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QUEST MEANS BUSINESS
Talking Growth at IMF Meeting; European Markets Down; Italian Economy Minister Says No More Tinkering With Budget; Choppy Day on Wall Street; Structural Reforms Discussion at IMF Meeting; Indian Central Baker Calling for Structural Reforms; Microsoft CEO Says He Was Wrong on Women's Pay
Aired October 10, 2014 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(NEW YORK STOCK EXCHANGE CLOSING BELL)
RICHARD QUEST, HOST: Another triple-digit loss for the Dow Jones Industrials. The volatility continues. The market is off heavily, more
than 100 points. It's at its lowest point of the day as trading comes to a close. The bell has rung, the gavel's been hit, it's Friday, it's October
Tonight, the long, hard road to growth. As European markets sell off, Italy's finance minister tells me we can get the reforms done and stick to
A message to the Fed chair. The world's finance ministers tell me we need communication from Janet Yellen.
And seriously bad karma. Microsoft's chief executive apologizes for saying women shouldn't ask for a raise.
I'm Richard Quest. We're live at the IMF in Washington, where I still mean business.
Good evening tonight from the IMF headquarters. It's actually headquarters building two here at -- in the IMF, where the work begins to
reform, reboot, and reinvigorate the global economy. The leaders who've been gathered here in Washington, they remain united in their belief that a
determined effort's now required to turn the new mediocre, that growth, into blossoming growth instead.
The IMF says advanced emerging economies have an urgent need for reform to build sustainable growth. And yet in Europe, a budget battle
looms this very weekend.
France and Italy are refusing to enact the painful tightening measures seemingly demanded by the European Commission. France and Italy now
arguing, now is not the time to cut spending at the expense of economic growth. And the stance is putting them on a collision course with the
Fears of an economic slowdown in Europe and uncertainty about whether the ECB's equipped to deal with it pushed Europe's stocks down. Look at
the numbers. The DAX in Frankfurt closed down 2.4 percent. You might wonder what's going on.
It's not just the DAX. Many of Europe's main markets are on track to end the year lower. The FTSE is at a 15-month low. The Paris CAC 40, back
at levels not seen since last December. The DAX is back to almost exactly where it was a year ago. Spain and Italy's markets up on the year, but
they're well of the highs they hit in June. And the Dow Jones Industrials, the Dow down at the moment.
So, speaking yesterday at the CNN debate on the global economy, the head of the eurogroup, representing eurozone's finance ministers, told me
there are two specific countries which need to get their act together.
(BEGIN VIDEO CLIP)
JEROEN DIJSSELBLOEM, PRESIDENT, EUROGROUP: There are a couple of countries that have to do more, and they know what they have to do, and
it's about getting things done.
QUEST: Which countries?
DIJSSELBLOEM: Well, as you know, there is France and Italy, who have now government who is more ambitious than others before on a reform agenda,
and I hope they have the political stamina to get it done.
(END VIDEO CLIP)
QUEST: Now, the rumor is that both France and Italy's ministers are now negotiating with the European Commission, hoping either to get some
sort of accepted rejection of their budget, which can then be tinkered with, or that a budget will be put before the Commission that is
Italy's finance minister says there's no chance that the EU will reject his country's budget. Speaking to me here at the IMF a short time
ago, Pier Carlo Padoan said there would be no further tinkering.
PIER CARLO PADOAN, ITALIAN MINISTER OF ECONOMY AND FINANCE: I anticipate no trouble. We are within the rules. We respect the rules, and
we are doing what the Commission suggests in terms of structural reforms.
QUEST: And in terms of those structural reforms, where is your priority now?
PADOAN: The priority now is in the labor market. As you know, the law has been passed by the Senate just two days ago, this is just a part of
the very ambitious structural reform agenda.
QUEST: The labor reform will be controversial. It will continue to be controversial, and it may be difficult to implement.
PADOAN: This is the sign that it matters and it will change things and affairs in Italy.
QUEST: I guess the question, then: is the government prepared for the fight?
PADOAN: The government is already fighting, and it's prepared.
QUEST: When we look at the budgetary process, the post-recession, post-Great Recession budgetary process, Italy and France are being held up,
if you like, or put out there as being the ones that are the test case, the litmus test of this new Commission and the budgetary rules. Is that fair?
PADOAN: Italy and France are pursuing -- following the rules in different amounts. There are different cases. And as far as a new
Commission is concerned, we welcome whatever they say. There is no issue of confrontation there.
QUEST: Right, but there is some suggestion that some countries may choose or wish to confront the new Commission on the question of austerity
versus growth as reforms take place.
PADOAN: I think austerity versus growth is an old debate and it didn't lead to anywhere. The issue is we're putting growth back on the
agenda. This is what the Italian presidency has done with the semester.
