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Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

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Speaker 1: with David Gura. Daily we bring you insight from the

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Speaker 1: best of economics, finance, investment, and international relations. Find Bloomberg

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Speaker 1: Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course,

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Speaker 1: on the Bloomberg I'm here in New York on our

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Speaker 1: Bloomberg eleven three oh studio. Is my colleague Tom Keene

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Speaker 1: is in Washington, d C. He is at the headquarters

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Speaker 1: of the International Monetary Fund for the annual meetings of

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Speaker 1: the i m F and the World Bank. And Tom

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Speaker 1: scheduled to speak with one of the hosts of that event.

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Speaker 1: Now let's go to Washington and to Tom, and we

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Speaker 1: welcome all of you on Bloomberg Television and Bloomberg Radio,

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Speaker 1: particularly worldwide the d eighty nine countries of the World

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Speaker 1: Bank listening and watching this morning with Dr Jim Young. Kimmy's,

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Speaker 1: of course, the President of the World Bank. It's been

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Speaker 1: five years. What was the biggest surprise? Over five years

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Speaker 1: you moved from Dartmouth to the World Bank. This gigantic

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Speaker 1: bureaucracy almost as bad as hurting the cats and the

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Speaker 1: faculty at Dartmouth. What's been the biggest surprise over five years?

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Speaker 1: You know, Tom, First of all, thanks for having me

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Speaker 1: back on and for me, the biggest surprise is just

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Speaker 1: how powerful financial tools are in fighting poverty. I mean,

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Speaker 1: I had some sense of them, but I didn't know

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Speaker 1: that the combination of of of leverage and swaps and

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Speaker 1: hedges and political risk insurance and guarantees, how powerful those instruments. Absolutely,

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Speaker 1: you know, and so so I had to learn both

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Speaker 1: macroeconomics and finance. But in learning those those two the

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Speaker 1: tools of the that the rich use every day to

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Speaker 1: make themselves wealth here are just as useful in trying

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Speaker 1: to lift people out of poverty. This tells me that

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Speaker 1: you should have taken a few more courses of tuck

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Speaker 1: in your free time up at Dartmouth. Let me go

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Speaker 1: to a new project of the World Bank which has

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Speaker 1: my attention because I look at the mystery of a

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Speaker 1: decline in productivity within the major countries, including the United States.

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Speaker 1: And this goes back to Dale Jorgensen at Harvard, which

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Speaker 1: is human capital. The idea of a human capital project

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Speaker 1: that's translated to the World Bank in what way? What

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Speaker 1: does human capital mean? So we use the term human capital,

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Speaker 1: because we want to be very clear that this is

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Speaker 1: a huge part of the wealth of nations. We're we're

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Speaker 1: writing a report now called the Changing Wealth of Nations

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Speaker 1: where we show that in fact, human capital UH in

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Speaker 1: terms of overall wealth, is more than six of the

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Speaker 1: existing wealth in the world. And so what we wanted

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Speaker 1: to do was to really take a hard look at

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Speaker 1: the connection between health outcomes, not health expenditures, health outcomes

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Speaker 1: and educational outcomes, not years of schooling alone, but whether

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Speaker 1: you're actually learning things, and then due regression to look

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Speaker 1: at the correlation with growth over the last twenty five years.

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Speaker 1: So we we found that it's far more powerful than

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Speaker 1: we ever thought, using very sophisticated methods, the same methods

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Speaker 1: of Google and others is to do searches we used.

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Speaker 1: We found that if you look at the top of

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Speaker 1: countries that have improved human capital and the bottom of

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Speaker 1: not over twenty five year period, it's one point to

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Speaker 1: five percent of GDP per year. Now that is only

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Speaker 1: gonna get more powerful going forward as the economy has

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Speaker 1: become more digitized. So for us, you know, the countries

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Speaker 1: themselves decide what loans they want to take and what

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Speaker 1: we found is that they're not focusing enough on investing

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Speaker 1: in human beings, health, education as drivers of economic growth.

