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World Bank calls for sweeping reforms in China
Interview with Sri Mulyani, World Bank managing director and former Indonesian finance minister

Not so long ago, what happened in China mattered little to the rest of the world.

Now, it's the engine driving much of the world economy, but for how long?

The World Bank has just released a telling report warning that without sweeping economic liberalisation China risks its future prosperity.

The report is one of the last important initiatives of the bank's president, Robert Zoellick, before he retires.

In keeping with tradition, Mr Zoellick is almost certain to be succeeded by yet another American.

If the position were to be decided strictly on merit one candidate who would be hard to ignore would be the world bank's managing director and former Indonesian finance minister, Sri Mulyani, who has a reputation for calling a spade a spade.

She's speaking with Jim Middleton

JIM MIDDLETON: Given that the developed nations of the world have made such a poor fist of managing the global economy in recent years, does it disappoint you that your boss's successor looks almost certain to be yet another American? Isn't it time for merit rather than history to dictate who gets the top jobs in important global institutions like yours?

SRI MULYANI: Well, the executive directors on the board are actually deciding about both the criteria as well the mechanism. So I think that's already reflected that they're going to choose based on the merit.

JIM MIDDLETON: Would you and candid if the opportunity arose?

SRI MULYANI: Well that's up to the shareholders, right?

JIM MIDDLETON: Fair enough. Is part of the problem for the successful developing countries, like China, India, Indonesia, that success has come their way so quickly that they're not yet certain what global economic architecture should look like into the future and hence, when opportunities like this do arise, they are not unified in presenting what they want?

SRI MULYANI: Well I think the emerging countries definitely recognise that their role in the global economic is becoming more and more important. As you can see in terms of their contribution of both in the exports, in imports or trade in general, as well as in the global economic growth.

The challenge for many of the emerging countries is really trying to coordinate and move in a more coordinated and coherent way in bringing as well as putting the global agenda. And this is exactly the challenge, for example, like China, in this the joint study between the World Bank and the government in really putting the 2030 future challenge for China.

One of the factors is how emerging countries are actually playing their global role in a more effective and constructive way.

JIM MIDDLETON: Turning to that World Bank report on China, there are few countries more important to the future of the world economy now than China. The World Bank report was very plain speaking indeed on China's economic future. How seriously does China risk its future prosperity if it fails to modernise and liberalise its economy?

SRI MULYANI: There is a limit of the growth model which they adopted in the past 30 years. Structural issues have already changed. If you talk about demography, they become old before they become wealthy. The technology frontier that they have to say compete, the organisation is there.

So there are quite a lot of changes that need to be adopted in order for them to sustain this good performance in the past 30 years. And that is the challenge that they recognise. And this is the idea in terms of adopting more market mechanism in the land, capital, labour; how they're going to redefine the role of the state vis-a-vis the private sector. They have to also improve their own domestic demand.

So it is a very demanding, very important, and fundamentally it's going to really change the way they manage the economy. It's certainly, very, very critical.

JIM MIDDLETON: In effect, the World Bank is promoting nothing less than a top to bottom transformation of the Chinese economy. What indications have you had that the Chinese leadership has the courage to embark on such massive changes which could radically change the way they run their country?

SRI MULYANI: You can do reform in the least painful way when the situation is really good. The reform that will be forced through the crisis is going to be much, much difficult and usually it is going to be much more painful. So n this case, it is the political consensus which I believe the China authority as well as of the players there, recognise that need. And they will try to manage the political process and consensus to be able to be able to support that path.

JIM MIDDLETON: In unveiling the report, Robert Zoellick spoke of the need for transparency and accountability. That's often code for corruption. How much of a barrier to China's long term economic potential is endemic corruption?

SRI MULYANI: Well corruption is actually a problem in many countries in the world also, regardless of the system in a way. For China specifically because of their prosperity and the progress in their economic development, the role as well as the segment of the middle class is becoming more and more important. And this segment of population is going to demand more accountability, transparency, governance, and I think this is just the natural way in which the government is going to address those issues. Because not only serving their own needs, but also in order to make sure that the economy will be managed in a more proper and can be enjoyed by benefit of the people.

So this will also address the issue of inequality and fairness. Which I think it is going to be good socially, politically, as well as economically for China.

JIM MIDDLETON: The last time we spoke we talked about the possibility of you running to succeed president Yudhoyono, as a candidate to succeed Yudhoyono, has anything changed there? Would you run if you were asked?

SRI MULYANI: My job now in the bank is really challenging. You know that I'm now overseeing the whole bank's operations. You can imagine like six regions in the bank. And the challenges of the development is really, really making me absorbed with this job. So I'm focusing on my job. And let Indonesia, in this case 2014 is still quite long, so let them choose their own leader.

JIM MIDDLETON: What about the longer term? Do you harbour an ambition to be president of Indonesia at some point?

SRI MULYANI: How about quote Keynes, "in the future we are all dead". (Laughs)

No I think that's very good. I mean we'll all see, why don't we look at my own career now, and I think the bank is very, very important. This is a very challenging environment, as well as timing for the multilateral institution like us. And that's why I think focusing in this job is going to reward professionally for me, personally, but also for Indonesia in general.

They are very proud of having me here. So I think that is the way I'm trying to dedicate myself and try to always remember about my beloved country.

JIM MIDDLETON: Trust an economist to quote Keynes about the future. Sri Mulyani, it has been a pleasure to talk to you again.

SRI MULYANI: Thank you, Jim.
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