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WHEN: TODAY, THURSDAY, April 14, 2016
WHERE: CNBC'S "SQUAWK ON THE STREET"
Following is the unofficial transcript of a CNBC interview with IMF Managing Director Christine Lagarde during CNBC's "Squawk on the Street." Following is a link to video of the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000508348&play=1.
All references must be sourced to CNBC.
SARA EISEN: AFTER THE INTERNATIONAL MONETARY FUND DOWNGRADED ITS US FORECAST AND GLOBAL FORECAST, WE'RE HERE AT THE IMF WORLD HEADQUARTERS FOR THE WORLD BANK IMF SPRING MEETINGS AND I'M HERE WITH MANAGING DIRECTOR CHRISTINE LAGARDE. GOOD TO SEE YOU AGAIN.
CHRISTINE LAGARDE : GOOD TO SEE YOU, TOO. GOOD MORNING.
EISEN: GOOD MORNING. YOU SET THE TONE WITH THE DOWNGRADE FOR GLOBAL GROWTH. SO MANY DOWNGRADES TO YOUR FORECASTS OVER THE LAST FEW YEARS. IS IT JUST THAT THE IMF IS TOO OPTIMISTIC OR THIS RECOVERY IS JUST SO DISAPPOINTING?
LAGARDE : WELL, FIRST OF ALL, THERE IS RECOVERY AND THERE IS GROWTH. THAT'S THE GOOD NEWS OF THE MESSAGE. BUT IT IS TOO SLOW, TOO FRAGILE, AND WHILE RECOVERY'S UNDER WAY, IT IS PROGRESSING TOO SLOWLY. WHEN YOU LOOK AT POVERTY LEVELS, WHEN YOU LOOK AT THE NUMBER OF PEOPLE UNEMPLOYED, WHEN YOU LOOK AT INFLATION, WHEN YOU LOOK AT DEBT, ALL OF THAT IS NOT MOVING IN THE RIGHT DIRECTION AS WE WOULD LIKE IT TO MOVE. SO, WHAT WE ARE SAYING HERE TODAY IS BECAUSE OF THIS DOWNSIDE RISKS ON THE HORIZON, AND BECAUSE OF THAT WEAKER BASELINE, WE WOULD LIKE TO ENCOURAGE POLICYMAKERS TO TAKE DECISIONS AND TO IMPLEMENT THEM ON BOTH STRUCTURAL REFORMS, FISCAL POLICY AND MONETARY POLICY. THAT'S WHAT WE CALL THE THREE-PRONGED APPROACH.
EISEN: WE'LL TALK ABOUT ALL OF THEM, BUT QUICKLY, ON THE DOWNGRADE, YOU ALSO CUT THE U.S. ECONOMIC OUTLOOK BUT DON'T SEE A RECESSION COMING IN THE U.S.
LAGARDE: NO, WE DON'T SEE A RECESSION COMING UP.
EISEN: NO MASSIVE RECESSION AS DONALD TRUMP SEES.
LAGARDE: WE DON'T SEE A RECESSION FOR THE U.S. ECONOMY. WE SEE A GROWTH OF ABOUT 2.4%, 2.5%, 2016-2017. AND CLEARLY, THERE HAVE BEEN JOB CREATIONS IN MUCH LARGER VOLUMES THAN, NUMBER ONE, WAS EXPECTED, NUMBER TWO, WE ARE SEEING IN OTHER PLACES OF THE WORLD. THE QUALITY OF THOSE JOBS NEED TO BE LOOKED AT, IN OUR VIEW.
EISEN: STOCKS. WE WERE JUST LOOKING AT THE BOARDS. THEY'RE AT 2016 HIGHS. IT'S BEEN QUITE A REVERSAL FROM THE BEGINNING OF THE YEAR, WORST START TO A YEAR EVER FOR STOCKS. WHAT DO YOU THINK FUNDAMENTALLY HAS CHANGED BETWEEN JANUARY AND NOW THAT HAS BRIGHTENED THE OUTLOOK?