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Speaker 1: And I'm gonna rip up the scriptor this is so

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Speaker 1: important with Dr Kim and this will go to our

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Speaker 1: conversation with Medal my guard in a bit of a minute.

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Speaker 1: Your unique tension with the Trump administration because what you're

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Speaker 1: seeing is a widening inequality in education and the opportunities

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Speaker 1: that are out there, and you have an administration in America,

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Speaker 1: your largest donor, which is really pushing back against your projects. Well,

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Speaker 1: in fact though too, just on Saturday, we're launching a

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Speaker 1: major project with the Trump administration. So we've been This

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Speaker 1: is the Women's Entrepreneurship Financing Initiative. This is an idea

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Speaker 1: that was actually brought to me by Ivanka Trump and

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Speaker 1: she wanted to do something that would support women entrepreneurs

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Speaker 1: and developed countries. And so we did about four months

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Speaker 1: of fundraising and it was the fastest fundraising we've ever seen,

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Speaker 1: three million dollars the Board of the World. No, no, no,

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Speaker 1: not at all, not at all. So what what what

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Speaker 1: Ivanka told us is that she doesn't want to have

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Speaker 1: anything to do with the running of the fund that

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Speaker 1: will go through our usual channels, but she's going to

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Speaker 1: be a mentor. She's going to actually provide mentoring to

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Speaker 1: women in developing countries are trying to start their businesses,

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Speaker 1: and so that's you know, we we have found lots

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Speaker 1: of different ways. We're talking to them about infrastructure, We're

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Speaker 1: talking to them about various approaches to private sector development

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Speaker 1: to tackle difficulties, and so we're working surveillance correction. I said,

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Speaker 1: Mrs Trump, and I should have said Mrs Koshen, are

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Speaker 1: all be in trouble. Let's switch to something serious. And

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Speaker 1: this goes to the heart of your expertise. Most of

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Speaker 1: our viewers and listeners don't know that you and your

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Speaker 1: team in the nineties change the dialogue on tuberculosis. I

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Speaker 1: would suggest you've never gotten the credit for that, that

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Speaker 1: you should that you change the way we handle this

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Speaker 1: horrific disease worldwide. Now bring it forward to refugees and

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Speaker 1: migrants that we can take any nation, but Mire and

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Speaker 1: Mars really front and center right now. Tell me about

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Speaker 1: the linkage of the World Bank and health and this

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Speaker 1: horrific new thrust of refugees and micros. So, uh, you know,

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Speaker 1: one of the things that the Human Capital Project will

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Speaker 1: show is that countries UH don't invest in their people

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Speaker 1: at their great peril. If they if they refrain from

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Speaker 1: investing in their people, if they find excuses, if they

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Speaker 1: say they're going to spend money on other things, it

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Speaker 1: is at their great peril. And so the situation for

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Speaker 1: refugees is that if we don't invest in the health

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Speaker 1: and education of refugees, we also do so at our

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Speaker 1: own great peril. Because the young people who don't have

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Speaker 1: a chance, who are not educated, who cannot compete in

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Speaker 1: the digital ecnit of the future. I worry that they're

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Speaker 1: going to become the nitis of fragility, conflict, violence, extremism.

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Speaker 1: So we have to step forward to go back to

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Speaker 1: what I've been doing in the past. For twenty years.

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Speaker 1: We've been arguing that, oh, we need more grant money,

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Speaker 1: we need more donor financing, and that's all been great.

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Speaker 1: What we're doing now with the Human Capital Project is

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Speaker 1: to say, look, heads of state, look, ministers of finance.

