June 21, 2010
Media Guide: Upcoming G-8 and G-20 Summit
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SUBRAMANIAN: I've written about this so let me answer this the following way. Clearly, you know, the rebalancing has to be done internationally and multilaterally. Clearly, the IMF tried and comprehensively failed to address that issue. You know, of course, Antoine will say that you know, temporarily of course you know, in this year, it seems as if the imbalances have reversed themselves.
But the whole question of what will happen going forward remains open. So I'm assuming this problem will come back again. So the IMF has comprehensively failed. And so what -- (inaudible) -- of the World Bank and I have argued is that we have to bring in the WTO into this question, because it involves an undervalued exchange rate.
So our proposal would be to have a multilateral approach, but one that involves both the WTO and the IMF. Where the WTO would say, you know, certain kinds of egregious under-valuations tantamount to an export subsidy and an import tariff, which need to be, you know, addressed. And the IMF would play the role of a kind of technical arbiter in determining whether the exchange rate is or is not over-valued.
And then, if a country didn't change its policies, the prospect of trade actions would remain open again to these countries. Because the points that we've had imbalances, we've tried it in the IMF for many, many years, and it hasn't worked.
VAN AGTMAEL: I actually would not say that the rebalancing has been resolved at all, quite the contrary. I would -- but I would say that rebalancing has to start with us. We are the problem, or at least the major problem, I would argue. And so, I mean, it's our budget deficits, which are going in the wrong direction.
And it's our current account deficits, which may not being going in the wrong direction, but are not yet moving very fast in the right direction, that need to be addressed before asking other people to do things. Now, that doesn't mean that should be excluded because it is a tango of two, but it has to start with us.
SANGER: But Antoine, if I heard Mac's question right -- and Mac, tell me if I've got this wrong. Part of your question was what do the international institutions do to get us to line up right? And just look at the politics of the United States right now. Look at last night's primary results.
And tell us what it would look like if we had any international institution stepping in, and saying you now have, you know, 24, 36, 48 months to bring your budget within 3 percent -- your budget deficits within three percent of GDP. You could hear the world governance screaming already.
DEBEVOISE: Yeah. Oh, I mean, I think without getting into the question of who ought to go first, the question is really the flip of the question we just got here from this gentleman about China. You know, easier said than done. And it's pretty much that simple.
And I think that we have to you know work at this, chip away at it. It's not going to be done in a bold stroke. And institutions can set frameworks, but the realities are that we've been certain sized players, and they're not going to do -- have immediate suasion.
SUBRAMANIAN: I think we can't just throw up our hands and say you know, big powers are involved; and therefore, nothing can be done about it. I mean, as the gentleman also said, we do have certain rules-based systems for cooperation. And we have to try and further that. If the question is that, you know, in the case of China for example, one would have to think about you know, what is it that one can do by way of carrots and sticks to encourage China to play by the rules?
And as we need you know the United States to play by some rules as well. But to just throw up our hands and say you know, it's not possible because big powers are involved, is not something that I think is very appealing going forward. And we have to strive hard at, you know, at coming up with, you know, institution designs, carrots and sticks, that would allow countries to, you know, both agree to rules, and then abide by them subsequently.
VAN AGTMAEL: There is such a thing as too big to fail, but also too big to put conditionality on. And I think it's only going to happen if actually -- and this is why we come back to this issue of multilateral institutions. If the voting there changes -- if there's actually going to be more pressure on these too big to put conditions on, to actually do some.
SUBRAMANIAN: But that's what's -- I'm sorry -- we have to -- this is a, you see --
DEBEVOISE: It's tough for us.
SUBRAMANIAN: No, no, I think there is -- you know, in the WTO routinely huge disputes come up and are decided, adjudicated with a reasonable degree of compliance. So it's not -- I mean, the U.S. abides by, you know, its commitments, by and large. Europe by and large abides by its commitments. So it's not as if we have a system where, you know, the big powers get to do whatever they want, and that they're too big to regulate or constrain. We do have --
SANGER: But Arvind, that usually happens involving specific, usually commercial disputes. What we're discussing here is saying to a country, I'm sorry, you're not going to pay pensions at this level. You're not going to turn out Social Security or Medicare at this level. And that's a very different political dynamic.
DEBEVOISE: Well, and even in the WTO, if you read the dispute settlement understanding carefully, there's a little footnote that says that any country, any member before bringing a case needs to think seriously about whether bringing a case will lead to a resolution of the matter. And they're certain -- it's sort of a existential issues that don't get brought. I mean, the case of the you know, U.S. activity in Nicaragua in the '80s was something that -- you know, would we have had a state security exception recognized or something like that? And these cases don't go there.
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SANGER: We only have time for one more brief round of questions. And we only have four or five minutes left. So, let me just see the last hands that we had of people who didn't get called upon -- anybody? Going once, going twice, good.
VAN AGTMAEL: I would like to, if I could, come back to the very first question that was asked, and we didn't spend a lot of time on, which was the reserve currencies. You said -- well, we're going into unprecedented territory. First of all, it may be unprecedented, but it was not unforeseen. In fact, at the very beginning of the special drawing rights, that's exactly the idea that it was -- to be used eventually as a reserve currency.
But think back, you know, when we went from the gold standard to the British pounds. That was unprecedented. When then the dollar replaced the pound, it was unprecedented. And things have changed, and so we are going into, I believe, an era where a change in the reserve currencies is simply inescapable. And it's unprecedented, but not unforeseen, and manageable, I think.
SANGER: Well, thank you all. We have run out of time, and we have the usual generous council five-minute break to refuel yourself with caffeine. But I want to thank each of the panelists for what was a really fascinating discussion at a really interesting turning point in the global economy. So, thank you all.
http://www.cfr.org/media/world_this_week.html?id=2066
World Economic Update (Video)
http://www.cfr.org/publication/22313/world_economic_update_video.html
