Christine Lagarde: “Trade wars are not games that can be won”

International Monetary Fund chief discusses inequality and growth on trip to Argentina for G20 meeting

IMF director Christine Lagarde in Buenos Aires.
IMF director Christine Lagarde in Buenos Aires.Gustavo Bosco

Christine Lagarde, 62, has been at the helm of the International Monetary Fund (IMF) for the last seven years. During that time, she has worked to improve the image of an organization that still meets with significant rejection in Latin America, most particularly in Argentina. On a trip to Buenos Aires for a meeting of G20 finance ministers, Lagarde sat down with EL PAÍS to explain how the IMF is changing, and to discuss growing concerns about poverty, inequality and a potential trade war between the US and the EU.

Question. How does it feel to be the head of the IMF and travel to Argentina, possibly the country that is the angriest at your organization?

I hope that all women who take over from a man will insist on earning the same or more

Answer. We are normalizing relations. I’ve felt a mix of sympathy and curiosity, but no ill-will against me. They asked me questions about the past, which was very difficult for this country, but I also see a decisiveness to be a member of the international community, to open up. And the relationship with the IMF is part of that normalization process, of being back in the game.

Q. Does the IMF need to do some self-criticism about its past?

A. Of course. We have an Independent Evaluation Office that does not report to me, and which seeks to identify errors. It really looks at the social protection levels involved in our recommendations. We are not the guardians of truth. We want to design the best programs so that countries will achieve autonomy and a healthy economy. But we make mistakes, and we need to analyze these and fix them.

Q. What was the IMF’s greatest mistake during those great Latin American and Asian crises of the late 1990s?

A. I don’t think those situations can be analyzed as IMF mistakes. When they called us for help, the mistakes had already been made, there were already shocks. But yes, we underestimated societies and economies’ ability to absorb such tough, frontal treatments. At the time it was believed that these kinds of measures, while tougher, would get them out of trouble quicker. At times we went in too deep and too fast for society to deal with it. And we have already analyzed that we underestimated the impact of the multipliers.

Q. Do you feel more at ease with the shift towards more orthodox policies in several Latin American countries?

The first people to lose in a trade war will be the poor, the underprivileged

A. Another lesson we learned from the past is that each country has its own situation. I think that Venezuela, Mexico, Argentina and Paraguay are different. It’s true that the economic situation has greatly improved. The two giants, Brazil and Argentina, have emerged from their respective recessions. The price of raw materials has recovered.

Q. Venezuela is the great exception. Will the IMF ultimately step in?

A. Venezuela is the saddest story on the continent. In four years its GDP has shrunk by 40%, there is a humanitarian crisis, and the government is in denial. I don’t know how this is going to be resolved, but it will require humanitarian and financial assistance.

Q. Couldn’t these orthodox policies bring more inequality, as in the past?

A. You might define [Argentina president Mauricio] Macri as a liberal because of his economic vision, but he is clearly focused on reducing poverty. Latin America is one of the few regions in the world where inequality is shrinking, even though the starting point is very high.

Q. Are you concerned about a trade war between the US and the European Union? Where are we headed?

A. I hope we are not embarking on the war path. That would be very detrimental to all the good consequences of trade that we have lately seen, such as growth, innovation, and improving the lives of many people. I hope we can return to dialogue. I’m not saying that trade is a bed of roses. It’s true that it produces many benefits, but also generates disadvantages. We have to review a few things. But it’s too soon.

Venezuela is the saddest story on the continent

Q. Who will win?

A. Nobody. Trade wars are not games that can be won. Nobody wins. If there is less growth, less innovation, a higher cost of living, the first people to lose out will be the poor, the underprivileged.

Q. Who can stop this? The IMF, the G20, the World Trade Organization (WTO)?

A. It has to be the countries themselves, through consensus. They need to find solutions to the disadvantages, to the inequality generated by trade. We can only be the forum where members find a solution. It depends on political will.

Q. Could this be like the 1930s, when after the Great Depression there was a wave of protectionism?

A. I hope not. We did not have a depression, but a great recession. And the world economy is out of that recession. We are seeing growth back at pre-crisis levels. The situation is different. I hope that people who consider themselves civilized will be able to learn from history and not repeat the mistakes of the 1930s.

Q. Is US President Donald Trump breaking the world order of the last 70 years, the one that emerged from Bretton Woods and produced the IMF and other world bodies?

A. I have no reason to believe that this is the US’ vision. The country has played a key and often exclusive role in promoting our organizations. The US was often the leader among IMF members, and I don’t see why it should abandon that role.

At times we went in too deep and too fast for society to deal with it

Q. What do you think about the fact that millions of women earn less than their male counterparts for performing the same tasks?

A. I hope that all women who take over from a man will insist on earning the same or more. The salary gap is 16%, and in some countries it reaches 24%. Part of it can be explained because women perform other jobs, or because of maternity. But a large chunk of it has no explanation, and must be eradicated.

Q. You were the first female minister of the G7, director of the IMF...will you be the first female president of France or governor of the European Central Bank?

A. No, no, no, no. My son got married yesterday, and I’m thrilled. For the first time in my life I am a mother-in-law. Now I’m hoping to get some grandchildren.

English version by Susana Urra.

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