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Speaker 1: We're gonna put out a ranking about where you stand

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Speaker 1: in terms of your stock of human capital, and what

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Speaker 1: you're doing to increase the flow, increase increase your human capital,

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Speaker 1: and and where you come out on this list may

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Speaker 1: very well determine how quickly you grow. That that will change,

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Speaker 1: i think, change the dynamic from one in which every

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Speaker 1: developing countries wait for the supply of funds to come

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Speaker 1: to one in in which they're demanding the best way

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Speaker 1: to improve their human capital. That's what we have to

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Speaker 1: take that over to one country again, Burma, mir and

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Speaker 1: Mar as well. How does the World Bank? Is this

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Speaker 1: ginormous institution, how do you deal with one country, whether

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Speaker 1: it's a border of Turkey in Syria or it's what

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Speaker 1: we've seen over the last six months in Mirrormar. So

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Speaker 1: we're very concerned about what's happening in them. I've issued

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Speaker 1: a statement on it and very specifically what we're doing

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Speaker 1: is we're we're continuing our lending for programs around health, education,

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Speaker 1: social protection and especially general kind state. So we're very

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Speaker 1: focused on supporting the poor in men Mar. But we

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Speaker 1: had another operation, a major budget support operation, which we

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Speaker 1: can't go forward with right now because we're very concerned

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Speaker 1: about what's what's happening there. And so we're working hand

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Speaker 1: and glove with with Antonio looked at as a Secretary General,

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Speaker 1: and we want to make it clear that that that

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Speaker 1: what is happening there is not acceptable. And so we

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Speaker 1: while we continue to support health and education because we

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Speaker 1: don't think we can lose ground, we can't go forward

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Speaker 1: with with the budget support help with infrastructure. It's been

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Speaker 1: a buzzword. I see McKinsey doing work on it, and

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Speaker 1: I see the World Economic Forum doing work on it.

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Speaker 1: But you, guys, and this goes back to my childhood,

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Speaker 1: you are the ultimate and original post World War two

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Speaker 1: infrastructure organization. How do you approach modern infrastructure away from

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Speaker 1: creating fresh water of thirty and fourty years ago. So

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Speaker 1: the traditional approach has been that on the public sector side,

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Speaker 1: we provide loans that to which countries provide sovereign guarantees,

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Speaker 1: and we go forward with the infrastructure. On the private

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Speaker 1: sector side, we provide the loans to private sector companies.

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Speaker 1: We're changing that practice in a pretty fundamental way because

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Speaker 1: the real opportunity in the world, both for investors and

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Speaker 1: for developing countries is to get the ten plus trillion

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Speaker 1: in negative interest rate and bonds, the twenty four plus

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Speaker 1: trillion in very low earning government bonds, and the eight

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Speaker 1: trillion in cash sitting. You know, thousand year old bills

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Speaker 1: sitting in people's safes. Get that off the sideline by

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Speaker 1: de risking investments. And we're doing in a lot of

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Speaker 1: different ways. Sometimes we create dead instruments where we take

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Speaker 1: tem percent first loss and then the senior tranch becomes

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Speaker 1: triple B. We can do things like, you know, provide

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Speaker 1: political risk insurance with people are afraid that that the

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Speaker 1: company might be nationalized. We think if we can start

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Speaker 1: bringing the sovereign wealth funds and the and the pension

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Speaker 1: funds off the sideline, this will be a huge new

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Speaker 1: source of of of investment capital. And we just signed

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Speaker 1: an m o U with a Japanese pension fund, the

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Speaker 1: largest pension fund in the world, one point for trillion.

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Speaker 1: This is a huge different than when it was at Dartmouth.

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Speaker 1: He didn't know what an m OU was. Is that

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Speaker 1: an understand We knew when m o us were, but

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Speaker 1: we didn't know what a triple V senior tras two

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Speaker 1: more questions. We got to get this and you parachuted

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Speaker 1: and I was a child. You are the absolute walking

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Speaker 1: personification of the success of modern immigration in America. How

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Speaker 1: do you speak to a wall on the Mexican border?