LAGARDE: WELL, ONE OF THE VERY SIGNIFICANT CHANGES IS GOOD CLARIFICATION AND MUCH BETTER COMMUNICATION BY THE CHINESE AUTHORITIES IN RELATION TO THEIR OWN MARKET AND IN RELATION TO THE EXCHANGE RATE REGIME. SO, I THINK THAT LEVEL OF UNCERTAINTY HAS BEEN REMOVED, AND IT HAS BEEN A SIGNIFICANT CHANGE.
EISEN: YOU HAVE BEEN VERY POSITIVE ON CHINA. YOU RECENTLY UPGRADED YOUR FORECAST FOR GROWTH TO 6.5%. WHAT ARE THE DOOM-SAYERS, WHAT ARE THE BIG HEDGE FUNDS THAT ARE BETTING AGAINST THE CHINESE CURRENCY AND THE HONG KONG DOLLAR AND BETTING ON A FINANCIAL CRISIS HITTING THE CHINESE ECONOMY, WHAT DO THEY GET WRONG?
LAGARDE: WELL, I'M NOT GOING TO COMMENT ON THEIR STRATEGY AND THEIR POLICIES, BUT WHAT WE ARE SEEING -- BECAUSE WE LOOK AT THE FUNDAMENTALS AND WE TRY TO ASSESS WHAT THE IMPACT OF THE CHINESE MEASURES WILL BE IN THE SHORT TERM AND IN THE MEDIUM TERM, AND WE HAVE SLIGHTLY UPGRADED OUR FORECAST FOR CHINA TO 6.5% BECAUSE WE TOOK INTO ACCOUNT THE MEASURES THAT THEY HAVE ANNOUNCED JUST RECENTLY UNDER THEIR PLAN. HAVING SAID THAT, WE'RE ALSO LOOKING AT THE MEDIUM AND LONG TERM, AND WE HAVE A SLIGHT CONCERN, AND WE CERTAINLY WILL CONVEY THE MESSAGE TO THE CHINESE AUTHORITIES THAT WE HOPE THAT THEY FOLLOW THROUGH AND IMPLEMENT ON SOME OF THE MAJOR REFORMS, SUCH AS THE RESTRUCTURING OF THE STATE-OWNED ENTERPRISES, SUCH AS, YOU KNOW, THE RIGHT REFORMS IN ORDER TO OPEN UP THE SERVICE MARKET IN PARTICULAR, SUCH AS THE DEEPENING OF THE CAPITAL MARKETS, ALL SUCH CONDITIONS THAT REALLY NEED TO LAY THE GROUND FOR A SOLID AND SUSTAINABLE GROWTH AND TRANSITION IN CHINA.
EISEN: ANOTHER THING THAT'S HAPPENED IN THE LAST FEW MONTHS IS THE DOLLAR HAS STOPPED STRENGTHENING, AND THAT'S RELIEVED A LOT OF THE TENSION OUT THERE IN EMERGING MARKETS AND IN COMMODITIES. WE KNOW THAT THERE WAS AN AGREEMENT AT THE G-20 MEETING IN CHINA TO BE MORE OPEN AND COMMUNICATIVE ABOUT EXCHANGE RATE POLICIES. WAS THERE ANY AGREEMENT THAT THE DOLLAR SHOULD WEAKEN?
LAGARDE: IF THERE WAS SUCH A THING, I WASN'T PRIVY TO THAT, AND I DOUBT VERY MUCH THAT THERE WOULD BE SUCH AN AGREEMENT. BY THE WAY, WE SLIGHTLY DOWNGRADED THE U.S. FORECAST PRECISELY BECAUSE OF THE IMPACT OF THE STRONG U.S. DOLLAR ON EXPORTS. AND TO THE EXTENT THAT THE U.S. DOLLAR WOULD SORT OF STABILIZE AND NOT CONTINUE TO APPRECIATE, THEN CERTAINLY, THE FORECAST MIGHT BE A LITTLE BIT BETTER.
EISEN: JUST ON U.S. POLICIES, WE JUST HAD A GREAT CONVERSATION WITH TREASURY SECRETARY JACK LEW ON U.S. ECONOMIC LEADERSHIP. WE ALSO TALKED ABOUT HIS RECENT AGGRESSIVE RULES TO CRACK DOWN ON TAX INVERSIONS WITH CORPORATE AMERICA. DO YOU THINK THAT THOSE NEW RULES WILL DO MORE HARM THAN GOOD BECAUSE THEY HURT BUSINESS CONFIDENCE? BUT ON THE OTHER HAND, THEY BRING TAX MONEY BACK TO THE U.S.
LAGARDE: THE U.S. TAX REGIMES ARE PROBABLY THE MOST SOPHISTICATED AND THE MOST COMPLICATED REGIMES IN THE WORLD. AND I REALLY WELCOME THE DETERMINATION OF THE U.S. TREASURY TO BRING ABOUT MORE TRANSPARENCY, A BETTER UNDERSTANDING OF THE RULES, AND THE PRINCIPLE OF FAIR SHARE OF TAX BEING LEVIED AND COLLECTED
EISEN: BUT YOU'RE NOT CRITICAL ABOUT THE WAY THEY WENT ABOUT IT?
LAGARDE: I BELIEVE THAT GOOD COOPERATION IS ALWAYS NEEDED, CONSULTATION OF THE BUSINESS COMMUNITY, WHICH I'M SURE HE'S KEEN TO ALSO ENTERTAIN, BUT THEN THERE COMES A POINT WHERE THE TREASURY AUTHORITIES AND THE TAX AUTHORITIES HAVE TO TAKE MEASURES, AND THEY HAVE TO DO SO AS IS REQUIRED IN ORDER TO IMPLEMENT CHANGES. THERE WILL BE A LOT OF WORK TO BE DONE IN THE TAX DOMAIN. CLEARLY, WHAT WE HAVE SEEN RECENTLY AS A RESULT OF THE PANAMA PAPERS IS GOING TO BE A SIGNIFICANT WAKE-UP CALL TO ALL AUTHORITIES TO HAVE A MORE COORDINATED AND MORE COMPREHENSIVE APPROACH, BECAUSE
EISEN: IS THERE A ROLE FOR THE IMF IN THAT?
LAGARDE: OH, ABSOLUTELY. A LOT OF OUR TECHNICAL ASSISTANCE IS ACTUALLY DEDICATED TO FISCAL, WHICH INCLUDES TAXATION, AND WE HAVE A BIG SECTION OF TECHNICAL ASSISTANCE WHICH IS REALLY DEDICATED TO ANTI-MONEY LAUNDERING REGIMES AND IMPLEMENTATION AND COUNTERTERRORISM FINANCING, WHICH WE TRY TO HELP COUNTRIES WITH. AND WE NEED TO CONTINUE. WHAT I REALLY HOPE AS WELL IS WHEN WE ISSUE A REPORT WHICH IS NOT FLATTERING FOR THE COUNTRY, THERE IS ACTUALLY FOLLOW-UP AND POLICYMAKERS TAKE ACTION AS A RESULT.
