the interesting thing about curler is that that he was continuing comsu's emphasis on poverty reduction as a goal for the imf uh he was from germany a lot of people thought he was just going to represent sort of the the world of financial orthodoxy but no he said this is a this is an important task that we need to continue and we need to work with the countries to make this happen we need to work with the world bank and then he went on he was actually making this argument in a speech he made to a group of of catholic bishops and and so he he made a plea for the catholic church to to work with the the imf to try to make these things happening so this this idea of you know we're all in this together we're all we all have the same goals we're all trying to achieve something and we need to work together uh to make this happen his successor rodrigo dorado from spain made similar arguments one of the most important areas of our work he said not just a secondary aspect of it but but one of the most important aspects that we do is to try to reduce poverty and then perhaps the most famous managing director we've had in recent recent days a tragic figure dominique strausconn uh but but he dominic strauscon had a very deep interest in sub-saharan africa and uh and he made a very strong case that that as a result of the global financial crisis which pedro mentioned is a major uh function for the imf right now as a result of that crisis that we're going to have uh 50 million people possibly being pushed into extreme poverty unless something was done about it and we the imf are going to work with the g20 to do something about it um so um and and then this brings us up to the current managing director christine lagarde who's made uh other uh very similar kinds of uh kinds of comments here that the imf has to deal with this vast inequality in the world one half percent of the global population holds over 35 percent of the wealth she sounds like thomas picketty here um in in saying that this is not sustainable it's something that has to be uh solved but it's something that the imf itself is very interested in solving uh and then she goes on to talk about the need for inclusive growth a priority for the imf has been protecting and augmenting social spending to reduce poverty and exclusion so here's the point if the imf is not doing these things then it's not doing its job they cannot fall back and say oh no no we're just a financial stability agency and fighting poverty is the problem with the world bank or somebody else it's our problem we have to deal with it that's the message that has come out over and over again now a lot of people have argued that this is just lip service and and there there's a case to be made for this i'm i'm quoting here from uh a colleague of mine at cg bessemer momana who's a professor of political science at the university of waterloo in canada and she makes a very good point here she said that the funds organizational culture the culture of the staff the kind of people that work at the fund that that culture resists attempts to incorporate poverty reduction in its work objectives so what benzema is worried about is that although all these people up here at the top are acknowledging that this has to be the work of the fund the people in the middle uh people like me who the job i used to have are not doing that job right so and there's there's a lot of truth to that i mean the imf is full of macro economists who've been trained at diagonal saxon universities they're interested in macro problems they're they're not trained in micro problems and um and when i was working on these issues uh in the funds policy department uh 10 15 years ago uh i i personally ran into this the the exact kind of resistance that she's talking about it's mainly the old-timers people my generation it's not the people who are coming up through the fun now so i think it is changing but but changing that culture has been a a a big challenge for the for the fun but but i think it is it is happening now uh if we look beyond some of these uh generalities uh there is strong evidence of of progress uh this is a quote from the fund's own independent evaluation office which operates independently of the executive board and management and staff and they did a study of whether the fund is is actually helping in in poverty and they came up with kind of a bland anodyne kind of uh comment but it said the fund has made significant progress nevertheless challenges remain a nice half full glass kind of pronouncement so let's look elsewhere look outside uh this group new rules for global finance is a left-leaning washington-based uh think tank uh they they spent a lot of time uh assessing how the fund is done they came up with an interesting conclusion they said that the imf has made a marginally positive effect on reducing inequality now that doesn't sound really uh like a ringing endorsement but they looked at several different groups they looked at the imf they looked at the financial stability board the world bank the oecd the g20 and only the imf and the financial stability board got this ringing endorsement of making a marginally positive impact the others were useless as far as trying to reduce poverty so um so so here's the task now right so we've got a glass that's half full progress is being made people are making faint praise of the imf how do we get above a marginally positive outcome how do we how do we get get better so to do that you need to go back a little bit and what i've tried to to identify uh and i'll lay them out very quickly for you here is a set of four stages that the imf has gone through to get where it is today or what i'll call four models that the imf has has tried over the 70 uh years that it's been in existence the original model was to focus only on macroeconomics as pedro said all this is taking it's starting out at the end of world war ii and and you've got all these ruined economies around the world and so the