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Speaker 1: How do you speak to the new form of immigration

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Speaker 1: debate in America. Just to point out that of the

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Speaker 1: Great Fortune one companies of thirty years ago were started

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Speaker 1: by immigrants, of the children of immigrants. Of the high

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Speaker 1: tech companies that have just dominated the US economy were

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Speaker 1: started by immigrants or the children of immigrants. The majority

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Speaker 1: of Nobel Prize winners US Nobel Prize winners born outside

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Speaker 1: of the country, and last year, of the six Nobel

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Speaker 1: Prize winners who were American citizens, all of them were

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Speaker 1: born outside the country, as was I. So I think

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Speaker 1: immigrants can play a huge role, and what we're trying

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Speaker 1: to do is to change the narrative immigration is good.

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Speaker 1: Japan needs immigrants, Korea desperately needs immigrants to fuel the

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Speaker 1: next phase of their economic growth. Uh. We want to

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Speaker 1: change that dialogue in a pretty fundamental We look fresh

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Speaker 1: and relaxed. You've had a wonderful twenty four hours. Madame

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Speaker 1: Leguard has been a pinata with a Trump administration. They're

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Speaker 1: going after her on tax reform and other I m

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Speaker 1: f like UH initiatives. Defend Madame Leguard right now, she's

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Speaker 1: doing it. She's doing it right on poking in the

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Speaker 1: country's tax reformation. So let me just say this. I've

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Speaker 1: worked so closely with Christine Lagard for the last five years.

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Speaker 1: I think she's one of the great leaders in the

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Speaker 1: world today. She has a way of dealing with very

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Speaker 1: difficult situation with grace, with clarity, and I see no

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Speaker 1: evidence that that this particular interaction will go in any

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Speaker 1: different sort of way. No meaning more interesting this one

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Speaker 1: over the last twenty four hours of controversy with the

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Speaker 1: Trump administration. I want to go back to a speech

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Speaker 1: you gave to the Economic Club of New York in

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Speaker 1: two thousand thirteen. You quoted the American economist Walt Whitman,

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Speaker 1: keep your face always towards the sunshine, and shadows will

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Speaker 1: fall behind you if you felt that way in the

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Speaker 1: last four hours, I wish there was a bit of

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Speaker 1: sunshine out here in Washington, and there is no sunshine.

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Speaker 1: But let let me just address this controversy as you

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Speaker 1: called it um four a few years now, we have

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Speaker 1: repeatedly said that a tax reform was absolutely needed and

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Speaker 1: nest necessary in the United States, in particular a corporate

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Speaker 1: tax reform. And there is no doubt in my mind

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Speaker 1: and absolutely no ambiguity about that point, so it's needed necessary,

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Speaker 1: We've called for it, and we welcome the decision to

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Speaker 1: actually think about a tax reform that would make taxation simpler,

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Speaker 1: that would reduce the loopholes and some many deductions that

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Speaker 1: would be focused on labor activity, help the middle class.

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Speaker 1: That would be pro growth. And I'm not going to

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Speaker 1: pass judgment on the current draft that will be for

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Speaker 1: consideration by Congress. I've done my tax reform in my

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Speaker 1: days as Finance Minister, and I know what those drafts go.

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Speaker 1: Those drafts go through, they go through iteration, a dundon

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Speaker 1: lobbying efforts. It's not the end of the day. We

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Speaker 1: should make clear that Madame mcguard, not only as Trade

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Speaker 1: Minister for the Republic of France, but then as Finance

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Speaker 1: Minister as well as received every domestic headache you can

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Speaker 1: on the nuance to me, and Olivier Blanchard came to

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Speaker 1: your defense three days ago, and Jason Furman came to

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Speaker 1: your defense this morning. The former charity for anybody to

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Speaker 1: defend me, I know you can defend yourself if they

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Speaker 1: came to they defended you is PhD economists on the theory.

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Speaker 1: Like the PhD economists here, the distinction to me is

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Speaker 1: between the blue book and the green book and the

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Speaker 1: red book of the i m F. The linkage of

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Speaker 1: tax reform to fiscal responsibility. How does the I m

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Speaker 1: F link constructive tax reform with the worldwide idea of

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Speaker 1: getting our debt house in order? Well, what you know

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Speaker 1: needs to be done is to look at the evidence,

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Speaker 1: at the data, at the numbers, and then to determine

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Speaker 1: policies on that basis. Within mind two things, the revenue,

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Speaker 1: the spending, the political objective of being pro growth, of

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Speaker 1: wanting to improve of the situation of the middle class,

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Speaker 1: and of ultimately reducing excessive inequalities if that is the

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Speaker 1: case in that country, so that that's what needs to happen.