QUEST: And with growth back on the agenda, where does that come at the same time as consolidation?
PADOAN: Growth-friendly fiscal consolidation is not an abstract concept. It's about changing the composition of the budget and re-
profiling the budget adjustment.
QUEST: Growth-friendly -- to use your phrase -- growth-friendly --
PADOAN: Fiscal consolidation.
QUEST: Some would say that's almost a contradiction in terms.
PADOAN: Well, this is -- I totally disagree. There is a lot of evidence that says that you can have a consolidated budget and shift
spending and taxation away from measures that depress growth and enhance growth to a different structure of spending and budget.
QUEST: On the political point, do you foresee a tension between the deficit countries at the moment, or the higher-deficit countries at the
moment, and the Commission? This is what this really comes down to, whichever way we look at it. Is there likely to be a tension between the
two sides in this budgetary process?
PADOAN: I don't think so. As far as Italy is concerned, we are not a high deficit country. We are below 3 percent and one of the few countries
that are below 3 percent.
QUEST: Except on the structural deficit, and the timeline moving out --
PADOAN: The structural deficit will be improving in 2015 and even more in 2016 and 17.
QUEST: And your target date for hitting the structural deficit limit is what?
PADOAN: The target is to complete the adjustment by 2017.
QUEST: And you believe the Commission is going to sign off on that?
PADOAN: We are using the flexibility that is already available in the SGP. We are doing a very ambitious structural reform program. We are
doing that in a recession. So, these are really exceptional circumstances.
QUEST: "Exceptional circumstances," and you'll hear from central bankers and finance ministers from all the world's continents this evening.
In a few moments, India's central bank governor, Raghuram Rajan, tells me why he thinks structural reforms are so hard to push through. The
Colombian finance minister will tell me Janet Yellen must communicate with emerging markets on when the Fed will move on interest rates.
And that's also something I'll be discussing with South Africa's finance minister, who tells me there are tough times ahead for Africa's
It was a choppy day of trading in New York. The Dow ended down 115 points. Alison Kosik's at CNN in New York. Is this just more of the same
and similar? Or should we be grateful, Alison, it wasn't 300 points?
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: I don't know, what do you think? Should you be grateful 100 points down? But you know what? This
is the fourth triple-digit move of the week. Volatility really was the nae of the game.
But the day didn't start this way. I want to show you how it started. It started, actually, higher. The Dow actually had a rally. But that
quickly fizzled out, as you saw, the choppiness. Stocks really fluctuated today.
There wasn't one catalyst that moved the market. I think there wasn't any one direction. I think it was also still just the same worries about
the slowdown in Europe that is really weighing on investors, Richard.
QUEST: Alison Kosik at the New York Stock Exchange. Joining me now, "The Financial Times'" US managing editor Gillian Tett, who's with me here
at the IMF. Good to see you, as always.
GILLIAN TETT, US MANAGING EDITOR, "FINANCIAL TIMES": Great to be here.
QUEST: Thank you. The leaders -- we'll talk about the market in just one second. But the leaders here -- the finance ministers, the central
bankers -- the crisis is gone, but there's nothing to be cheerful about.
TETT: Absolutely not. The good news is that the crisis at least is receding from memory. The bad news is that trying to create vibrant growth
is something that is proving to be much, much harder than anyone had anticipated.
And what really worries the leaders here right now, if it is not just the eurozone which is a cause for concern, although that really is a major
talking point this week, it's also the emerging markets that are increasingly looking troubled, and likely to become more so if the Fed does
press ahead with interest rate rises.
QUEST: Why should the emerging markets be more troubled than usual? Take away the Fed at the moment. China may be slowing down, and the other
countries are slowing down, but is that appreciable?
TETT: Well, I was actually talking with a group of emerging market central bank governors yesterday, and they said there are two key issues
hanging over them. One is China, which is a very big concern, not just for countries in the Asian region, but Latin America, too. The second one, of
course, is the prospect of the Federal Reserve tightening monetary policy going forward.
But there's a third issue, which is really starting to worry the emerging -- IMF and others, which is that if you go back 10, 15 years ago,
there was a wave of structural reform in many emerging market countries.
Sadly, because there's been so much money flooding into the emerging markets over the last five years, a lot of the impetus for structural
reform has faded, and in a sense, the question is, where is that going to come from now?
QUEST: And not only that, they may be backsliding or reversing structural reform while Europe isn't even getting -- well, I suppose it is
getting underway. But all I hear here is structural reform, structural reform.
TETT: Well, there's a tremendous frustration right now with the eurozone. But one of the really interesting things that's emerged in the
last 48 hours is that the IMF is saying it's not just about structural reform right now. It's also about things like infrastructure spending --
TETT: -- and that old-fashioned concept of building bridges and roads and tunnels and things like that is really coming back into vogue as
policymakers grapple desperately to find something, anything, that can actually provide a new growth impetus.
QUEST: In this scenario -- and I know you're not a market watcher per se -- the Dow is up, the dollar is down type of thing, you watch the
markets like the rest of us do in this business -- the -- Alison was just saying, the fourth day this week of triple-digit moves. Now, if volatility
is back because of economic underpinnings, then we are in deep trouble for the next few weeks, if not months.
TETT: Well, in many ways, what's odd is not the fact that volatility is back. It's the fact that actually, volatility has been so absent over
the last year.
QUEST: Ah! Good point
TETT: Because the sheer tsunami of central bank liquidity that's hit the world -- $10 trillion if you add up all the expansion in balance sheets
that's occurred -- has basically dampened down volatility dramatically.
What you're seeing right now is really markets waking up to the fact that the world has been very abnormal over the last couple of years.
Because if the Federal Reserve does start to tighten monetary policy, you start to see the tectonic plates shifting, and to a certain degree, some of
the pent-up volatility may come back into the markets.
QUEST: Somebody said a few months ago to me that Europe would once again be the poster child for how not to do it, and a big problem. And I
sort of said, oh, no, no, no, surely not. But --
TETT: I think right now, Europe and Japan are probably competing for the wooden spoon prize, if you like, in terms of how not to do it.
Frankly, there's a lot of baggage out there.
Europe, though, it should be stressed, is not uniformly bad. If you look at countries like, say, Ireland --
TETT: -- or even Spain or Portugal today, you can actually see some signs of real reform occurring around the edges. The real problem, though,
that people are worrying about right now are countries like France where, frankly, reform has been stalled. And even Germany, that great powerhouse
TETT: -- is really starting to provoke a lot of concern right now.
QUEST: You'll be with me later in the program to pull it all together?
QUEST: Thank you very much, indeed.
TETT: Thank you.
QUEST: Gillian Tett from the FT. Now, India's central bank governor says global leaders have put off structural reforms for too long. It's
time now to reverse the course. You're going to hear him explain why the world can't wait any longer.
QUEST: Just to put the week into perspective for you, I've just been looking at the numbers. The Dow ended the week 2.7 percent lower, while
the NASDAQ has fallen an extraordinary 4.5 percent in the course of the week.
The governor of India's central bank says change is staring the global economy in the face, and the world can't bury its head and wish it away.
The governor claims it's time to deal with the problems, make the structural reforms necessary, and now. I spoke to Raghuram Rajan, and I
asked him to define his economic priorities for India at the moment.
RAGHURAM RAJAN, GOVERNOR, RESERVE BANK OF INDIA: Our first priority is inflation. As we get inflation down to a level that the country's
comfortable with, we'll be in a position to cut rates. That will then create the necessary stimulus.
But the point here is, inflation is hurting growth in India. And so, until we get inflation down, we can't be comfortable.
QUEST: But you're in this catch 22 now, aren't you? You've got to bring the inflation down, but you want to get growth back up again. That
is the classic central banker's dilemma --
RAJAN: Dilemma, yes.
QUEST: -- in that respect. And you are a perfect example of it at the moment.
RAJAN: Right, no, that's always the central banker's dilemma, and you -- there's always a certain amount of growth that is sacrificed in an
attempt to get inflation down.
However, if you can get inflation down to a level that people feel comfortable with, growth will more than make up at that point for the pain
that you've suffered during this time. We can't have double-digit levels of inflation for a long period without suffering consequences.
QUEST: And your inflation target would be? Six percent?
RAJAN: Six percent for the end of next year.
QUEST: Right. On a global scale, when you look at what's happening now as the US starts to tighten, as the ECB again looks to do further
easing, what for you is the principal, outside India, external concern?
RAJAN: Well, growth.
QUEST: Global growth?
RAJAN: Global growth. I would love the industrial countries, the US, to grow at 3.5, Europe to grow at 2, Japan to go back to 1.5, 2 on a steady
basis, and China not to slow. But these are the concerns that, except for the United States, all these other areas seem to be -- seem to have
uncertainties surrounding them.
I think for the world as a whole, the message is, we really do need to do the things that we've been putting off for many years, the structural
reforms in many countries.
QUEST: Your own included.
QUEST: Which of course, the new government got elected upon.
RAJAN: Absolutely. And we're engaged. We're engaged in doing the reforms on the financial sector, on the infrastructure, on human capital.
Those are things we're really focused on improving. But I think everybody in the world has their task cut out.