task is to restart global finance and restart global economics and that's going to be a really tough task and it was such a hard task that you could focus on the big things you didn't need to worry about the nuances very much and if you could do something about the big things you could help everybody that was the idea so rising tide lifts all boats in the popular phrase now you can only get so far with that but that was the initial idea so it's it's focusing only on macroeconomics but we did in fact find and then piketty himself has made a uh has presented a lot of data showing this how inequality was declining pretty rapidly during this the first 30 years or so 25 or 30 years after uh after world war ii now why do we get a good outcome well there are some macroeconomic reasons we had stable currency rates we didn't have the kind of beggar thy neighbor policies that we'd seen in the 1930s we had a restoration of multilateral settlements so you didn't have to have barter arrangements between countries that was a big stimulus we had a surge in export-led growth i mean during that whole bretton woods era when we had these fixed exchange rates and the imf was really getting going as an as a as a big player in the international economy uh over for the world economy we had uh average annual growth and exports of about nine percent and and world economic growth was uh between five and six percent for 30 years it was a a period of of um of tremendous export-led growth and that growth was spread across countries so the vision that harry dexter white had laid out in 1942 that prosperity was you know like peace it was you had to spread it around the world in order to sustain it that vision was being realized and so at when the imo started uh right after world war ii there were the imf had one creditor country and that was the united states they held all the financial assets basically by the end of the bretton woods era in 1972 there were 17 creditor countries to the imac spread across four continents interestingly enough one of those 17 countries none of those 17 countries was the united states which was had gotten into its own problems by the by the early 70s as a result of mismanaging its own economy but but the point was prosperity was spreading around the world and then you also had falling inequality within countries uh because there was a period of keynesian economics it was a period when governments took responsibility for for full employment and uh not just for uh for uh for finance and the imf played a role in all that the ims role was first of all to help rebuild the international financial system it did that it it constituted itself as a forum for discussing these policies so the countries could understand what the other countries were doing and promoting currency convertibility the imf was lending to countries that had payments deficits uh interestingly enough not lending so much to uh to very poor countries in those states the united kingdom was the biggest borrower from the imf uh until 1982 when mexico became the biggest borrower and then in the late 1960s the imf played a big role in trying to keep the system from totally collapsing uh it didn't keep the fixed exchange rate system from collapsing but it it did keep the the economy growing through uh through a number of actions so so that was the first model focus on macroeconomics get the economies growing get the world economy growing everybody's a little bit better off okay that gets you so far now in the 1970s things began to evolve the world became a much more complicated place it became a much more complicated place in in i'll mention three ways first of all there was so much financial turmoil once once the countries stopped having fixed exchange rates uh you started getting a lot more competition among countries uh and and that led to a lot of turmoil which led to a lot more demand for help from the imf secondly the imf was getting a lot of new low-income countries a lot of this came about because of the gradual ending of european colonialism so that starting in 1957 when ghana became independent from from the united kingdom and became a member of the imf but mainly in the 1970s 60s through the 70s almost every country in sub-saharan africa became a member of the imf today every country in in africa is a member of the imf and that created huge new challenges for the institution because you couldn't focus just on macra that was not the big problem anymore if you're going to help those countries you needed to dig more deeply into the economic structure of these countries and that was hard and nobody i think is going to pretend that it was handled uh particularly well at the outset thirdly you had these huge oil shocks and the oil shocks created a huge issue because it meant that uh the oil exporting countries uh largely in the middle east but also elsewhere we're getting a huge increase in wealth and oil importing countries we're getting a huge decrease in wealth and that meant that a lot of those assets that were moving from one side of the world to another had to move back or else the world economy was going to stagnate and so recycling these what we're called petrodollars in that era uh became another big challenge for the imf so that led to a whole second model we're now getting beyond macroeconomics we're getting into the era of concessional lending on concessional terms low interest longer-term loans to low-income countries so that they could then begin to share in this prosperity that had already become a major uh facet of the world economy in uh in richer countries so the imf did a lot of things starting around 1975 for the first time they had a subsidy account so what they were doing was they they set up these oil facilities to so that they would take money that they that they had from from oil exporting countries and they were going to turn around and lend it to oil importing countries but what do you do if those oil importing countries can't