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Christine Lagarde: "We're All in This Together; Schauble "Concerned" at Rise of Populism; Carney: We Should Celebrate Globalization; U.S. East Coast Braces for Hurricane Matthew; Economic Leader Call for Inclusive Globalization; Yi Gang: We Need Inclusive Growth; Deutsche Bank Announces 1,000 more Layoffs; Twitter Plunges as Bid Rumors Falter; Brazil's Finance Minister Says Recession to End Early Next Year; Kim Yong Kim: We Want Private Money to Invest; Israel Holds Interest Rate at Record Low; Israel Economy growing Faster Than Expected; Schauble: Concerned About Rise of Demagoguery; Yi Gang: China Wants to Help Poorer Regions. Aired 4-5p ET

Aired October 6, 2016 - 16:00:00   ET


[16:00:00] RICHARD QUEST, CNN ANCHOR: The closing bell is ringing on Wall Street. The Dow Jones has been up very sharply during the course of the

session, but it is certainly off the lows of the day.

Time for the gavel to bring trading to a close. Here we go. All three, good strong three robust gavels on a down day. It is Thursday. It's

October the 6th. Tonight Christine Lagarde at the IMF tells me, were all in this together and she calls for a fresh start on free trade. Also,

Germany's finance minister tells us he is seriously concerned by the rise of populists. And there's no apologies from the England Governor, Mark

Carney. He says we should be proud of globalization. You're going to hear an all-star panel only on this program. I'm Richard Quest live at the IMF

annual meetings in Washington where of course, I mean business.

Good evening. They call this building headquarters 2. It is IMF headquarters and we'll have more from the annual meetings of the fund and

the World Bank in just a moment.

We're going to begin though, there is an eminent threat to the southern eastern United States from hurricane Matthew. Millions of people in the

path of the storm are scrambling to be moved from homes as large sways off the eastern seaboard are now being evacuated. Now Matthew has already torn

through the Caribbean, killing at least 113 people. The category four storm is churning towards a direct hit on Florida. As you look at this

map, it went over Haiti, it hit Santiago de Cuba. It has now gone over the Bahamas and if that path holds true, it will make landfall across the

eastern coast of Florida and it'll head right the way up through the top. Now, Rosa Flores is with me live from Atlantic Beach in Florida. First of

all, Rosa, are you seeing any signs of the bad weather and the hurricane arriving? And secondly what preparations are being made?

ROSA FLORES, CNN CORRESPONDENT: You know, the winds are picking up a bit and we have very light range right now. One of the big worries here is the

storm surge. It is expected to be very high, the sea is supposed to rise like never before, really. At least in recent memory. People that have

lived here, people that have worked here are very concerned about that. But, Richard, let me tell you what law enforcement are very concerned about

at this moment, and that is that many people are actually not heeding the warning to evacuate.

Now where were driving right now is Atlantic Beach, like you mentioned. I want to show you around because we have the capabilities to do that in this

vehicle. To show you kind of just to look outside and you'll see that it looks like a very normal day, traffic is normal. Some of the homes are

boarded up and you can tell that some of the people have evacuated. Others have not. The sheriff reporting 30 percent of the people have evacuated in

this area. And there is a mandatory evacuation for everybody because it is in a very low lying area. It's right by the beach. And I've even seen,

even like piles of small debris. People cut some branches, or just put trash outside. That's what people don't want to see right before a

hurricane. Because, as you know, the winds get very high and all of that becomes flying debris. Now behind the scenes, of course, first responders

are prepared, but they are also telling people you need to get out. Because first responders can't come rescue you at the height of a

hurricane, Richard.

QUEST: Rosa, we're looking at this vehicle, very briefly, just tell us about the vehicle you're in and the various pictures that we are seeing

including, indeed, that one of yourself.

FLORES: Yes, so CNN has what we call a roving vehicle, which is pretty much a camera on wheels. We're able to show you pictures of what the

neighborhood that we're driving in looks like from multiple vantage points, including the camera I'm looking at right now, which is right on the dash.

It's an easy way for us to show you a lot in a very concise way and compact way. Now my producer is back there and he is the one punching the buttons.

He's showing you the different camera angles as I'm speaking and it allows us to give you an inside view of what these neighborhoods look like.

