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00:00 development, finance, fix a fracturing global economy?
00:04 That's the central question, a mud-emid related question that we're going to be discussing
00:09 today in our conversation with Lawrence H. Summers and N.K. Singh.
00:13 Larry Summers has served as U.S. Secretary of the Treasury, Director of the U.S. National
00:18 Economic Council, Chief Economist of the World Bank, and President of Harvard University,
00:24 where he's currently President Emeritus and University Professor.
00:27 N.K. Singh, Chairman of India's 15th Finance Commission, is President of the Institute
00:32 of Economic Growth, a former Member of Parliament, and former Secretary to Prime Minister Atal
00:38 Bihari Vajpayee.
00:39 Larry Summers and N.K. Singh, great to have you on NDTV.
00:42 Thank you very much for your time.
00:44 I'm going to provide some context first before we dive into our conversation.
00:48 G20 members have unanimously accepted the recommendations on multilateral development
00:54 banks made by an independent experts group appointed under the India G20 Presidency.
01:00 The report is titled "Strengthening Multilateral Development Banks Through a Triple Agenda
01:05 - Mandates, Finance, Mechanism."
01:08 Volume one of the report was submitted ahead of the G20 meet in Delhi.
01:12 Volume two is due in October.
01:14 The expert group was co-convened by Larry Summers and N.K. Singh.
01:19 And now we can dive straight into our conversation.
01:22 Up front, Mr. Singh, for the benefit of our viewers, I think it's important to revisit
01:27 what are multilateral development banks and why is it so important?
01:31 Why are they so important to the world financial system?
01:34 Well I think for several reasons.
01:36 First and foremost, this difficult question of what is a multilateral development bank.
01:42 Well it's a bank which has been recognized and has really operations in several countries.
01:49 It functions under the rules of an umbrella of transparent rules and functions.
01:55 Right now, the number of multilateral development banks, we have sought to give an estimate
02:00 in our first report.
02:03 You'd be surprised that there are 17 in number at the minimum and could be growing.
02:09 But of course, by and large we know that the major multilateral development banks are the
02:13 World Bank Group, the largest in the family, the Asian Development Bank, the African Development
02:19 Bank, the Inter-American Bank, the European Bank for Reconstruction Development and variations
02:25 thereon.
02:26 They provide several important attributes.
02:29 First of all, a long-term predictable source of financing.
02:34 Second, functioning under rules which are transparent and which are known to everyone.
02:39 But predictability, certainty, today constituting an important part of the entire external financing
02:47 as a family.
02:49 In 2019, they provided $130 billion for concessional and non-concessional finance taken together.
03:00 Our objective in the first report, which we have had the honor to present to the G20,
03:08 is how to triple this, $130 billion, closer to $400 billion, and getting another $500
03:16 billion of private capital, all coming to a trillion, which one then added to true trillions
03:22 of domestic resource mobilization, meets approximately the kind of target of $3 trillion a year,
03:29 which we believe would be necessary between now and 2030 to address the issues of climate
03:36 change, transboundary challenges, issues of growing poverty, shared prosperity, and of
03:43 course dealing with issues, as I said, of the enveloping global crisis on climate.
03:50 Well, you've set the context very neatly and nicely, but Larry Summers, I'm going to turn
03:54 to you.
03:55 You talk of a world on fire, and I think it's important to put all your thoughts on what
04:01 you mean when you use that phrase, because that's the reality that is shaping and guiding
04:07 this report on strengthening multilateral development banks.
04:10 So if you could take a moment to expand on what you mean when you say we have a world
04:14 on fire, literally and figuratively.
04:16 You're just right.
04:18 We mean it literally and we mean it figuratively.
04:22 Literally millions of hectares has gone up in smoke.
04:28 That's related to all kinds of natural disasters, many of which very likely trace back to global
04:37 climate change, where we have the means to do things about it.
04:43 Enormous progress has been made in renewable technology, but we don't yet fully have the
04:48 will and the way, and that's why we think that in one crucial dimension, the provision
04:55 of finance, the banks have such a huge obligation.
05:00 But in a broader sense, this last year, these last two years, the world is facing a combination
05:10 of challenges, climate change, pandemic threats.
05:16 You know, the next COVID will probably come within 20 years.