afford to borrow so they they took donations from uh from richer countries and they use that to subsidize loans to uh to low-income countries there are several hundred million dollars worth of loans that were there were subsidized that way they set up a trust fund by selling part of the imf's massive stock of gold so that they can make longer-term very low-end interest loans to um uh to low-income countries although today everybody gets a low interest rate loan right because interest rates are zero every place but you know in those days you could borrow at half a percent for 10 years that was that was pretty good now i can borrow it half a percent for 10 years but uh but but that was a big issue they set up special facilities in the 1980s the structural adjustment facility and then they tripled the size of that and called it the enhanced structural adjustment facility um and then they renamed it and refocused it in 1999 so that now all these things kind of led up to what we have today which is called the poverty reduction and growth trust which is becoming it's the imf will now have a self-sustaining self-financed permanent facility for the first time to uh to make grants and low very low interest loans to to um to very poor countries and and it's it now has uh almost nine billion dollars in outstanding loans uh to low-income countries there are 58 low-income countries that have borrowed on these uh very favorable terms from the from the imf some of them had zero interest now to put that into perspective um the um the largest borrower under the uh under this trust fund is cote d'ivoire which has about 975 million dollars in outstanding loans that's about three percent of cote d'ivoire's uh gdp so that's a big loan right it's it's it's a significant part of of international financing uh for growth in cote d'ivoire uh greece on the other hand has uh over 24 billion dollars in outstanding loans from the imf and that's about 10 of gdp increase now i'm not suggesting that cote d'ivoire should borrow 10 of his gdp from uh from the imf because that would probably be destabilizing by itself but you have to keep these things in perspective that the imf's main job its main financial task is still solving financial crises and trying to keep the world economy going but what it's doing in low-income countries is not insignificant okay there are other things the the hippic initiative which was a debt relief initiative uh and then its successor the what we call the mdri or from relief of multilateral debt relief is also important and just very quickly i want to mention sdr allegation allocations because this has come back into the discussion in a big way now because we have a lot more of these things outstanding is a very technical nerdy kind of topic uh sdrs but in essence what these are these are lines of credit that countries can draw on and and since 1981 countries have been able to draw on them permanently without having to pay them back as long as they just continue to pay interest at the str interest rate which is a market-based interest rate so this by itself these lines of credit are an extra source of resources to low-income countries and and there's no policy conditionality on these things that these are available to every country uh unconditionally so that's a big thing that tends to get lost in a lot of these uh a lot of these discussions okay so all these things this been going on since the mid 1970s so the second model was moving beyond macro to making uh loans available on longer term and at lower interest rates to these countries then by the 1990s we got into the what i call the third model which is targeted conditions on loans so now instead of just trying to deal with inequality in the in the sense that you have poor countries that you're trying to help we're now trying to move into something even more complicated which is inequality within countries right it's a separate problem altogether and it's not just low-income countries it means that if you have a country that has a big inequality problem uh and they need to borrow from the imf the imf is now going to say it is in your interests and we are going to try to help you to do this it is in your interest to try to reduce this excessive inequality within your country okay so that could be brazil which is not a low-income country it's a middle-income developing country or it could be cote d'ivoire it could be equatorial guinea it could be any country that's borrowing from the imf so until 1990 or so the imf did not want to get involved in these structural conditions they wanted just to say okay if you get your house in order in terms of stable financing then we will help you as best we can to improve your economy now they're saying we're going to get into the nitty-gritty we're going to try to to help you reform your policies now this was a problem because it had to be done but was the imf really well equipped to do it that was the question right this all of us macro economists they're trying to get our hands dirty going to these countries and saying we know better than you do i don't think so how to reform your economy so we we really had about a 10-year period when when there was a struggle going on where the imf was trying to say we're trying to help and these countries are saying no you're not helping you're the problem because we know how to reform our economies but did they you know these are countries that aren't functioning very well these are economies with huge problems so you've got you've got problems on both sides is what i'm trying to say it was a very hard problem that they were trying to solve you had had um when the imf stayed out of the issue and thus let the so we the the imf would say okay for financial stability you need to reduce spending but it's up to you the government to decide where to cut spending and then the government would say well we'll raise bread prices okay and then the for the poor can't afford to buy bread and everybody