EISEN: TALKING ABOUT POLICY PRESCRIPTIONS, MONETARY POLICY. LARRY FINK WAS ON, BLACKROCK, "SQUAWK BOX" EARLY THIS MORNING TALKING ABOUT SOME OF THE RAMIFICATIONS OF NEGATIVE INTEREST RATES AND LOW INTEREST RATES, SAYING THAT THEY COULD SEW THE SEEDS FOR THE NEXT CRISIS, AND THEY ALSO BUY TIME FOR GOVERNMENTS TO DELAY FISCAL POLICY ARE WE ADDICTED TO MONETARY
LAGARDE: WHAT IS CRITICALLY IMPORTANT IS THAT MONETARY POLICY BE NOT ALONE. AND AT THE MOMENT, IT IS VERY MUCH ALONE. IT NEEDS TO BE SUPPORTED, ACCOMPANIED WITH FISCAL POLICY AND WITH STRUCTURAL MEASURES, STRUCTURAL REFORMS. SO, ON THAT PARTICULAR POINT, I AGREE WITH LARRY, IT CANNOT GO ALONE IT HAS TO BE ACCOMPANIED. BUT AT THE SAME TIME, I BELIEVE THAT MONETARY POLICY, IF ACCOMPANIED BY THE OTHER TWO FISCAL AND STRUCTURAL REFORMS HAS TO CONTINUE TO BE ACOMODATIVE. THERE ARE MANY CORNERS OF THE WORLD WHERE INFLATION IS LOW WHERE THERE IS OUTPUT GAP AND WHERE THE MONETARY POLICY HAS TO SUSTAIN THE RECOVERY AND HAS TO FUEL ENTERPRISES WITH CREDIT. SO, IT'S PERFECTLY LEGITIMATE, BUT IT HAS --
EISEN: NEGATIVE RATES?
LAGARDE: IT HAS NEGATIVE RATES INCLUDED, OF COURSE.
EISEN: PERFECTLY LEGITIMATE?
LAGARDE: WE BELIEVE THAT IT'S A NET POSITIVE, NO QUESTION ABOUT IT, BUT IT HAS SIDE EFFECTS, AND THOSE SIDE EFFECTS WILL HAVE AN IMPACT ON BANKS, WHICH IS WHY LARRY FINK IS EXPRESSING CONCERN. BUT WE HAVE TO REMEMBER ALWAYS THAT A SAVER CAN BE CONCERNED IS ALSO AN EMPLOYEE WHO IS VERY KEEN TO KEEP HIS JOB AND FOR THE ECONOMY TO CONTINUE TO THRIVE AND IS ALSO A CONSUMER. SO, YOU CANNOT ISOLATE THE FACET OF AN ECONOMIC ACTOR. IT IS MULTIFACETED, AND WE HAVE TO LOOK AT THE GLOBAL ECONOMY. WE BELIEVE AT THE MOMENT THAT NEGATIVE INTEREST RATES ARE A NET POSITIVE IN CERTAIN PARTS OF THE WORLD AND HAVE TO BE SUPPORTED BY FISCAL POLICY AND STRUCTURAL REFORMS. >
EISEN: SHOULD THE FED CONSIDER THEM, IF WE HIT ANOTHER DOWNTURN IN THE U.S. ECONOMY?
LAGARDE: CURRENTLY, THE U.S. ECONOMY IS NOT AT ALL IN THAT SITUATION. AND IF ANYTHING, BEING DATA-DEPENDENT, BEING GRADUAL AND BEING WELL COMMUNICATED, WE ARE MORE LIKELY TO HAVE AN INTEREST RATE RISE RATHER THAN A MOVE INTO NEGATIVE TERRITORY.
EISEN: THIS YEAR YOU'VE ADVOCATED THAT JANET ALLEN SHOULD BE CAUTIOUS AND GRADUAL IN HER APPROACH. SHE HAS BEEN MUCH MORE CAUTIOUS AND GRADUAL. YOU MUST BE PLEASED TO HEAR THAT THEY'RE PAYING MORE ATTENTION TO GLOBAL EVENTS --
EISEN: BUT HOW GRADUAL IS TOO GRADUAL?
LAGARDE: CLEARLY, JANET YELLEN IS FOCUSING ON HER MISSION AND HER MANDATE, AND I'M NOT SURPRISED THAT SHE IS, BUT I WAS VERY PLEASED THAT SHE ACTUALLY INCLUDED IN THE DOMESTIC ECONOMY ANALYSIS THE IMPACT OF THE GLOBAL ECONOMY. IF THERE IS ANYTHING THAT HAS MASSIVELY CHANGED IN THE LAST COUPLE OF YEARS, IT IS THE SPILLOVER EFFECTS OF POLICIES GOING IN ALL DIRECTIONS. IT USED TO BE, YOU KNOW, HOW WILL EMERGING MARKETS FACE AN INTEREST RATE RISE FROM THE FED? NOW WE HAVE SEEN THAT SIGNIFICANT MOVE OF THE CHINESE MARKETS HAVE A GLOBAL IMPACT.
EISEN: WHEN IT COMES TO A FED RATE HIKE, DO YOU THINK THAT THEY CAN HIKE RATES THIS YEAR?
LAGARDE: DATA DEPENDENT ON BOTH INFLATION AND UNEMPLOYMENT ACCOUNT AND GRADUAL APPROACH, IT COULD PROBABLY MEAN A MOVE IN 2016. LET'S HOPE SO, BECAUSE IT WOULD MEAN THAT THE U.S. ECONOMY IS FARING BETTER.
EISEN: AND WHAT WOULD THAT MEAN FOR EMERGING MARKETS?
LAGARDE: IT WILL HAVE SPILLOVER EFFECTS. THERE'S NO QUESTION ABOUT IT AND WHETHER IT'S AN ISSUE OF ADDED VOLATILITY, A MOVE ON EXCHANGE RATE, IT WILL HAVE AN IMPACT BECAUSE ALL ECONOMIES AND ALL FINANCIAL MARKETS ARE STRONGLY INTERCONNECTED. I THINK THE CHANGES THOUGH FROM TWO YEARS AGO IS THAT THOSE EMERGING MARKETS ECONOMIES ARE PREPARED THEY KNOW IT WILL HAVE AN IMPACT AND SOME OF THEM ARE TAKING THE MEASURES TO ACTUALLY BE EQUIPPED WITH SUCH VOLATILITY OR EXCHANGE RATE FLUCTUATION.
EISEN: I KNOW THAT YOU DO NOT LIKE TO COMMENT ON POLITICS OR THE ELECTION.
EISEN: BUT WE ARE SEEING FRUSTRATION IN AMERICA RIGHT NOW ON ECONOMY AND INEQUALITY AND LOW WAGES AND CLEARLY AMERICANS ARE THIRSTY FOR CHANGE. YOU HAVE BEEN HERE FOR A LARGE PART OF THE OBAMA ADMINISTRATION HOW WOULD YOU CHARACTERIZE PRESIDENT OBAMA'S ECONOMY OVER THE LAST 8 YEARS.
LAGARDE: WELL IT HAS CERTAINLY CREATED JOBS IN THE LAST FEW YEARS AND IT HAS FACED THE BIGGEST FINANCIAL CRISIS SINCE THE SECOND WORLD WAR. AND IT IS RECOVERING IN PRETTY GOOD ORDER COMPARED WITH MANY OTHER COUNTRIES OF THE WORLD. BUT HAVING SAID THAT WE ALSO RECOMMEND THE STRUCTURAL REFORMS THAT WOULD ACTUALLY HELP THE AMERICAN PEOPLE. 50 MILLION OF WHOM ARE IN POVERTY AND THIS NEEDS TO BE ADDRESSED. THIS NEEDS TO BE ADDRESSED BY VARIOUS MEANS. WHETHER IT'S THE INCOME TAX CREDIT AND THE MINIMUM SALARY RAISE OR FAMILY FRIENDLY MEASURES BUT CLEARLY 50 MILLION PEOPLE IN THE UNITED STATES LIVING IN POVERTY IS NOT SOMETHING THAT YOU WANT TO HAVE AS A LEGACY FOR THE FUTURE.
EISEN: CHRISTINE LAGARDE THANK YOU. ALWAYS A PLEASURE TO SPEAK WITH YOU. THE MANAGING DIRECTOR OF THE IMF HERE AT IMF HEADQUATERS.
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