[16:05:07] QUEST: Rosa Flores, stay safe, and the roving vehicle keep coming back to us. Will come back with more. Rosa Flores joining us from

her moving vehicle in Florida.

The move of a different kind is taking place here at the IMF. Globalization is on trial at the IMF meetings in Washington. The managing

director of the fund, Christine Lagarde says free trade can help rather than hurt. It all happens amid worldwide fury at inequality and the

leaders who are allowing it. Now in the United States, millions of voters have rallied around Donald Trump's call for protectionism in Europe and

Asia. Protestors have marched in the tens of thousands in demanding free trade be scrapped. And in the United Kingdom, Teresa May has vowed to make

her government a force for good for working people. And that of course follows Britain's vote to leave the EU and reject economic and political

elites. So here at the IMF, Christine Lagarde calling for a global economy that works for everyone.


CHRISTINE LAGARDE, MANAGING DIRECTOR IMF: We're calling for an inclusive globalization. One that actually benefits all players. Not one that

reduces inequality between countries, but one that allocates fairly within countries and pays attention to those at risk of losing out.


QUEST: The problem is that the top of the agenda of the world's economic leaders and they shared a stage with me a short time ago for the IMF/CNN

debate on the global economy. On the panel, Christine Lagarde, the IMF's managing director. We also had Governor Mark Carney, Governor of the Bank

of England and chairman of the Financial Stability Board. From Germany, the Finance Minister, Wolfgang Schauble was with us. And Yi Gang the

deputy governor of the People's Bank of China. I began with Minister Schauble. His country is leading efforts to hold the European economy

together, he admitted. I asked him how concern he was with the political unrest and uncertainty sweeping across the globe.


WOLFGANG SCHAUBLE, GERMAN FINANCE MINISTER: I'm seriously concerned on this because you can look all over the advanced economies. The British

referendum, the campaign in the United States, and if you look at Europe I can tell you endless stories.

There's a common denominator that it is more and more people don't trust the elites. They don't trust the economic leaders and they don't trust

their political leaders. In the U.K., everyone from the elites told the people, don't vote for a Brexit. But they did.

And it's in a lot of European states, it's a similar development. And so therefore, we have to keep in mind and we have to care on this that we

close the gap and begin the discussion, the level of leaders, economic leaders, or bankers, and financial -- and central bankers as well. And on

the other hand the citizen, and that is what we have -- that is one of the reasons social inclusiveness, and we have to what is this world of


We in Germany, I can tell you a long story, I can make it short. We suffered last year and challenged by migration issue. It was a little bit

in the unexpected. But what is the right answer? Right answer is not to close the borders. The right answer is to make this globalist work, which

is moving together, whether we like it or not. It's moving together by technologies, ideas, and we have to make -- we have to have in mind that we

cannot only have in mind our own national interests. Difficult to teach people, but not in possible. Germany is trying again and again and again

to hold Europe together. But if we fail to hold Europe together. To overcome the division of Europe by the Cold War for decades. But you can

see later increasing split between East and West, Europe is a disaster.

[16:10:02] We have to fight against -- if we fail to hold Europe together, it's not very encouraging that we will not fail and brings the globalist

world more together. That is our task.

QUEST: that's a very sobering assessment, minister and managing director. The minister just said clearly that the argument has to be made for

globalization and the elites are being rejected. Now, I'm not being disrespectful and I probably put myself as part of them, but you know, this

is a room of elites.

SCHAUBLE: Yes, you are part of elites. People don't believe media. They don't trust medias.

QUEST: Let's not go too far, minister.

SCHAUBLE: It's true. One of the great conditions of a democracy that you can trust the media. You can't, they don't.

QUEST: But the reality is I'm not a decision-maker. And you four are decision makers. So managing director, in that capacity, TPP looks like

it's not going to happen, at least is going to be very difficult. TTIP, well the Germans and the French both say that the agreement is not going to

happen. This is another example of rebellion by people against elites.