says oh my god we're borrowing from the imf and they have the raising bread prices let's go out and riot against the imf the imf wasn't telling egypt or whoever to cut to raise bread prices there but they were saying you need to cut and they had to cut somewhere so when we get into the 1990s the imf is trying a different model they're saying you can't raise bread prices because that's going to generate riots and people are going to get killed in the streets you have to do something else right well something else might be things that are going to undermine the authority of the government right it might be cutting subsidies for imports of the kinds of goods that people who support dictatorial governments want to buy right so you get problems with it when you try to stay out of it you get problems when you try to stay in or you try to get in too deeply so we had a whole decade of of trying to solve these problems and by the end of the 1990s with all the things that the imf was trying to do to to make things better um it it had helped some but i think there the the reputation of the imf was suffering because it was getting it was getting in way over its head it was getting in too deeply into trying to define and and dictate the kinds of structural reforms uh that countries uh should implement so um so the the problem is just to summarize that one was that the imf wasn't very good at it another one and this was something that pietro alerted alluded to in his introduction that if the imf gets too deeply involved it undercuts domestic policy making it undercuts domestic ownership of its own policies and then thirdly there was there was a lack of commitment on both sides there was a lack of commitment on the imf because so many of the staff didn't think that the imf should be doing these things and they knew they weren't very good at it and there was a lack of commitment on the governments because they didn't want to do these things either so the third model had to be scrapped and we got a fourth model the fourth model which is the one that's been in effect for the last 15 years or so is a is a model in which the imf has said let's focus on the most critical kinds of reforms not try to get into all the reforms the countries need to make uh let's try to streamline and and cut down on the number of conditions on our loans let's leave other problems to the world bank let's leave some problems to the u.n let's leave some problems to the country and that gets back you know i showed you that quote early on in this talk from uh from horst curler when he says we want a country-led process right that's the fourth model it's saying we're not going to helicopter into these countries and tell them what to do we're going to fly in we're going to ask these countries what they think needs to be done and then we're going to talk about it we're not going to just arrive in the country with a with a program all written out in washington we're going to try to work with the country to define a program that's going to work for that country that's the theory that's the fourth model that's where we are now and and so one thing is limiting the number of conditions to those that are most critical a second thing is focusing more on advice than on conditions so the country is more in the in the lead and just deciding um and but also having a special focus uh particularly in the poorest countries on the on the harm and as part of this dialogue have let's have a focus in the dialogue on the harm that's being done from excessive inequality which is a huge problem in in so many of these countries and thirdly and this has been a big change from the 1990s in these earlier models that the imf has taken a more proactive role in encouraging donors to scale up aid i remember many discussions when i worked at the imf where the question of scaling up aid was um was problematic because because of so many macroeconomic studies had shown that there was a limited ability in poor countries to absorb aid and that if you had too much aid coming in too quickly uh you you'd have corruption that would be uh magnified you'd have inflation that would result uh it would benefit the elites in these countries and not the broad population and so on and so the idea was that eight had to be scaled up slowly and gradually and there were cases where donors wanted to provide more aid to countries and the imf was discouraging them from doing so because they thought it would do more harm than good that that i don't think is happening anymore because under this new model the imf is working with the countries to try to help them absorb aid more positively and they're working with donors to say here are cases where more aid can be used and and has to to be forthcoming so that's a big part of the fourth month and then the last part of it is to defer more to other agencies whether it's the world bank or donors or or the united nations or or whatever you know this is something when you're when you're outside the washington you look at the imf and the world bank and and they look very similar when you're inside they look totally opposites um and and so trying the for the imf and the world bank to try to work better together is a very hard problem but i think i think they are making making some making some progress okay so just to wrap this up we've had these four models the fourth model i think is demonstrably working a lot better than the first three models it's been a result of a lot of soul searching experimentation trying to find what works and what doesn't work and it's it's working better but what do we need to make it work better how do we go above marginal positive contribution to poverty reduction and i think what is most needed is improved governance of the international financial system we have a lot of problems in governance of the system and and that has resulted in a breakdown of trust between the institutions that are trying to help and the countries that they are trying