05:22 Fragile states overwhelmed by all the challenges that they are facing.
05:29 Flows of refugees.
05:33 The major war taking place now on the European continent and the possibility of conflict
05:42 elsewhere.
05:44 Add all that up and you have a set of profound challenges to human progress, surmountable
05:55 challenges, but challenges that need to be surmounted.
06:01 That's why we speak of a world on fire to convey both the gravity and the urgency of
06:06 this moment.
06:07 So why is strengthening multilateral development banks or transforming them critical to dealing
06:15 with the challenges that you have just described?
06:18 What is the catalytic role that they can play?
06:20 So the phrase multilateral development banks doesn't light the imagination, but these are
06:28 profoundly important institutions because they've got more capacity to move more money
06:34 to more places than any other institution that man has ever invented.
06:41 A dollar of guarantees provided by one sovereign country to a development bank can cost its
06:50 budget much less than a dollar because most of the loans are going to be repaid and when
06:56 received by the development bank can be leveraged a number of times over.
07:01 Indeed, $20 billion of capital provided to the World Bank has over time leveraged more
07:08 than $800 billion of lending.
07:13 So it's their power of leverage, it's their knowledge and capacity that make them such
07:21 potent instruments and they represent a forum for cooperation between nations.
07:28 There are issues where nations are going to be in conflict.
07:31 The United States and China are going to have tensions over many issues.
07:36 India and Pakistan are going to have tension over many issues, but we all have a stake
07:45 in the one planet that we share.
07:48 We all have a stake in resisting global disease.
07:53 None of us gain when poverty anywhere can become a source of instability everywhere.
08:03 That's why these are such important institutions because their mission is so important and
08:09 because they provide a forum for cooperation where cooperation is possible.
08:16 The underlying note, of course, that's coming through in your comments is that these banks,
08:23 these development banks, multilateral in nature, have not fully capitalized on their potential
08:28 and hence the need for strengthening them.
08:31 And the report by the Independent Experts Group, Mr. Singh calls for action on three
08:35 fronts.
08:36 Could you briefly give us a sense of what those three buckets of action are that you're
08:40 calling for?
08:42 I think the three buckets of action, mandate is one bucket, financing is a second bucket,
08:51 and modes of financing is a third.
08:54 So if you look at the original charter of most of these multilateral development banks,
08:59 they are the twin action.
09:01 There's poverty, particularly extreme poverty, and second, shared prosperity.
09:08 We add a third mandate, namely what we call the mandate which Larry just explained, the
09:15 current contemporary challenges, climate, which is very important, fragility on health,
09:23 issues of fragile states, some states in big debt, the war, the insecurity on account of
09:30 food and fuel.
09:31 And add to all this is really what we seek to address by significantly enhancing the
09:38 capability of the multilateral development banks.
09:41 As I mentioned, they have not yet fully harnessed the potential they have.
09:46 In what way?
09:47 First and foremost, in terms of being able to optimize the balance sheet in a more creative
09:53 way.
09:54 And we believe in the recommendations which we have made that harnessing what we call
09:59 the capital adequacy framework report, which was submitted earlier, will enable very substantial
10:05 augmenting of the resources if we are able to recalibrate, for instance, the equity loan
10:11 ratio, if you are able to harness guarantee structures, as Larry said, more creatively,
10:17 above all, being able to harness private capital.
10:21 What kind of policies and processes and procedures will enable, for instance, that currently,
10:29 as Larry was pointing out, that in a $20 billion capitalization, more than $800 billion have
10:35 been lent.
10:36 It's a very high degree of leveraging.
10:38 In sharp contrast to that, $1 has only secured 0.6 cents of private capital.
10:46 That needs to fundamentally change in the new matrix which we have given.
10:50 So I think that we have given the prescription to try and address, in a very contemporary
10:57 sense, the multiple complex challenges which we confront.
11:03 What does this mean?
11:04 Again, our viewers are trying to understand this topic.
11:07 As you said, multilateral development banks doesn't immediately light up or fire up everyone's
11:12 mind, but I think it's an important area to understand.
11:16 What does this mean in terms of donors?
11:19 Do they have to commit more?
11:23 I'm trying to understand how all the stakeholders are going to be supporting the report that
11:30 you've made and therefore donors play one piece.
11:34 I want to talk first about why everybody's got a stake in it.
11:38 It means there'll be fewer typhoons that wash away land where hundreds of thousands of people
11:46 live.
11:47 It means fewer people will breathe air that has particulates in it and get lung diseases
11:56 and die younger than they had to.
11:59 It means that microbes will kill fewer of the world's older people the next time we
12:10 have a pandemic.
12:12 It means fragile states will have more of a chance to make a transition as India has
12:19 over the last 60 years to join the modern world.
12:25 And it doesn't mean any large cost.
12:30 These are things that are profitable.
12:32 Nowadays it wouldn't have been true 10 years ago, but the miracle technology means that
12:39 it's cheaper many times to get electricity from the sun than from coal.
12:47 It's cheaper to vaccinate a child than to treat that child when the child gets a deadly
12:58 disease.
13:00 And so this is about making investments with a high return.
13:08 And ultimately that's what's important about finance.
13:13 What finance is about is bringing together those with capital and those with opportunity.
13:21 And that's what every financial system does.
13:25 But now there are opportunities and challenges at a global scale.
13:31 Those are bigger than any one private institution is going to have the remit to take on.
13:38 That's why we need global development banks and that's why they need to be transformed
13:45 for this new era.
13:46 Point taken.
13:47 But I'm trying to understand how the report has been received in real terms as well and
13:53 whether there is a groundswell for it because that will determine whether real progress
13:58 will be set in motion.
14:00 So what's your assessment?
14:01 Good, good, good and important question.
14:06 We've been very encouraged.
14:08 We thought when we wrote this report we were going pretty far out on a limb in some ways
14:15 by suggesting that these institutions be transformed by talking about a trebling of financial commitment
14:24 by 2030.
14:26 We thought that this might well get dismissed and as impractical by people who hold office
14:34 today as the dreams of former office holders and their friends.
14:42 And we've been very much encouraged by the response of your finance minister, by the
14:49 response of your prime minister and by their leadership in the G20 as India has stepped
14:59 up and delivered a statement unanimously of the G20 countries that goes forward quite
15:11 far on the issues that we've been pushing.
15:14 Now that doesn't mean it's all done yet.
15:16 The hard work is in the implementation and some of the commitments are still a bit vague
15:22 but we're very encouraged by the progress that's been made.
15:25 Okay, I'm tempted to refer to a phrase that Larry Summers used recently saying that we
15:31 have to go beyond coordinating to cooperate and cooperating to coordinate and really get
15:36 down to the money and setting the wheels in motion which is why in case it's important
15:42 to understand what happens next, what are the next steps.
15:46 Volume one accepted, well received, unanimously accepted.
15:50 Now there is volume two and I understand that focus is more on timelines and actionables.
15:55 Well volume one has not been fully accepted.
16:00 Volume one has received favourable response as Larry pointed out from different stakeholders
16:08 but there's a lot more which needs to be done.
16:12 Volume two is keenly awaited.
16:14 Both these figure in the daily declaration and the volume two is going to really address
16:20 some of the major issues which the G20 in the summit and in Gandhinagar on the 18th
16:28 of July raised when I had the privilege of presenting the report physically and Larry
16:34 had come through an audio-visual.
16:38 The second report which we believe we have to give in time to be considered in Marrakesh
16:45 at the time of the annual meeting of the IMF and the World Bank and we will have the opportunity
16:52 or Larry and I to present it physically to the finance ministers and governors of central
16:57 bank of the G20 countries on the evening of the 12th of October followed by further discussions
17:04 on the 12th of October and we hope that it will receive and have a reception as favourable
17:12 and the atmospherics are now much better than they were in July.
17:17 Countries have moved.
17:18 I wouldn't say decisively moved but countries have certainly moved in a positive direction.
17:23 There are many areas where there's hardly any disagreement on harnessing of private
17:28 capital or the issue of guarantees on the kind of variations of capital hybrid, blended
17:35 and other forms of innovative finance in terms of improving the operating model, in terms
17:41 of improving the time and procedures from the concept note to the disbursement in making
17:48 not only the banks bigger but better and stronger, which is very important and bolder.
17:56 I know we have a time pressure on us which is why I'm going to, Mr Summers, fire a few
18:00 questions at you.