LAGARDE: I would like to applaud Wolfgang Schauble, and with him the German authorities. Because I think it is an indication of how the force

of cooperation can overcome the risk of fragmentation and the temptation of it. In what Minister Schauble said, he indicated very clearly that

investment in Africa is critical, investment infrastructure is critical, and that's a very smart way of addressing those problems. But also of

addressing problems of the world. Because if anything is demonstrated by the analytical work at the moment, it's that we are in this together. It

is not just a force of technology. It's not just the fact that so many phenomenon, including climate change and epidemics and all the rest of it,

ignore barriers. We are in this together, whether it's through trade. Whether it's through financial integration. Whether it's through migration

of people. We are in this together.

QUEST: Half of the population do not feel that they are in it together for the reasons that Prime Minister May said yesterday. Many people in

countries feel that the rich have gotten richer, the elites have done well, and we're not in it together.

LAGARDE: Which is why things have to change. And while we are solid in seeing that we need more growth, because it makes it easier to allocation

it differently and to have a different approach to globalization. Where it's not going to only benefit those who are in the right place in the

supply chain or the happy few, but where it's going to benefit all. And that will require changes a policies and new ways of looking at our


MARK CARNEY, GOVERNOR, BANK OF ENGLAND: So I mean, the first way is to start to rebuild trust is to do what the people ask you to do. After the

crisis, what was asked is, can we try to sort out the financial system so when there is a shock, it doesn't rebound back on the real economy. We've

seen this year some issues at the start of the year. We saw issues with the surprise of Brexit to the financial markets, not to the people but to

financial markets. That actually we are doing some things right to organize the system so I could dampen shocks as opposed to amplify them.

We have to finish that job. We have to finish ending too big to fail. We have to do all those things The people asked us almost a decade ago to do

it. So first is you have to deliver. The second thing you have to do I think to rebuild the trust, is to come straight with people. You can't

spin your way out of these issues. I think a big service is being done with these meetings and these discussions, is being clear about both the

positive aspects of globalization. We should not apologize for what has happened, and hundreds of millions of people being lifted out of poverty

and opportunity being created. But that the distribution, there are challenges with distribution, and there are big challenges with lags. And

so how do we work with people to share those fruits more effectively? And how do we make trade tangible? And instead of thinking about multinational

trade deals, think about small, medium size enterprise trade deals. Think about how you can leverage electronic platforms in order to get goods into

China. Like the Chinese trade platforms that exist. And like the Canadians have done just a few months ago with China.

[16:15:03] QUEST: Are you saying the big multilateral go around type of trade deal, and I will go as far to say the TPP and the TTIP, they are an


CARNEY: No, I'm not saying there an anachronism, but they have to be complimented with equal force, vigor, and consistent policy domestically

for trade deals that benefit small and medium size enterprises, which leverage technology in which are integrated with training programs that

allow people to reconnect to a global economy.

QUEST: Deputy governor, again when we talk about China and China's role in the global trading system, I know you're not going to want to talk about

the U.S. presidential election. I'm aware of that. But that is not going to stop me trying to get you to talk about it. If president Trump -- or

Donald Trump is elected president, China is going to find a much more aggressive partner or adversary in the White House. Are you ready for it?

YI GANG, DEPUTY GOVERNOR, PEOPLE'S BANK OF CHINA: I'm a believer of free trade. I think free trade will promote the welfare of mankind. But you

have to deal with inclusive growth seriously. I think now the problem, the challenge that we're facing is real. Whereas, they gain a lot of

efficiency from globalization from free trade. But also they have to see the problem of the growth is not even. The income distribution is even,

and that is why there is a lot of tension and emotional appeal for deep globalization. We really have to look at the people's real problems. Like

a small and medium and the prices, like the Africa and also emerging market and developing economies, they're real concern. In terms of the policy

design, they have to really address. That's why this year's G20, they add inclusive growth into the agenda.

QUEST: You say that, deputy governor, but the reality is that only half, at least only half of the promises made on structural reform and changes by

the G20 have actually been carried out. And there is an argument that says the G20 would be better off having a telephone call instead of all getting


GANG: And that --

LAGARDE: Can I comment and help my friend? Actually of that half, China has contributed quite a lot.

QUEST: Oh, I'm not doubting that. But they just had the G20.

GANG: So that is a five-year plan. The time is also 2 1/2 year already past. We still have two more years to go.

QUEST: There is a lot to be done in the next two years.

GANG: Yes, I think we are going to do a lot in the next two years and hopefully make the growth to be robust and inclusive.


QUEST: So there you have the deputy governor. We'll have much more from our panel throughout the course of this show including the one question

Wolfgang Schauble was hoping to avoid actually being asked or having to answer.


QUEST: Minister Schauble, are you ever, are you prepared, if necessary, to bail Deutsche Bank?


QUEST: You will hear the minister's response answer next. We're teasing you the way on QUEST MEANS BUSINESS from the IMF. Good evening to you.


QUEST: Welcome back to the IMF and World Bank annual meetings. QUEST MEANS BUSINESS here. Deutsche Bank is announcing another 1,000 layoffs in

Germany as part of its restructuring. Now that is on top of a previous announced cut of 3,000 jobs in its home country. Overall, Deutsche is

trimming its worldwide ranks by 9,000 workers. You'll be aware of the problems, the share prices, being absolutely clobbered. Well, the German

finance minister chose to defer when I asked Wolfgang Schauble about the possible government bailout for the struggling Deutsche Bank.


QUEST: Are you prepared, if necessary, to bail out Deutsche Bank?

SCHAUBLE: I'm really surprised at your racist question. That you would not be surprised if we do not answer. I leave it to the IMF staff which is

explaining what is the situation on some banks in Germany, I don't give any comment. I never did it. And I will not do it even at this discussion to

deliver comments and even to say no comment is the wrong answer.


QUEST: So whether it was no comment, or I'm not going to comment, we never found out anything more from Wolfgang Schauble.

The other major markets ended the day lower along with Germany, take a look at the numbers. The FTSE was the worst performer. Now the reason is it

was dragged down by EasyJet the low-cost airline, which of course is having serious problems. EasyJet had a profits warning. They are basically

setting out the issues not only from Brexit, but from France, but from Turkey, but from Sharm El Sheikh, all the issues that have caused EasyJet

to forecast that is profits are going to be down some 29 percent.

And in the United States, everyone wants to know what the job numbers are going to be like on Friday. That's tomorrow and that could give us a clue

on the Fed and when they might soon raise interest rates. Although most sensible people believe there is no chance of a rate ride in November

before the election. December is looking the more possible date.

Twitter shares, the market taketh what the market have given us. It sunk like a stone as potential buyers have begun dropping out of the market.

Twitter has closed down 20 percent. In the past few days it was inflated by rumors of potential bids. Several companies linked to potential bids

are promptly saying #no way. Paul La Monica is with us live in New York. Paul, you and I yesterday were saying that come on, if you're a public

company, you have to make a statement about this sort of thing. When you see the share price ramp up so heavily and then collapse by 20 percent, is

justifiable to say it's time for twitter to speak.

PAUL R. LA MONICA, CNNMONEY CORRESPONDENT: Twitter arguably does need to speak now, Richard. They might want to wait until their earnings report,

but they may not have time to do so. I think they owe it to shareholders to say whether or not they are in fact, looking to sell itself or if

independence is what Twitter wants. Right now not looking as if there are many interested buyers with Google or Alphabet reportedly dropping out.

Ditto for Apple, same thing for Disney. Salesforce may be the only public company left unless we see private equity or VC firms teaming up to make a

bid. Twitter I think has to stay something soon.

[16:25:01] QUEST: Let's be clear about this, Paul, so far there is actually been no one who said they're interested, and nobody who said

they're not, and Twitter itself has not even confirmed it's up on the block.

LA MONICA: Right, these are all rumors, they're highly widely sourced stories in many publications, business publications, but nothing official

has come out. The closest we got to someone eluding to it was Salesforce CEO, Marc Benioff, at their company's big customer event yesterday.

Alluding to the fact that he likes to look at deals and they do fewer deals than the ones that they actually look at. Which I think a lot of people

interpreted as him saying that, yes, they are looking at twitter, but no they may not actually buy it. But even that wasn't a firm confirmation

that Salesforce is definitely bidding for twitter.

QUEST: Pau La Monica in New York, thank you. And that graph that we were just showing you of the Twitter share price with that sharp rise up a few

days ago and then that sharp fall back, September 22nd to October the 3rd is exactly the reason why there are market rules that say public companies

have to disclose market movement news.

Brazil's finance minister here in Washington says the crippling recession in his country is almost over. When pushed he says, early next year is

when it will be over. If the market indications are any indication, he could be right. The markets of one and a half percent on Thursday. And

you talk about how markets can move, it is up nearly 40 percent. 39 percent this year. The best performing market in the world. Well, of

course, bearing in mind that the president was impeached and removed from office, there is a new president. When I spoke to Henrique Meirelles

earlier today, he told me reforms are taking hold and the Brazilian economy is finally improving.


HENRIQUE MEIRELLES, BRAZILIAN FINANCE MINISTER: We have the worst recession since the 30s in Brazil. There is a very high level of

unemployment for the 10 percent of unemployment in Brazil at this point. And the results for the economy, for corporations, for the consumers, is a

very serious one. The credit is suffering. The banks are suffering, so and so forth.

QUEST: When do you expect the county to be out of recession?

MEIRELLES: Early next year.

QUEST: Do you forecast the traditional bounce, quite a strong bounce back from that? Or are you going to fall victim to the same slow growth that

the other countries are -- even though emerging markets generally are predicted to be higher?

MEIRELLES: Yes, we will probably have a slower growth now, and recovery is going to be slower than the one we have from the 2008 crisis for instance.

QUEST: You were the central bank governor. You were responsible in many ways for the interest rate policy you're now having to live with from the

other side of the fence.


QUEST: Did you make the right decisions? Do you agree with yourself afterwards?

MEIRELLES: Yes, I do. I do because what happened is the inflation came down during that period. Eventually stabilized around target. And more

important of that, the country came out and the structured interest rate came down.

QUEST: Is the central bank governor a good idea as a finance minister? Bearing in mind -- you know where I'm going with this, the differences in

emphasis that you both have.

MEIRELLES: That is a good one. Because now I can understand exactly and appreciate what central bank is doing and know exactly why they're doing

that, et cetera. And I can't take the right measures, and more important I do know that in order for structural interest rates in the economy, the

country is to come down, we have to make the fiscal adjustments. I don't dispute that, I'm doing it.

QUEST: And the structural changes, because here at the IMF were going to hear lots of talk about structural reform. Now if there's one country that

needs structural reform in terms of labor markets, in terms of financial services, in terms of deregulation, I think you and I can agree, it's



QUEST: Are you prepared to take that heavy medicine?


QUEST: You sure?

MEIRELLES: Absolutely.

QUEST: How long will you be in the job?

MEIRELLES: I'm there five months already, that's a long time. Is it?


QUEST: Five months, a long time in Brazil. And the head of Brazil's Central Bank will be live on this program tomorrow as we continue our

coverage from the IMF and the annual meetings of the World Bank here in Washington.

[16:30:00] $5 are better than one in the fight on poverty. And hundreds of billions are better than what the World Bank has on its own resources. Jim

Yong Kim says he's found the key to ending global poverty. He tells me how he's dealing with criticism from his own staff before he was just

reappointed. It's QUEST MEANS BUSINESS and we are live life at the IMF and World Bank.


QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment. When Christine Lagarde tells me there is a lack of team

spirit in the global recovery as the second part of our special exclusive CNN debate. And the head of Israel's Central Bank will be joining here at

the IMF to talk about the economy of Israel and how it weathering the storms. Before that this is CNN and on this network the news it always

comes first.

People in Haiti are picking up the pieces after hurricane Matthew devastated the island. A storm killed at least 108 people there and

flooded nearly 2,000 homes. The United Nations said 350,000 people have been impacted. It is a category four storm and it's now barreling its way

towards Florida and the United States where it is likely to hit the east coast.

The UN Security Council has approved the nomination of Antonio Guterres to be the next Secretary General. A former Portuguese Prime Minister and he

has served as s as the UN High Commissioner for Refugees for more than ten years. Now the recommendation goes to the general assembly for a final


The head of the U.K. Independence Party is promising a full investigation after what's described as an altercation between members of the European

Parliament. Now the MEP Stephen Wolf had to be sent to hospital. It's not clear exactly what happened, but the party is in the middle of a tense

leadership crisis.

Germany's finance minister says he is seriously concerned about the rise of populous movements across the world. Speaking to me at the CNN debate on

the global economy at the IMF here in Washington. Wolfgang Schauble said, People were losing trust in elites.


Schauble: I'm seriously concerned on this because you can look at all of the advanced economies. The British referendum, the campaign in the United

States, and look over, if you look at Europe, I can tell you endless stories. And there is a common denominator that is more and more people

don't trust the elites.


[16:35:09] The president of the World Bank wants to put private money to work, and the goal is to end extreme poverty. Jim Yong Kim says it's his

top priority as he begins his second five-year term as the leader of the World Bank. Now president Kim has faced intense criticism from the banks

staff association before his nomination and appointment. He was reappointed unopposed. He was the only candidate being put forward by the

United States. The president spoke to me a short time ago. He told me how he is dealing with the criticisms of his leadership.

JIM YONG KIM, PRESIDENT, WORLD BANK: we did so many changes so quickly that it's not surprising that some people were very uncomfortable. And

there were some critiques that were very relevant and we actually do a staff survey every year. And whatever the critiques are coming our way, we

make a commitment to get better on them. So were doing it every single year. And a staff survey had not been done and these are things you can

hide from. So were going to keep improving, but you know at the end of the day, one of the things I've learned is that big bureaucracies like this

have a hard time with change. They all told me we've got to change. We've got to change. But then when we actually started doing it, it made people

uncomfortable. Because if you're really going to change you have to put people's jobs at risk. We did that. People didn't like it very much.

QUEST: You were reappointed unopposed. Do you think it would have had a greater legitimacy if somebody had run against you?

KIM: If someone would have come up -- and the way it works is that this is a cooperative run by member countries. So when t the nominations are open,

any country is open to nominating anyone else.

QUEST: Let's talk about what you're going to do. You have the job for the next five years, and please God you don't have anything like Ebola to have

to deal with, like you had to deal with for the last five years. What's your priority going to be, bearing in mind the traditional agenda of the

bank to alleviate poverty and dealing with the sort of infrastructure projects.

KIM: We still have two goals, and poverty, boost shared prosperity. And so the very top priority still has to be growth. But now as you look

around we have an opportunity. Hedge funds, sovereign wealth funds, there earning a record low returns. And so the opportunity is if we do all that

we need to do to de-risk investments, we think we can pull a lot of that money off of the sideline. They'll earn more return and the poor will have

access to much more infrastructure. That's the major, major tax for us right now.

QUEST: But putting that money that you're hoping to bring in from funds, putting it where? Into what sort of projects? Are you back to the

traditional dams and infrastructure projects?

KIM: How do you create economic growth if you don't have energy, if you don't have roads. If you don't have information technology, it is very

hard to grow an economy. So there's some things that were going to continue to do. But the other thing that we're going to do, first, is

everything we can to de-risk investments, bring in private sector. The second thing is, the premium on human capital is getting higher and higher

with every year. The low skill jobs, automation is really decimating low skill jobs everywhere especially poor countries. Ethiopia will lose 85

percent of his current jobs because of automation. So now we're also focusing intensively on increasing investment and effectiveness of

investments in people. You know, the early years are critical. You can't have childhood stunting and face the future that way. Education, health,

and social protection protections, those are the things that now we really have to increase our commitment to.

QUEST: What's different about this job now you've been doing it for five years than what you thought it would be? When you wake up and you think my

god, I had no idea it would be like this.

KIM: Here is the great thing about it. So if we do what we're supposed to do, it's not just our money that we put on the table. We can get a grant

from a bilateral donor, you know, from a country. We blend it with our loans. We use that as risk capital, crowd and private sector, if we do it

right our 65 billion can turn into hundreds of billions of dollars, and if question do that, and this is really by leveraging, by having partnerships,

then we can actually end extreme poverty. That's what I've learned. We can actually do it.

QUEST: Oh, I'm so glad you ended it there. Because a few years ago you made a commitment -- do you remember?

KIM: Absolutely.

QUEST: What's your commitment that you're going to make now to me for the next five years?

KIM: For the next five years you're going to see us scale up investment in poor countries dramatically. Because we are going to use every tool we

have to bring in private sector -- [16:40:00] QUEST: You're going to give us a target on getting new policy.

KIM: -- by, in the next six or seven years, we've got to get to the halfway point. We've got to get to seven or eight percent poverty by the

halfway point. We've got to make dramatic progress now. We've got to make progress in South India and Africa. So we're going to focus on the poorest

countries and we're going to focus on doing everything we can to use every penny we have to leverage lots of other money and this is what is going to

at the end of the day and extreme property.


QUEST: That is President Kim of the World Bank. He has been reappointed for five years. Now we have the situation of a World Bank to an American,

the IMF fund to a European, exactly as you won't believe has been since the second world war. Will it continue? We will watch and see. As we

continue our coverage from the IMF annual meetings. We have the governor of the Bank of Israel, Karnit Flug, who is with me. We'll be talking to

her about how Israel's weathering the economic storms. QUEST MEANS BUSINESS, we're live at the IMF.


QUEST: Welcome back to the IMF in Washington. One of the beauties of the IMF and World Bank meeting is countries large and small all come together,

finance ministers and central bank governors to discuss the global economy and it gives us a very good chance to see how everyone is reacting to the

under lying pressures. Joining me now to talk about how Israel is finding the pressures at the moment, I'm joined by Karnit Flug, the governor of the

Bank of Israel. Thank you for joining us. When we look at the situation at the moment, which are you most concerned about? Is it, for example,

rising interest rates in the U.S.? Is it Brexit? Where are the forces that you are worried about?

KARNIT FLUG, GOVERNOR, BANK OF ISRAEL: We're most worried about the weakness of global demand. Being a small open economy that has always

whenever we grew, we grew as an engine of growth were exports. And global demand is very slow, obviously it affects our ability to actually get our

potential in full.

QUEST: Do you think this falloff in global demand is a temporary phenomenon? Because let's face it, your interest rates are just about

zero, everyone else has interest rates are way down there. There is not much more than monetary policy can do.

FLUG: I think that is true, and actually world demand has been growing at a very slow pace. Even given the global growth. I think the weakness of

investment for example is one of the reasons that the global demand or world trade has been very slow. It is affecting countries like Israel.

QUEST: I'm not necessarily directly asking what your interest rate would be next, and you wouldn't tell me anyway, but where do you stand on this

debate on negative interest rates?

[16:45:06] We have many countries that have introduced them, but you have people like governor Carney who does not believe it's the right way

forward, do you have a view?

FLUG: My view is if it is not necessary, you don't go that route. And luckily for Israel, I think having virtually zero interest rate has been

enough to support the economy. We still have negative inflation, but we have not needed to go the extra mile of reducing interest rate to a

negative because I think that can have side effects that can be detrimental.

QUEST: And indeed the British prime minister Teresa May only yesterday was talking about the negative effects of QE, of long term interest rates. One

of those negative effects is a widening gap. What Schauble talked to us today about the rebellion against the elites. Israel has seen some of that

in the past, hasn't it?

FLUG: We have seen actually increasing inequality and higher poverty. These are issues that have been challenging Israeli policy for quite a

while, and I think the main challenge is to devise policy that provides the right incentive for work and while reducing inequality.

QUEST: Are you enjoying the job? It is very different from being a number two or three to being a number one.

FLUG: That is certainly true. I'm enjoying the job, it's a great challenge, and I think that navigating in this very stormy global

environment is certainly a very -- it's a great challenge, but I'm enjoying it. I have a great team, and it's a good thing to do.

QUEST: I shall see you in Tel Aviv. Thank you very much for joining me. As we continue after the break, the second part of our debate on the global

economy. We will be joined by the IMF's managing director and others. QUEST MEANS BUSINESS in Washington.


QUEST: They called this building HQ 2. Just think there is another as big, if not bigger just next door. There is a tunnel that connects the

two. It is here at the IMF.

The funds managing director, Christine Lagarde, has called on all of the member countries to do more together to boost the world economy. I

interviewed Christine Lagarde two years ago and she told me the governments needed to get on with the hard work. Now as part of our CNN debate on the

global economy I asked her what pieces of the puzzle were still missing?