to help the ims reputation suffered a lot as a result of problems with the third model and and those uh that that breakdown and trust i think is still there in in many many countries um and and so sort of trying to build trust i'll say a little bit in a couple of minutes but about what more about what i mean by that the the second thing though they're just trying to have a better dialogue and build rebuild trust is that we have a silo structure you know the imf was set up uh to focus on finance the world bank was set up to focus on development fine on project financing uh and and we have other institutions that all have specialized roles there's no really good overall guidance to what these institutions are doing and and and we need we need to solve that problem and and i and i i will uh argue that i think that the g20 for all of its uh all of its strengths has become part of the problem because it's not broad enough to serve the purpose of of breaking down the silo structure and and then lastly and this is this relates to these other two issues is we have to ensure that low-income countries and other developing countries have adequate voice and representation in the governance of the system it cannot just be a top-down system from the top which is the way it was created and the way it's worked over uh over uh many many years so let me just finish by by saying a little bit about the these two issues voice and representation and then breaking down the silo structure there's um the imf most of the voting power in the imf is based on how big a country's economy is so the bigger the country the more votes it has but in order to soften that a little bit each country has what's called a certain number of basic votes and the decision was made at the bretton woods conference in 1944 that each that 11 of the total voting power in the imf should be made up of these basic votes and that made sure that every country there was a member of the imf had a meaningful vote uh and and so they 11 was in basic votes but they made a mistake because they didn't realize how fast the world economy was going to grow after world war ii so the bigger the world economy got that each country had a fixed number of basic votes so the total votes kept going up and the basic votes stayed the same so by a decade ago in the middle of the last decade basic votes were worth only about one percent of total votes so the small countries had no representation effectively whatsoever and um and so then they they tried to reverse this process and so they amended the articles of agreement of the imf to bring it back up to five and a half percent so the good news is that it's now a fixed percentage so it'll always be five and a half percent the bad news is five and a half percent is only half of 11 they should have gone back to 11 in my personal opinion but but but so there's there's a recognition that there's a a problem with voice and representation of small countries and and poor countries and and it there but it's it's not fully being being solved and sub-saharan africa is the region that is uh that is most um most vulnerable here so the last point i i really want to make uh i i had some notes about the sdr but that's uh let me skip over that because i just want to say this about the g20 it used to be in the 1990s we had a group called the g7 that was the major uh group that dealt with uh with representing the rich countries in discussing international finance and then there was another group the g24 which represented developing countries so the g7 would say this is what we want to see happen and the g24 would say no no no this is what we want to see happen and then they would come together at the imf and the imf would serve as the institution that would reconcile the views of rich and poor countries and try to come up with a consensus that everybody could live with now what do we have the g20 comes into being and the g20 is 20 countries but it's 20 countries that represent about 80 percent of world trade and they rep they control 70 70 sorry 77 of the voting power in the imf so the g20 makes a pronouncement and then it goes to the imf and they say gee that sounds like a good idea i think we should do that and we'll carry that out so what's that what is it what crumbs are left for small countries and poor countries virtually nothing right so um i made this argument at the imf and and i got shouted down by the managing director but she's not here today so i'll i'll keep making this argument because i think it's very important to recognize that small countries and poor countries have been shut out of the discussion because of the g20 and that's not an indictment of the g20 it's an indictment of the system within which the g20 works there's no there's no effective counterweight to the g20 and that's that's one of the things i think that we really need in order to make sure that we have a really positive way of moving forward with these with these problems so that's my these these are my main con conclusions um i had some thoughts about reconstituting the g20 but i'll just say to repeat what i said at the outset global inequality reducing it is a valid goal of the imf it's made some progress but it needs to do more it needs to have an even greater commitment to implementing recent reforms and then we need governance reforms from the international community so thank you very much through the history of the fund at different times i don't know whether the audience agrees with me but it seems like the fun became the imf became ever smoother democratic and perhaps even human and there's a fifth model perhaps living ahead uh which should be based on trust well even the very word conditionality and probably municipality correct me because the fourth model the one that has been with us for the last 15 years well the word the conditionality in the fourth model was replaced by advice now having said this much i think that we could take your questions if you have