Charlie Rose Talks to Arminio Fraga

You’ve been given a lot of credit for piloting your country through rough waters into strong growth. What do you think is fueling the world’s emerging markets?
They’re all so different. We used to say emerging and submerging, because they go up and down. There’s a feeling some lessons may have been learned. And maybe a notion that the standards of living in the world’s heavily populated areas are converging. They’re moving toward higher standards. It’s very exciting. It’s really a historical event. There are a lot of challenges, and each country has to deal with its own. Some have political challenges. Some have environmental challenges, just like you imagine with China and India. … These are not smooth rides, but it’s happening.
Is population growth, and the boost it gives to domestic demand, a factor?
Right now the fashion is to say that the good demographics are the ones where the population is growing. And for the life of me I can’t see why having more people in India is a good thing. Some population growth can be helpful in some situations. Having a large population that can be educated—that can save and work hard—is possibly a plus, but it’s also a real managerial challenge. I’d like to see the world converging to a population that fits on our planet in the end.
What do you think will happen to Greece?
Greece is in dire straits.
Will it default?
Probably, in the end. I don’t see how it won’t. Most countries in that situation in the past went through a devaluation of their currencies that made them more competitive. Greece doesn’t have that luxury, so they’re really squeezed. It’s been a year and a half since this popped up. A lot of precious time has been wasted getting the structural changes done. The world is waiting to see whether this will be just a Greece story, maybe a Greece and Portugal story …
How far will it spread?
It can be contained. Ireland is likely to survive. They’re doing their homework. Their situation was better going in. So the big fear is contamination, contagion, perhaps through the banking system. I do see this as being manageable in the end, but it requires something that we’re not seeing—not only there, but I don’t see much of it anywhere. It’s a willingness to do the long-term stuff. That applies also to the U.S., quite frankly.
What do you think America needs?
The U.S. is clearly the most amazing economic machine ever put together. It’s an amazing model. And it may have, as a result, gotten complacent. The U.S. needs to blend the sort of firefighting that’s been taking place—you know, zero interest rates, very expansionary fiscal policy—with longer-term policies, longer-term reforms … including this budgetary situation that cannot go on like this forever. And then, more structural things: job creation, business confidence, education, infrastructure, all of that. So there’s a big agenda. I just feel, having spent my life looking at countries that went into a crisis situation and emerged in pretty good shape, in every single case there was this mix of short-term emergency measures and long-term building-the-future-type moves.
But politicians have always been reluctant to inflict pain.
There’s pain now. Greece clearly has more debt than it can handle, by a factor of three. I believe that European leadership decided to buy time. That’s really the only way I can understand or explain what is going on there. [In the U.S.] it’s different. It’s been a tough decade on the jobs front. There’s been very little growth if you exclude transfers from the government. There’s no way you can live without the business cycle. This notion that you only keep the upswing—you get rid of the downswing—is an illusion. And you end up paying a price.
Does it come down to regulation?
There is this excitement now because many people believe that markets were a complete failure. And they forget that markets operate in an environment where there is regulation. There are laws, there are rules. And one could argue in a pretty powerful fashion that sure, markets are far from perfect, but a lot of the regulatory aspects were pretty bad as well. Now I see the pendulum swinging, let’s call it to the left. If you have a system where the rules are such that the losers don’t pay, that’s a bad thing, and not just for economic reasons. I can argue all night long that that’s inefficient. I also think it’s terribly unfair. And I think society doesn’t put up with that for very long.

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