LAGARDE: Where it is lagging behind, it's in collective determination, not the grand bargain, as Mark indicated, I agree with him.

[16:50:01] But the collective determination for each of them to look at the strength of the economies, the weaknesses, where action can be taken, and

you know it's not just about Germany using its fiscal space. That can happen and it will happen --

SCHAUBLE: We are doing --

LAGARDE: It will happen because you're investing and doing all sorts of things, and that's good, use the space, fantastic.

QUEST: But you want more, you want more from him?

LAGARDE: I want to continue. It's not just about Germany using its fiscal space, it's all about of the countries looking at what tools they have.

QUEST: Name names.

LAGARDE: All of them.

QUEST: China?

LAGARDE: Yes. Of course.

QUEST: The U.K.?

LAGARDE: Deputy governor Gang knows about that. All countries can do something. And what we are saying is they should not rely on somebody else

to do the job. Look at Canada not turning to governor Carney who is just a national, but not anymore the governor.

They're using all possible levers to move the needle towards positive and more growth. That is what all countries can do. Some will have to do a

little fiscal. And those which have no fiscal space, they can, in a budget neutral way, rearticulate their budget in order to be growth friendly, in

order to focus on research and development, in order to use spending savings, sorry, public spending savings into infrastructure projects, for


QUEST: Governor Carney, before you answer what you were going to answer, I need to ask you a question.

CARNEY: I will say the same thing regardless of what you ask me, Richard.

QUEST: Then it will be a very interesting answer. How long do you intend to stay at the Bank of England? And would you like to take this

opportunity today to state that you're going to stay longer?

CARNEY: I'm going to stay on this panel for another 12 minutes and 1 second, 11:59.

What I wanted today say was that what has changed since your conversation with Christine two years ago? Couple things have changed, one is the

specificity of the IMF's advice has gone up.

So what the IMF is now saying to each of the members here and certainly within the G20, here are the three top priorities in our judgment for you

on structural reform.

They're different for each country. And the country can respond and do something differently, but it's a much more engaged conversation. I think

the second thing that's changed is that there is a much greater recognition that we're in a low for long world and that nobody will be bailed out by

some miraculous acceleration of growth elsewhere.

So the responsibility goes back to the national level to take responsibility to take action. And the third thing that's changed, is

changing is may be a better way to put it. Is a much better recognition of the need for these policies to more immediately, tangibly and clearly,

transparently benefit larger segments of the population, not wait for the payback down the road.

QUEST: And the answer to my question?

CARNEY: In due course. I will come back in due course.

QUEST: Minister Schauble, do you get frustrated or angry or just pissed off when you hear this, as we have heard today, this call that Germany

needs to do more, Germany needs to spend more, it's Germany's responsibility to do x, y, or z. How does it make you feel? Does it get

you angry?

SCHAUBLE: I try not to get angry because I think it is partly a compliment. I have some experience in my political life and in my lifetime

as well. And therefore I know that we are in a situation of history that is just as lucky as we have ever been.

I am just reading the new history, the first half of Europe, when Europe, from the two world wars -- and I know having in mind this -- I was

optimistic to come back to the question of this lady that we would never in my lifetime have another right-wing demagogic movement, and I so far I'm a

little concerned on this, but we will fight it and you can trust that we will be successful.

[16:55:04] QUEST: Deputy governor, let me ask you, this idea of the failure some would say, I'm not saying, the failure of globalization, the

failure of the global trading system, which many are criticizing, but China is now joining that system at a great speed. What role does China have in

that regard? What does China want?

GANG: I think we would like to improve the current system. And making the developing country and more or less benefit the region, have more

representation, and listen to their voice. And identify the problem they are complaining.

I think this is maybe just a -- if you look at the long history, and you will see that this kind of phenomenon can only last for a few years. I

belief that maybe three years later, five years later, people will continue to build the consensus and free trade and globalization. And that is the

correct direction to go.


QUEST: The IMF and CNN global economic debate, and we'll have a profitable moment after this debate.


QUEST: No profitable moment tonight because that's QUEST MEANS BUSINESS from the IMF in Washington. I'm Richard Quest, whatever you're up to in

the hours ahead, I hope it is profitable. I'll see you here tomorrow.