18:02 What are the key challenges you anticipate in adoption of the recommendations of the
18:07 independent experts group?
18:10 Every group, parliamentary, congressional groups have to vote in support of the commitment
18:17 they're international that governments have made.
18:22 The banks have to transcend their orthodoxies and move with the speed to which they're not
18:30 accustomed and a boldness that has not been characteristic in the past.
18:38 U.S. leadership, because they're shifting geopolitics and I imagine conceptually it
18:44 affects the future of multilateralism and therefore of these banks.
18:50 There is the U.S. leadership piece as well.
18:53 Reflect on what I've just flagged off.
18:57 The United States has less capacity and less will to dictate or be a hegemon than it might
19:05 have at some earlier stage.
19:08 And so our task today is to work cooperatively with others.
19:14 Most of the world's economic growth over the next two years and over the next ten is going
19:19 to come from what's been traditionally thought of as emerging markets.
19:24 Question is whether they're going to be heard in the design of the global system.
19:28 They certainly were heard in the authorship of our report and whether they are heard or
19:36 not in what ultimately happens is going to be very important for the ability to maintain
19:44 connection around the world.
19:46 I think President Biden understands that.
19:48 He understands that we live in a world of coalitions, not a world in which any one country
19:58 can dictate to all on all subjects.
20:02 Well put.
20:03 I'm shifting gears a little bit, but it's impossible to have a conversation with you
20:08 and not ask you on your assessment of China's economy currently, the U.S. economy and both
20:14 those big pieces that affect the global economic outlook as well.
20:19 I think both economies have challenges.
20:23 Fundamental strengths of the American economy I think are terrific.
20:26 I think we are going to have a challenge of achieving a soft landing with respect to the
20:32 inflation that we have had.
20:37 I think we're going to I think that's not going to be an easy task for the Federal Reserve,
20:44 but I think the dynamism of the American economy, its ability to accept immigrants different
20:51 from most other economies, our strengths in creating the big technology companies, our
20:59 ability to attract capital from all over the world means that I think the fundamental structure
21:05 of the American economy is strong.
21:09 China I think China faces some very real challenges in the years ahead.
21:17 Frankly, the most successful Chinese citizens are trying to take their money out of the
21:22 country rather than trying to bring money in to the country.
21:27 Chinese parents or not, potential parents are not choosing to have children and the
21:34 birth rate is much lower than it was when they had a one child family.
21:41 And increasingly the economy is being politicized as the party takes a stronger hand in so many
21:49 parts of the economy.
21:52 I think with these challenges and with the additional challenge represented by the tremendous
22:01 problem China has of absorbing all of its savings, it can't go into exports anymore
22:07 because the world won't take them.
22:09 It can't go into infrastructure that much more because China's already built up a huge
22:14 infrastructure.
22:16 It had been going into real estate, but now China has empty cities.
22:21 So that challenge is I think very serious.
22:25 And so my guess is that these are not going to be easy years for China economically and
22:33 that the challenge for the Chinese is going to manage that with reform rather than managing
22:41 it with heavy handedness at home and truculence abroad.
22:45 You spent a lot of time in India recently, in recent months, so at the risk of running
22:51 against the clock here.
22:53 The Indian economy, how does your assessment of it sort of fit in with what you've described
23:00 in the US and China?
23:02 India's economy is not yet nearly as large as that of the US or of China.
23:09 But precisely because of that, India has immense potential to grow.
23:16 I think with good fortune in the world economy, with boldness in economic reform, and with
23:30 tremendous energy and effort by Indian workers and Indian businesses, one could imagine that
23:39 by mid-century, India's economy would grow eightfold from its current status.
23:46 Eight times as much economy as India has today.
23:51 And that would change the lives of every Indian.
23:55 And it couldn't happen without changing the world economy as India became that much more
24:02 integrated with it.
24:04 It's not my prediction for India because there are just too many obstacles and too many problems,
24:10 but it is my hope for India and it's part of a hope for a successful second quarter
24:21 to the 21st century.
24:23 On that note, N.K. Singh, Larry Summers, an absolute pleasure.
24:26 Thank you for your time.
24:28 [MUSIC]
24:35 [BLANK_AUDIO]
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