any there's a review available and in the meantime i'd like to ask one question myself on this historical presentation i'd like to talk about the democratic decision-making process when it comes to global decisions there's a program that i hold here at the radio there the national radio and there was economist danny rodrigue that presented us the content of his latest book in international globalization and he refers to the trilemma so a dilemma with three horns roderick basically says that this world sees three main actions economic globalization political democratization and nation states or national sovereignty well the three things together cannot be so a decision has to be made whereby two things exist either we have a supernational power or if you'd rather have national sovereignty if there's no will to yield this national sovereignty as a matter of fact this is proving to be pretty difficult in europe then we have to be happy with uh um without some degree of democracy so there should be that the divorce that was uh referred to also by bowman of true poli true power and politics where national states are being unable to make decisions and international agency making the most important decisions i'm not just referring to the imf but the g20 for example that together with other agencies make decisions that perhaps are not legitimate by a vote or democratic vote at this very festival also martin wolf journalist of the financial times and says something similar in that he refers to a divorce to distinction between power and accountability so that whereby true decisions basically are made worldwide by people that are not held accountable before the public that are not actually voted by voters that have to bear with the decision that they make so this is either a dilemma or a trilemma as roderick says and perhaps the fifth model of the i am opposite of the imf seems to react to that seems to give new voice to the power in small countries is it going to be enough you think mr bolton do you think this problem is true is there a true distinction between the power governing um the economics and the power of democracy as legitimated by voters do you think that there's this such distinction i think it is a problem um and there there's um let's let's be concrete about let's talk about china um i mean china has been one of the most rapidly growing economies in the world for the last 20 years and it is it is underrepresented in the imf now it's underrepresented by two standards first of all it's the most populous country in the world with what 1.3 billion people but secondly it's it is now the second largest uh economy in the world measured by by output so by either standard one would argue that the uh that china should have uh a larger voting share than it than it currently has but i think there's a problem with the population argument because we then have to get we have to peel off another layer of the question and ask to what extent do the policies of the chinese government represent the democratic wishes of the chinese people now i don't want to make a dogmatic answer to that i think it's a very complicated question but i think it's different in a country like china from in in other countries that may have different democratic traditions so there's been a lot of of debate over the years about uh the technical term is putting population in the quota formula which would mean that more populous countries would have would have more votes but i i do think there's a there's a lot a logical problem with doing that now fortunately in the case of china we don't we no longer need to ask that question because uh because china obviously deserves a much higher uh voting share uh simply because of its um the size of its economy so i think these debates will continue to go on but but as long as the unit of voting in the imf is the nation state then there's a conflict between the way we normally think about democratic principles where the unit is the individual or the family and and democracy in the international in governing the international system where the unit is the state it's a very different kind of kind of meaning of of democracy so okay if i may i would like to also spend a few words about that because in the fifth module the gentleman says you presented the future of the activity of the fund in the interest over the poorer countries more so than in the past but i ask you this the facts that the that china india indonesia brazil brazil the biggest economies now and they are certainly the players of economic economic settings how can we accommodate that with the fact that they do not actually have power in terms of the financial structure of the world do you think that this situation can last because the governor of the chinese central bank before the crisis insisted on the problem of having a model which was not correct and it was the model based on the dollar economy and he voiced for a change in the monetary structure of international relations and this thing has been momentarily set aside so i would like to ask you whether this is going to be the issue we will have to to tackle more so than aid to poor countries um it's it's an excellent question and i think um it's a problem that people are trying to solve uh i i agree completely with the premise if i understand the premise of your question which is that uh we have we have the brics that are uh china and russia and india and brazil and and south africa now being included in that group they're very rapidly growing uh countries uh that are still underrepresented now there was a major reform package that was approved overwhelmingly by the board of governors of the imf in 2010 five years ago and it's been ratified by almost all the countries that need to ratify it in order to put it into effect but it's being blocked by one body that happens to be the most dysfunctional political body in the world today and that's the us congress and it's not being blocked because a majority of the us congress thinks it's a bad idea is being blocked because a majority of the uh majority party in the u.s congress doesn't want to do anything um that would help the president so it's a completely dysfunctional situation where a major reform that is essential to improving the governance of the system is not happening uh because of a of a problem in governance of the us uh and and so but i think it will happen and and and i i agree that it has to happen now the second part of your question about governor joe's proposal on moving beyond a dollar-based system effectively what he called for would is is very similar to proposals that have been raised over the years going back to the early 70s for what's called a substitution account in the imf and that would be suppose you have countries that are holding a lot more dollars in their international reserves then they really want to hold let's say they're holding 80 percent of their reserves in the form of dollars because that's the currency that that they happen to receive for their exports but they they would like to wind this down but they but they have a problem particularly if you're a huge country like china you have a problem because you start selling off dollars then the value of the dollar goes down and then you undercut the value of your own dollar holdings and so nobody wants to do this so what he wants is a system where you could replace these dollars with a broader currency basket that might be the sdr might be another basket but it would be something that would be more stable when you could you could switch out of dollars and into this basket without going through the market without destabilizing the markets so that's what he wanted to do it's an old proposal but it's it sort of put it it gave it new urgency by raising it um and and i i don't think it's a dead proposal i don't think it's something that that people have just said no we're not going to consider that but but it can only work if it has the support of the us government and that gets us back to this other problem that that you know if i had a way to solve the dysfunctionality of the us congress believe me i would do it today but uh but i think this i think that's a problem that will eventually diminish but but it's not going to diminish uh tomorrow so i you raised important problems i think people are aware of the problems but i think we're all just going to have to be patient before we see them being solved have been raised one two three so we collect three questions i have a very brief comment about the new development bankers do you think it could be a threat to the international monetary fund today okay so do you want to collect more questions yeah i thought if we collected a future whatever it i would is to ask something about china what do you think about the asian bank for investment in infrastructures people don't speak about that that much but they people say that it will soon be ready to operate and that it has been set up to counter in a way or an act as a counterbalance to the world bank or the international monetary fund and it has been set up by china so i would like to know what you think about it and i would like to know from you would you please stand again i would like to ask you whether the birth and creation of the united states of europe as they are called might be a solution for and to the crisis of the eurozone there is a last question up there so let's take five now five questions otherwise it becomes too much what is the international monetary fund doing with reference to the shadow system banks to the shadow here i would like to have a comment on the situation of greece is the monetary fund thinking because it has already reviewed this position in a way the situation is very complex what do you think has not worked and what aspects of these models made the greek model or something which is a very critical uh element and highlights a number of criticalities in the monetary fund itself okay thanks very much uh these are all good questions the first two questions both have to do with um with these new regional development banks um and um there's i mean the one that's the most recent one of course is the one that uh china has been setting up the asian uh infrastructure uh investment bank um but but there are others the the new brics bank that was set up uh last year and and so on um i think the real question that people are struggling with is to understand whether these are a threat to the established order and i my my own view on that is that they're a threat to the established order only if if people think of the established order as preserving the interests of the the old powers i i don't think they're necessarily a threat to the global institutions the imf and the world bank because because i think an idea in an ideal international system we would have global oversight by all the major powers and then we would have institutions there would be global institutions dealing with a whole range of problems where the purpose of this oversight group would be to make sure that that there's coordination among agencies so the i'm not from the world bank aren't working at cross-purposes for example and then you'd have regional institutions that would help implement that provide additional financing and also that would provide effective feedback on what the interests and problems are in each region so i think if you set up a regional development bank or or a regional financing mechanism like the chiang mai initiative in southeast asia that as long as that is linked to the global process then it serves a positive purpose if instead it is set up if these regional institutions are set up as competitors that are designed to undermine the global institutions then we have a problem that can be solved maybe by reforming the global institution so that they work more in the regional interests or by somehow get putting the regional institutions in a proper place within the global system so we're in very early stages of trying to figure out how this is all going to play out but i i think we i think everybody should be encouraged by the fact that china has brought together all these countries with all this money to help finance infrastructure development across asia i mean that's how can that be a bad thing uh and and so uh i i think it'll be uh it'll take some time but i think it'll be a positive development um then we had a couple of more specific questions uh about the the eu i mean i'm not sure i fully understood understood that uh the thinking behind that question but but it's i think it should be clear to everybody by now that that there there's a gap in the in the governance of the european union that that there's no there's no fiscal process to match the monetary process and and until you have a real political integration that would create something like a united states of of europe uh then you're going to continue to have these kinds of of gaps that are that that are going to result in in periodic uh crises um i i think it's worth remembering that in the united states it took about a hundred years in a civil war before uh before people really began to think of themselves as americans first and georgians second people still think of themselves as texans first but but that's another another story um so i think that'll take a long time shadow banks are something that that uh are being studied a lot it you know shadow banks again are not a new problem uh that you know you set up these rules that to have a stable financial system focused on banks banks are incredibly important because they're the payment system and and if the banking system collapses then payments collapse and you're back to to barter in the great depression right i mean you you can't have a functioning modern economy without a functioning banking system but if you regulate the banking system and you don't regulate other institutions that are very similar then you're going to have similar kinds of problems particularly if you have uh inter linkages between the banks and the shadow banks we don't again you know i keep i i hope i'm not repeating myself too much but these you're raising very hard problems that i think all you can really say is that people are aware of that they are problems uh but i think we also have to be aware that we can't solve them overnight and that brings back the elephant in the room greece uh i mean greece greece is the problem in the world economy right now um and the the question that that was raised i think it's the right question is what is the imf thinking i've been out of the imf for the past three years so i i i can't speak other than from anecdotal uh evidence talking to people around washington as to what the the real thinking is let me say this about it though that i think the imf made a major mistake in letting itself get trapped into the troika in the way that it did because the the nature of the troika was that you had three institutions you had the european commission the european central bank and the imf the proper role of each of those institutions was very well understood at the outset and that was that the imf is to look after the global interest and to look after the interests of the greek economy and the greek people the role of the imf was to solve the greek crisis right and it had the resources and it had the authority to determine the kinds of policy changes that greece would need to make the kinds of debt restructuring that might be needed and the extent of debt restructuring that might be needed but if the imf had asserted itself in the way that would have been expected under normal conditions the europeans would not have liked the answers right because the costs that particularly the debt restructuring would have imposed on europe in 2009 2010 2011 would be huge and even today if we have further debt restructuring in greece who's going to bear the brunt of the burden of that it's the greek institutions that hold the majority of the greek debt so what we had instead was a situation that was dictated from europe which was that you'd have the three institutions all nice friendly parties to it that would all get together and then they agreed at the outset that they would argue and debate within the troika and they would reach a majority view and once they had a majority view everybody would be on board and support that view well who holds the majority in the troika it's not the imf right so they got themselves into a situation where they were trapped from the very beginning into simply buying into the european view but the europeans are not out for the global welfare they're not out for the greek welfare they're out for the european welfare they're out to save the euro right now saving the euro may be a very worthwhile goal for europe but it's not in the imf's interest to save the euro unless saving the euro is in the global interest and that's what i think got lost now i think a lot of people are coming around to this conclusion now and and so if they're to get back to the way you raise the question what is the imf thinking about it i think the imf is trying is looking for ways out of it but in 2015 trying to come up with a good solution is almost impossible because because the costs are now so concentrated um and and the solution is so difficult uh and the parties within europe are so far apart that i think if you were to pass around sheets of paper around this room and say how do we get out of this we'd have how many people are here we'd have 100 unworkable answers each one of which would be beautifully constructed but would never would never actually get enacted it's just a very hard problem but i think people are aware that that they've gotten themselves into a very big mess well your words have been extremely interesting thank you for what you said also about greece and the role of the international monetary fund with klaus here thank you so one always i always think