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Speaker 1: But clearly in those countries that have a heavy dead

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Speaker 1: burden and those that have entitlements coming to fruition that

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Speaker 1: will probably increase the the spending, it is necessary to

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Speaker 1: take into account that medium term and to make sure

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Speaker 1: that any tax reform is revenue generating. What is so

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Speaker 1: important here is the tone of the I m F

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Speaker 1: of a more optimistic world. Obviously, the United Kingdom is

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Speaker 1: off their game with the battle over Brexit and all that,

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Speaker 1: and there's other serious issues within poor emerging markets. But

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Speaker 1: you also marked down the US because am I right?

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Speaker 1: The I m F is doubtful unsuccessful tax reform legislation.

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Speaker 1: In the short term, we've actually marked up the US

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Speaker 1: economy compared with our July numbers, and then we've marked

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Speaker 1: up a few other countries, including advanced economies. What we

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Speaker 1: hope to see is implementation of the reforms that we

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Speaker 1: have called for for many years, A good, solid tax

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Speaker 1: reform that will be simpler, where rates, particularly corporate rates

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Speaker 1: will be lower, with a base that is much more

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Speaker 1: solid and clear. That's that's what we hope to see.

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Speaker 1: And and the you know, the soonight goes through the better,

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Speaker 1: let's in cap you select the last twenty four hours

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Speaker 1: and then move on. Would you be willing to meet

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Speaker 1: with the Secretary of Treasury or the President to clarify

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Speaker 1: the I m F stance on this? But I meet

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Speaker 1: I meet with with Sector of Treasury on a regular basis.

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Speaker 1: I will see him tonight, so I'll be up tonight.

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Speaker 1: Please will be right now. I'll be very happy to

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Speaker 1: explain to him exactly what I have explained to you.

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Speaker 1: When you speak to Secretary Monution tonight, what will be

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Speaker 1: What will you advocate that the Trump administration should do?

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Speaker 1: What should they be their next step forward in this

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Speaker 1: I would say, based on the little experience I have

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Speaker 1: of tax reforms, resist lobbying efforts, Madame mc guard will

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Speaker 1: not be having a cigar tonight at the Willard Hotel

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Speaker 1: in New York with the lobbyists of Washington, do you see?

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Speaker 1: Let us move on. The fact is it's a more

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Speaker 1: optimistic meeting if we look back ten years of the

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Speaker 1: financial crisis. Have we reached escape velocity on all the

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Speaker 1: agony of the last ten years. Let's hope so, but

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Speaker 1: it's not guaranteed. So while we have certainly a better

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Speaker 1: growth and better growth forecast three point six percent for

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Speaker 1: this year, three point seven percent for next year, it's

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Speaker 1: not shared across the world. You still have about of

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Speaker 1: the world measured in GDP, which is not enjoying that

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Speaker 1: sort of stronger recovery. So while we see the sun shining,

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Speaker 1: we're also seeing those clouds on the horizon and countries

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Speaker 1: and people not having the benefit of it. So I

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Speaker 1: think you know, my message to the policy makers in

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Speaker 1: the next few days, and they're all coming in as

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Speaker 1: of today, will be take the decisive actions in order

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Speaker 1: to secure that recovery and in order to make sure

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Speaker 1: that people actually have the benefit of it. I saw

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Speaker 1: you in New York with our John Michael Swade, our

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Speaker 1: editor in chief, on the idea of advocating forward women

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Speaker 1: uh and and women's rights within the world economy. One

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Speaker 1: of the overlays of that challenges technology. How does the

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Speaker 1: International Monetary Fund look at the future of technology and

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Speaker 1: link it into a better equality across income and wealth. Well, one,

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Speaker 1: it is critically important to help young people, our children

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Speaker 1: and grandchildren whoever, to get acquainted and fully adjusted to

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Speaker 1: what is coming. That's reasonably easy if the budget is there.