QUEST: Finally, on the very big question, the number one difficulty, when I hear structural reform, is nice idea, now let's see you go and do
RAJAN: Yes. Yes.
QUEST: How many times in your career have you heard somebody in your situation say structural reform. And three years later, you're still
saying structural reforms.
RAJAN: Yes, yes, yes. No, no, it's tough. The reason it doesn't get done is there are political interests against it, there are people who are
hurt, people don't like change. But we have to recognize change is staring us in the face. Population aging across the developed world is a fact of
life, and we have to react to that.
Low productivity. Productivity has fallen off a cliff. We need to bring productivity up. The fact that median incomes aren't growing,
certainly in the United States, inequality. We need to deal with all this. And for that, you really have to create more opportunity in the economies.
How do we create that opportunity? How do we skill the workforce? How do we create a proper safety nets? These are the things we have to
confront. And if we don't do it, the problem doesn't go away. There's an ostrich-like tendency, bury your head and wish it away. It doesn't. And
so, you have to suck it up and do it.
QUEST: That's the governor of the central bank of India with the priorities. It's extraordinary, 6 percent inflation is what he hopes to
achieve. Quite the opposite direction, of course, for the European Union, which would like to at least get to 2.
Microsoft's chief exec, Satya Nadella, is feeling bad vibrations after saying women who don't ask for raises earn good karma. The statement and
the apology and the reaction. It's been extraordinary.
QUEST: Welcome back, it's QUEST MEANS BUSINESS. We are at the IMF. Microsoft's chief exec admitted -- well, he had to, he had no choice --
QUEST: -- that he got it wrong when he suggested women shouldn't ask for pay rises. He was speaking at a women's tech conference when Satya
Nadella said women who don't ask for a raise earn good karma. Have a listen.
(BEGIN VIDEO CLIP)
SATYA NADELLA, CEO, MICROSOFT: It's not really about asking for the raise, but knowing and having faith that the system will actually give you
the right raises as you go along. And that, I think, might be one of the additional super powers that, quite frankly, women who don't ask for a
Because that's good karma. It'll come back. Because somebody's going to know, that's the kind of person that I want to trust. That's the kind
of person that I want to really give more responsibility to.
(END VIDEO CLIP)
QUEST: Yes, he really did say that. Nadella later apologized. He tweeted that what he had said, tweeting, "How inarticulate on how women
should ask for raises. Our industry must close the gender pay gap so a raise is not needed because of a bias." I'm not sure that the explanation
wasn't as inarticulate as the original explanation.
QUEST: Laura Tyson is a former chair of the President's Council of Economic Advisors, a business and economics professor at the University of
California in Berkeley. Always lovely to see you, Laura. Thank you.
LAURA TYSON, ECONOMICS PROFESSOR, UC BERKELEY: Lovely to be with you.
QUEST: Does your blood boil? Come on, what was your reaction when you -- what was he thinking?
TYSON: I really don't know what he was thinking. I can't say. I do note that he said he was completely wrong, not just wrong, completely
wrong. He said absolutely clearly afterwards, women who think they deserve a raise should ask for a raise. That is correct.
Research shows, however, that women are less likely to think they deserve a raise than men, and even women who think they deserve a raise are
less likely to ask for a raise than men. He needs to know that. Companies need to know those differences.
QUEST: Right. But the point on this, of course, is that he even thought -- look, you don't arrive at Damascus overnight. In the sense of -
QUEST: -- you can't say something one day and admit you were completely wrong the next. Because it begs the question, what sort of
thinking were you doing in the first place?
TYSON: Well, but what should happen here, without getting into his head --
TYSON: -- what sort of thinking he was doing was not based on anything we know about sex, of representation of women in technology, pay
differences, women's willingness to ask for a raise. It was based on nothing we know.
He needs to get his human resources team at Microsoft to tell him the facts, and he needs to work with the human resources team to make sure that
female talent is recognized and female talent should advance.
It should not always be on the women to ask for a raise. Women should ask for a raise when they think they deserve it, but I already told you --
QUEST: In the same way that I would.
TYSON: -- but I already told you, the evidence suggests that women are less likely to ask for a raise even when they think they are deserving
QUEST: Why is that?
TYSON: You know what? This is just demonstrated to be -- it might be cultural. There is a gender -- persistent gender difference. So, what
should a good company do that wants to promote female talent?
They have to recognize the gender difference, and they have to look around at their female talent and say, this woman deserves a promotion.
This woman deserves a raise. This woman deserves --
TYSON: -- to be in charge of a project.
QUEST: There's a woman in charge of this organization.
TYSON: There is, indeed. A great woman in charge of the International Monetary Fund.
QUEST: Christine Lagarde, I can think of no one better to run this organization.
TYSON: No one better. Right.
QUEST: But earlier today, when they had the group photograph just behind me here --
QUEST: -- of the G20 --
QUEST: I mean, there were, I think -- of central bank governors and finance ministers, there might have been of 60-odd people, 20 or 40 people
up there, there must have been two or three women.
QUEST: I think three, I counted.
TYSON: So --
QUEST: And you have been at the very top of this game.
QUEST: And you've obviously on many occasions been the only woman in the room.
TYSON: Yes, I have. Been on occasion many -- but it is, look. It's getting better. The very first thing that has to happen to make it better
is to have all of those central bankers standing up there, to have all of the CEOs, like the CEO of Microsoft, recognizing that there is a gender gap
that is not based on talent, it is not based on performance, and therefore, you actually have to do the work of targeting --
TYSON: -- improving the number of women in these positions, going after the talent, and rewarding the talent. You have to say, there's a
problem here, and society is not benefiting from the under-utilization of female talent. We have to do something about it.
QUEST: Have you --
TYSON: First thing, recognition.
QUEST: Have you ever had difficulty asking for a raise?
TYSON: I'm an academic. So, I have had -- my difficulty would be a little different, and this is an important difference --
TYSON: -- it's not just about asking --
TYSON: -- for a raise. It's about asking for an opportunity to be in charge of something. And I would say that in my life, I have learned that
you need to do that. You need to put yourself forward and say, I deserve the opportunity to be in charge of this project, of this institution, of
this issue, of this interview.
Women do need to recognize that. But at the same time, society needs to recognize that there are these gender differences and they have to
actively want to promote women and take the actions necessary to get that done.
QUEST: Good to see you, as always. Thank you so much.
TYSON: Nice to see you.
QUEST: See you at the IMF.
TYSON: Thank you.
QUEST: Now, we probably from one story about women to a message to one of the single most powerful women in the world without doubt. It's a
message to Janet Yellen. It comes from the emerging economies. Consider us before you meddle with interest rates. In a moment, we'll ask the
Colombian finance minister about spillback, spillover, and is he worried Dr. Yellen isn't listening?
QUEST: Hello, I'm Richard Quest. There's more "Quest Means Business" in just a moment. This is CNN, and on this network, the news always comes
A number of people who have died in the current outbreak of Ebola has passed 4,000. Spanish Prime Minister Mariano Rajoy visited the hospital in
Madrid where a nursing assistant contracted the disease. Spanish authorities plan to create a national committee to tackle the country's
The 17-year-old education activist Malala Yousafzai has won the Nobel Peace Prize along with the Indian campaigner Kailash Satyarthi. Malala
says she will work with her fellow recipient to make sure every child goes to school. Malala was shot by the Taliban in 2012 for advocating education
ISIS militants have now taken control of the security zone inside the Syrian city of Kobani, close to the border with Turkey according to the
Syrian Observatory for Human Rights. The observatory says ISIS fighters now control almost half the city. This video posted on YouTube supposedly
shows clashes between ISIS and Kurdish fighters although CNN cannot not independently confirm its authenticity.
North Korea's leader missed a key national ceremony on Friday. It's fueled speculation over his whereabouts. Kim Jong-un has not appeared in
public for five weeks. South Korea's defense minister says Kim may be staying at one of his homes near an exclusive hospital in Pyongyang.
Pro-democracy protestors are back in force on the streets of Hong Kong. Protest leaders called for a show of strength after the government
canceled talks that were supposed to happen today. The demonstrators have been urged to bring tents and to dig in for the long haul.
Well a very warm welcome again. It's the Atrium Headquarters Building II is what they call it here at the IMF and World Bank. The annuals
meetings are underway. Global growth is the key issue and how to get it started again. Well, the Colombian finance minister has come here to
Washington with a message for the chair of the Federal Reserve, Janet Yellin. Communicate with emerging economies about your plans to raise
interest rates. Only that will ensure everything goes smoothly.
During last night's CNN debate on the global economy, the Vice Chair Stanley Fischer told me, "If data forecasts are correct, the Fed will start
to move rates in the middle of next year." The Colombian economy is also at risk because of its dependence on oil exports. Now fears over Europe
and China have pushed oil to the lowest price levels in almost four years. Brent is below $90 a barrel for the first time in two years. And report
from OPEC suggests Saudi isn't planning to cut production any time soon - the opposite of course of the demand and the supply curve. Mauricio
Cardenas is the finance minister from Colombia. I spoke to him and asked him if the economy was ready for the U.S. to start raising rates.
MAURICIO CARDENAS, COLOMBIAN FINANCE MINISTER: We are prepared. And keep in mind that when the U.S. economy recovers, unemployment falls in the
U.S. That means that we'll have more demand from the U.S. for our exports. The U.S. is our number one trading partner. So the number one effect, it's
going to be on the real sector, more demand for Colombian goods - that's good news for us.
A secondary effect is going to be the increasing interest rates in the United States. Some capital will come back or we'll have less capital
flowing in to Colombia or other emerging markets. That's a second-order effect relative to the first one which is greater exports to the U.S.
QUEST: So are you saying that the greater export potential outweighs the effect of the withdrawal of capital to which I would say unless it's so
disruptive as we saw last year, that it starts to hit the economy, it starts to hit the currency and it starts to create a volatility.
CARDENAS: Absolutely. So that's why we're here at the IMF meeting saying the U.S. authorities particularly Janet Yellin that communications
is key to a smooth transition. I think they've handled things very well in the last year after the May 2013 disruption. That's the type of
communication we need so that there is no sudden change. And also it's very important not all emerging markets are in the same situation. If you
have the right fundamentals, capital is going to stay in your country, and that's what's going to happen in Colombia. Because low inflation, low
fiscal deficit, low public debt. That means investors in Colombia are going to remain in Colombia.
QUEST: Do you get the feeling the Fed is listening to concerns like yours? I mean, their duty is to run monetary policy for the benefit of the
United States - not for other countries. But they have to take you into account.
CARDENAS: Absolutely. Why? Because there's spillover effects. If Latin America grows faster, that means also more export opportunities for
the U.S. So they have to be mindful about what happens outside the United States, so that's why communications are so important. Because there is
QUEST: And what is the communication you're getting so far?
CARDENAS: I think they have understood the message, I think what happened last year was a signal, they don't want to repeat that, and I
think they're doing things in the right way. I very much like the way the world is preparing for the U.S. monetary tightening.
QUEST: Where are you doing your budget forecasts? On what price of oil?
CARDENAS: Ninety-seven for the Colombian basket which is somewhere in between WPI and Brent.
QUEST: And you're hovering at the moment in that sort of -
CARDENAS: Well, we're about at 94.
QUEST: Right, so just slightly under, but you're not seeing the potential for dramatic reduction.
CARDENAS: No. No. And on top of that, we have a fiscal (goal/grow)(ph), so we save all the increases in oil prices above $97 to
deal precisely with declining prices. We have a fiscal rule that looks at the long-term price of oil. And based on that, we decide on government
QUEST: Are you saying the rest of us are more concerned about the price of oil falling than you are?
CARDENAS: I'm concerned too. I'm concerned too. But, you know, there is a good side of it to consumers, not just here in the U.S. or
everywhere in the world. In Colombia as well because we charge consumers the international market price. We don't subsidize gasoline.
QUEST: That's Colombia's worries about the Fed and raising interest rates. If you want to really understand the one overarching issue at this
IMF meeting this year, listen to South Africa's finance minister who is predicting seriously tough times ahead for his country. I asked the new
minister whether he was ready for the Fed to start raising rates.
NHLANHLA NENE, SOUTH AFRICAN FINANCE MINISTER: Indeed we will feel the spillover. In fact, we have, you know, priced in the tempering, but
the tempering does also come with other challenges including the fall in the performance of other economies like China. The E.U. has always been on
a very slow growth path, so all those do add to our challenges. And our response, more than anything is, one, I think we do need to tighten our
belts and so fiscal consolidation is one of those that we need to embark on. But we also need to begin to look at the other markets. First, grow
our domestic demand, but also look at other markets, particularly in Africa and in the region.
QUEST: When you talk about fiscal consolidation - spending cuts if you like - there have been industrial unrest in numerous industries over
the past couple of years.
QUEST: If you're talking about cutting spending, which is what you're talking about doing, how can you do that and maintain industrial harmony?
Or are you looking at some prospect of unrest?
NENE: Look we - our fiscal consolidation is actually premised on two principles. The first is to gain efficiencies in the manner in which we
direct our resources, and the second is that of protecting the areas. Which means the sectors that are actually going to bring in the growth
we're talking about, but also in protecting the (inaudible) because as you know, South Africa is confronted with the triple challenges of unemployment
inequality and poverty.
QUEST: You -
NENE: But refocusing our -- targeting for our expenditures and looking at how best we promote areas where we would have some competitive
advantage like agriculture, ensuring that we unlock the bottlenecks in infrastructure, particularly in the energy sector.
QUEST: Can you do that?
NENE: That's precisely the package, yes. It is possible.
QUEST: So, spending cuts but refocusing the spending.
NENE: Absolutely. Because you reprioritize your spending. And if you get efficiencies, you are able to reprioritize the spending.
QUEST: Really your message to South Africa, economically, your message is `hard times ahead, tighten the belt.' If the good days are not
exactly over, be prepared for a bit of a rough ride. Is that fair?
NENE: The message actually is that the challenges that we confront, we should confront as a country, and we all need to take the pain at this
time but those challenges are not insurmountable. We can only resolve these challenges by one, realizing (ph) that we have these challenges, and
in order to come out of these challenges, we have to go through a bit of a difficult time.
QUEST: A recession?
NENE: Not necessarily. Because I think we have averted that in my view or in the technical sense of the word. But tough times.
QUEST: Tough times. The "Financial Times" U.S. managing editor Jillian Tett is with me once more. So, everybody's waiting for an event
that they know is going to happen probably next year in June. If they all know it's going to happen and they're waiting and prepared, why would it be
such a traumatic event?
GILLIAN TETT, U.S. MANAGING EDITOR, "FINANCIAL TIMES": Well, if you're being optimistic, the argument goes, and actually we've already had
a dress rehearsal for this event in the form of the taper tantrums last summer when basically investors around the world panicked at the thought of
the U.S. tightening monetary policy, and we saw tremendous turmoil amongst the emerging markets. And so the theory is if you're optimistic, that
investors around the world have had a lot of time to prepare for that event, as you say, and also central bank governors have had a chance to
prepare too. The problem though as financial history shows, is that investors are rarely rational. And no matter how many times they prepare
for something and know it's coming, the chance of a panic is there.
And in the last few weeks we've seen groups like the International Monetary Fund or the Bank for International Settlements warning about the
danger of herding. That's the phrase which describes how mutual funds, investors all tend to panic together.
QUEST: But what would they do? I mean, would they just suddenly grab the money from all these emerging markets or from other investments less
more risky assets - shove them into the United States because it's a better rate of return? That seems very simplistic.
TETT: Well, guess what? Many investors are pretty simplistic and if you look at how they've behaved in recent years, we tend to see this
tremendous herd-like behavior - they panic together when investors rush into one asset class and then rush out. Now, there's some groups that say
that's not going to happen. BlackRock, one of the world's biggest fund managers, has recently come out as actually it is completely wrong to worry
about this because, guess what? Fund managers like BlackRock are supposed to be much wiser this time around, much better prepared and they also say
something important changed in recent years which is that lots of local asset managers are holding emerging market assets too. And so they
shouldn't panic - that's the theory.
QUEST: That's the theory, and we all know how the theory goes. Gillian, thank you so much for joining us tonight.
TETT: Thank you.
QUEST: I very much appreciate it. And, as they say, that's "Quest Means Business" for this Friday night, and indeed for this week. From the
IMF and World Bank, I'm Richard Quest in Washington. Whatever you're up to in the hours ahead, -- whoo, thank you - (RINGS BELL), I hope it's
profitable. I'll see you in New York on Monday.
(END QUEST SHOW)
DIANA MAGNAY, CNN INTERNATIONAL CORRESPONDENT BASED IN BERLIN: Welcome to "Marketplace Africa." I'm Diana Magnay and it's great that
you're here with us this week as we visit Ethiopia. And find out more about one of the world's most enduring fashion accessories - leather
gloves. The leather industry is one of Ethiopia's biggest foreign currency earners. And a U.K. company has seen the potential. Rather than importing
the raw hide, it's decided to set up a manufacturing plant in country. That's raising funds for its own balance sheet, but also investing in the
MAGNAY: Precision, thoroughness and attention to detail, key elements in this glove-making factory. And every stitch has to be made in time for
the company's export quota of 5,000 pairs of gloves a day. The operation is based in the outskirts of Ethiopia's capital city Addis Ababa, and it
belongs to Pittards, a U.K.-based leather company. Here cowhide which is tough and durable is used to make the work gloves, ideal for construction
and gardening. But it's the fashion gloves that have pride of place.
TSEDENIA MEKBIB, GM AND COMMERCIAL DIRECTOR, PITTARDS: The fashion glove is made of sheep's skin which is unique to Ethiopia - the durability,
the stretchability and the strength makes it popular for gloving leather specifically. So that's been the - one of the - strengths of Ethiopia in
the leather sector.
MAGNAY: The fashion gloves are much more sophisticated with various decorations and lining that's suitable for winter. The company mainly
exports these fashion gloves to Japan and Europe, whilst the biggest market for the work gloves is the United States. And it all begins at Pittards
Here the raw animal hides and skins are converted into finished leather through numerous processes. Some of the steps include fleshing of
the already soaked hides and skins to remove unwanted parts. Retanning to color the leather followed by a stage under the vacuum dryer where the skin
is dried and then stretched to increase its surface area. This leather is then fed into a machine which softens it, which makes it flexible - an
advantage when making gloves.
Male: This is the end product ready for export. This is purely glove sheepskin which is used for glove-making. So it has already leavened (ph)
with its own thickness. Its airier, (they're eyes covered) (ph), and packed like this. This is already packed material. Finally, it will be
put into these boxes and then tucked like this.
MAGNAY: In a move to build foreign exchange revenues, the Ethiopian government banned all export of rawhides and skins. In 2009, the total
revenue from finished leather exports was about $6 million. Last year the total revenue was around $64 million according to government reports.
Though Ethiopia is currently in a construction boom, rapidly building up its energy and transport infrastructure, it's still struggling to
provide a suitable environment for old enterprises and for the new businesses that are setting up shop in the country.
MEKBIB: The challenges that we encountered when we started business - - from power cuts to logistics to foreign currency availability, to lead time and having raw materials - these have been part of the development of
the country's growth. It's the progressional process that requires time, having the solution to these challenges would allow us to be competitive as
a country and as a company as a whole.
MAGNAY: Ethiopia has a rapidly-growing population which provides a wide base to recruit workers. But getting a trained workforce isn't always
MEKBIB: The major challenge in product manufacturing is having the right set of skills. We started our production facilities with zero skills
and knowledge. Having the right skill set knowledge is vital for having the right product ranges that can compete in a global market. So the
training process and bridging the gap between the world - the rest of the world - and the skill set in Ethiopia on the ground has been their greatest
challenge so far.
MAGNAY: As it trains more personnel, Pittards is branching out into garment production and is also now targeting consumers inside the country.
MEKBIB: We are seeing a growing trend in purchasing power of the local market which is a clear indication of the middle class locally. The
quality is being appreciated, so that's an encouraging market trend that we're seeing in Ethiopia.
MAGNAY: But for the Ethiopians, it's not just about the ability to buy top-of-the-line leather products, but also to access a label they can
call their own made in Ethiopia.
MAGNAY: Coming out, we'll find out how Ethiopia has transitioned from poverty and famine to one of the fastest-growing economies in the world.
We'll be speaking to one of its economic giants in a few moments.
MAGNAY: Neway Gebreab is chief economic advisor to the prime minister of Ethiopia. On this week's "Face Time," we'll talk about Ethiopian
economic policy and how to drive growth across the continent.
NEWAY GEBREAB, CHIEF ECONOMIC ADVISOR TO ETHIOPIA'S PRIME MINISTER: Invest I infrastructure, create space for industrialization and shift the
economy from agriculture to industry. And move people from the rural areas to the cities. That is the broad roadmap. It's a roadmap which has been
followed by many other advanced countries, and I think it is still valued for Africa. We will need to start with agriculture because that is what we
have to begin with. And for a country like Ethiopia for instance, it is vital that we are able to create conditions necessary for food self-
sufficiency. But we can't linger on agriculture. You have also to quickly then move towards industry. But to make that shift possible in the
interim, you have to develop the infrastructure.
You will need to tackle the issue of urbanization judiciously but also expediently to be able to move people from agriculture which is an area
with low productivity to industry and gain the benefit of high productivity. At the same time, come up with policies and incentives which
will encourage businessmen to give employment as much as possible. Big and medium-sized enterprises get loan from banks. Microenterprises in the
rural areas, in the urban areas can get financed from micro-financing institutions and you have the missing mill (ph). The missing mill (ph) are
small enterprises engaged in maybe cottage industry, in services, begu (ph) employment. And so they are a very important segment of the economy. But
they - the financing depends largely upon the owners themselves and friends, relatives, etc., and that is not suitable or an adequate business
of finance what can be done.
I think this is a program that countries like us - developing countries - face everywhere, not simply in Africa, but everywhere. I tell
you what is the problem. If you want the banks to give them loans, banks will say, `OK, how much profit will you be able to generate? And will you
be able to pay me back?' The small businessman doesn't even have an account. He doesn't really know what are his scores and even what is his
revenue and profit. So, you need to - and that is the typical characteristic of an informal business. So you have to encourage them to
become more formal - more formal in the sense of looking at their business as an entity apart from themselves, as an entity which has to stand on its
own feet. If we push in this direction, banks will also be encouraged. They will say, `OK, these are small businesses, the administrative cost of
reaching them is perhaps a little bit high, and therefore my interest rate will be a bit higher.' But otherwise they are like any other business. I
think if we tackle it from both sides, we can make a dent on this problem. So the side of organized banks as well as from the side of micro-financing
institutions. And it shall be a big service because small enterprises are very important actually in terms of providing employment.
MAGNAY: That's it for "Marketplace Africa." I'm Diana Magnay and thank you so much for watching. If you enjoyed it and want to see more,
you can visit our website cnn.com/marketplaceafrica. For now, goodbye.