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Speaker 1: But it's also should apply to those of us in advanced,

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Speaker 1: emerging and low income countries to actually also take ownership

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Speaker 1: of those technologies because they will be disruptive. They will

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Speaker 1: be changing the way in which we manufacture, the way

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Speaker 1: in which will provide services, the way in which financial

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Speaker 1: markets are organized as well. And what we do here

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Speaker 1: at the i m F is try to anticipate from

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Speaker 1: a financial stability point of view, what will be the

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Speaker 1: impact of those FinTechs as we call them. We're seeing it.

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Speaker 1: It's happening. What do you need from China? They've got

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Speaker 1: these incredibly important meetings coming up. We've heard interview after

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Speaker 1: interview comparisons back twenty and thirty and forty years to

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Speaker 1: the federalism of Beijing. What do you need to come

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Speaker 1: out of these important political meetings in China? I certainly

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Speaker 1: hope that they continue the reforms that they have started.

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Speaker 1: You know, reigining in credit is a necessity, Reforming the

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Speaker 1: state owned enterprises is a necessity. Continuing to reduce capacity

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Speaker 1: in certain sectors is a necessity. So we would very

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Speaker 1: much hope that this will be continued. From an economic perspective.

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Speaker 1: A little bit more here on Europe, if I could

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Speaker 1: one a tumult in Europe. We saw the far right

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Speaker 1: in Germany take a little bit of a popular vote

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Speaker 1: to join the Bundestag in the last election. We see

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Speaker 1: this historic election in your France, and within it all

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Speaker 1: there seems to be almost a lift to the European economy.

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Speaker 1: When you read the Blue Book, which I know you

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Speaker 1: recover to cover the world economic outlook. When you read

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Speaker 1: the World Economic Outlook, can you say Europe's reached escape velocity?

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Speaker 1: That Europe is beyond eurosclerosis. Europe will continue to go

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Speaker 1: through episodes of soul searching and examining the future and

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Speaker 1: trying to restructure consolidate. But I think there is an impetus.

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Speaker 1: There is a momentum that has been created, predominantly as

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Speaker 1: a result of Emmanuel mcrons election in France and the

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Speaker 1: hope that it has generated, as opposed to the fear

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Speaker 1: that the other candidate would have would have induced, that

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Speaker 1: things have to continue to be stronger, better government, more

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Speaker 1: of a political union. What form it takes is going

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Speaker 1: to be debated between them, and there will be episodes

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Speaker 1: tom when you will despair off Europe, and there will

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Speaker 1: be moments when there will be huge hope. I think

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Speaker 1: that that model is of a different kind and needs

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Speaker 1: to to to be structured, strengthened, and and must be

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Speaker 1: one of the options available for those who are developing.

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Speaker 1: One final question, I want to circle back again. You're

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Speaker 1: April two, thou thirteen, Economic Club of New York speaks.

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Speaker 1: You were way way out front of the coming challenges

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Speaker 1: of the United States of America politically just is you

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Speaker 1: is a citizen of France and with your work in

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Speaker 1: Chicago years ago, how do you perceive the path forward

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Speaker 1: for the people of America given the turmoil of our

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Speaker 1: politics right now. You know, I owe a lot to

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Speaker 1: this country. I came here when I was seventeen, shortly

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Speaker 1: after my father's death, and I've only met hospitality, warmth, support, respect,

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Speaker 1: and tolerance, and I think that is deeply ingrained in

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Speaker 1: the American spirit and I have full trust that this

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Speaker 1: is the real nature. Thank you so much, Madame mcguard

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Speaker 1: of the International Monetary Fund. Thanks for listening to the

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Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,

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Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at

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Speaker 1: Tom Keene. David Gura is at David Gura. Before the podcast,

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Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio.