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QUEST MEANS BUSINESS

Janet Yellen Named Fed Chief; Janet Yellen's Career; Tapering Decision Close Call; World Bank President on Debt Ceiling Debacle; US Market Roller Coaster; European Markets Down; Global Risks to Stimulus Exit; US Senator: No Debt Ceiling; Newt Gingrich on Government Shutdown

Aired October 9, 2013 - 16:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


(NEW YORK STOCK EXCHANGE CLOSING BELL)

RICHARD QUEST, HOST: It's the final minutes of trading, and there's reaction to the Fed minutes and the president's pick for the US Federal Reserve chair top job. It is Wednesday, it's the 9th of October.

And there was a warm welcome for Janet Yellen, President Obama's choice to lead the Fed.

The World Bank President Kim tells me he'll ride to the rescue if there's a debt ceiling catastrophe.

(BEGIN VIDEO CLIP)

JIM YONG KIM, PRESIDENT, WORLD BANK: We're ready to move, just as we have before, to support the poorest countries.

(END VIDEO CLIP)

QUEST: And Alitalia, the Italian airline, could be grounded unless it pays its fuel bill.

I'm Richard Quest, live from Washington, where I mean business.

Good evening. Tonight, the program comes from Washington, DC, and what a day we've chosen to be here. Not only as they prepare for the annual World Bank and IMF meetings, the pivotal moment for the future of the global economy, but what a day!

Because today, President Obama decided -- beg your pardon, president of the World Bank, first of all, tells me how the organization was "not fit for purpose" in ending world poverty, and you'll hear my interview with Jim Yong Kim on CNN, a first interview here.

On Capitol Hill, the debt ceiling deadlock continues, and I'll be speaking to the former House speaker Newt Gingrich, who believes it's all just part of democracy.

And just in the last hour, President Obama has named the woman he wants to govern monetary policy of the United States and thus, of course, guide the global economy. That's Janet Yellen of the Fed.

The president nominated Dr. Yellen as the new chairwoman a short while ago. Yellen currently serves as vice chair and has spent most of the past 20 years as a top Fed official. If her nomination is confirmed by the US Senate, which seems likely if not certain, Yellen will be the first woman to run the central bank in its 100-year history.

The president and the nominee spoke moments ago.

(BEGIN VIDEO CLIP)

JANET YELLEN, NOMINEE, FEDERAL RESERVE CHAIR: I'm honored and humbled by the faith that you've placed in me. If confirmed by the Senate, I pledge to do my utmost to keep that trust and meet the great responsibilities that Congress has entrusted to the Federal Reserve, to promote maximum employment, stable prices, and a strong and stable financial system.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: She is a proven leader, and she's tough, not just because she's from Brooklyn --

(LAUGHTER)

OBAMA: Janet is exceptionally well-qualified for this role, she's served in leadership positions at the Fed for more than a decade. As vice chair for the past three years, she's been exemplary and a driving force of policies to help boost our economic recovery.

(END VIDEO CLIP)

QUEST: Now, the markets had spent most of the session higher, about 50 or 60 points, which is quite an interesting achievement when you consider the way in which they've had double -- triple-digit days of losses.

And yet, towards the end, just giving back some of those, the market closing up 26 points, now tentatively holding onto 14,800.

Janet Yellen takes over the Fed as it decides when to start tapering the giant $85 billion a month bond-buying program, and Dr. Yellen will draw from her experiences both in government meeting rooms and at the head of the classroom.

(BEGIN VIDEOTAPE)

QUEST (voice-over): For several decades, Janet Yellen's career has looked like a textbook path to the top.

JEFFREY SACHS, DIRECTOR, THE EARTH INSTITUTE: She's had the run of senior positions in macro economic and monetary policy. She's been within the public sector, she has not played the revolving door game.

QUEST: Professor Yellen began her career in teaching, and a young Jeffrey Sachs was amongst her earliest students.

SACHS: She had come from Yale, she was a start student of James Tobin, one of the greatest economists of the 20th century in the United States, and I felt always privileged to be in her class.

QUEST: She rose through the academic ranks, and by the mid-1990s, it was on to Washington.

BILL CLINTON, FORMER PRESIDENT OF THE UNITED STATES: I will nominate Janet Yellen to be chair of the Council of Economic Advisors.

QUEST: Serving under Bill Clinton, she worked directly with a future rival and a former student.

CLINTON: She'd been a professor of economics at the University of California Berkeley and at Harvard, where she taught, among others, the deputy secretary of the Treasury, Larry Summers -- who said that his grade was sufficiently high for her to be recommended for the job.

(LAUGHTER)

CLINTON: She is an esteemed writer and thinker who will serve our country well.

QUEST: Thinking, and in particular, forward thinking, is Yellen's trump card. In 2007, Fed board member Yellen is quoted in the transcript of a Fed meeting.

She said, "I still feel the presence of a 600-pound gorilla in the room, and that is the housing sector." That sector was to go on to collapse two years later. Stephen Oliner, then a 23-year veteran of the Fed's research division, was at that meeting.

STEVE OLINER, RESIDENT SCHOLAR, AMERICAN ENTERPRISE INSTITUTE: She was one of the only people on the FOMC before the crisis who was actively calling attention to the problems in the housing sector.

QUEST: Oliner remembers even back then, people would sit up when Yellen spoke her mind.

OLINER: When she comes to an FOMC meeting, it's having done a great deal of thought already about the issue that she's going to speak on. So people listen very carefully when she speaks. She does not suffer fools gladly.

QUEST: Janet Yellen has been and will be part of an evolving Federal Reserve system, where communication is key. In November last year, she returned to Berkeley to talk about transparency.

YELLEN: the impact of monetary policy on the economy today depends not only or even primarily on the FOMC's current target for the federal funds rate or the quantity of assets on its balance sheet, but rather on how the public expects the Federal Reserve to set the paths of these variables in the future.

QUEST: Approachable, yet exacting. Understated, yet uncompromising. No one has much doubt, for Janet Yellen, this is the next career move.

(END VIDEOTAPE)

QUEST: Now, on the very day that Yellen was announced as the nomination or nominee for the top job, we got a sense of the current mood within the Federal Reserve and the reasoning behind last month's decision, which some regarded as extraordinary, and which was certainly surprising to the economic world, not to begin tapering.

The Fed says its decision not to taper was, in their words, "a close call." But it was made in part because, again, in their words, "the announcement of a reduction in asset purchases at this meeting might trigger an additional, unwarranted tightening of financial conditions." That's a posh way of saying interest rates would go up in the money markets, thus restricting economic growth.

Several officials also revised their 13 economic forecasts lower because of key risks, and the Fed also expressed its worries about a potential government shutdown and the debt ceiling crisis. Another good reason for us to be in the American capital tonight, because that worry and that concern from the Fed was prescient.

The World Bank president Jim Yong Kim today said he is worried about the debt ceiling, in particular that the world's poorest countries could be hit the hardest as this deadlock in Congress continues.

I sat down with him earlier today at the opening at the World Bank meetings in Washington. We were surrounded by an audience of World Bank employees. There was one key question for the president of the World Bank: how concerned is he on the debt ceiling and why?

(BEGIN VIDEOTAPE)

KIM: We're very concerned, because right now, there are so many headwinds as it is for emerging markets and the developing world that that kind of impact really could be devastating.

QUEST: When you say that, is this the budget or is it the debt ceiling? Which for you is the more worrying?

KIM: It's the debt ceiling. It's the potential for default that really is of greatest concern. The last time it happened was just in August of 2011, and the impacts were severe. There are many ways that it has the impact, but interest rates go up, there is a flight to safety, and then the currencies in developing countries could go down. And just overall confidence goes down.

And right now, many countries need to continue to invest. And if confidence -- if there's a strong confidence effect, we're going to have trouble, and the headwinds that these economies are already facing are just going to get stiffer.

QUEST: The problem, of course, is we know to some extent that they are playing -- Warren Buffett described it as they're playing with nuclear weapons. But they continue to do so. You're in Washington. It's happening up the road from you.

KIM: What I want to say is that for the legislators, I want them to know that the closer they get to default, the bigger the impact it's going to have, not on giant corporations. That -- everyone knows that the bigger -- the big companies will all be affected.

But it's the rice farmers in Southeast Asia. It's the young men and women in the Middle East who are trying to start businesses. All of those people will be affected and will be affected severely, and those are the people, of course, who we're most concerned about.

QUEST: Well, just remind us again how they are affected.

KIM: When interest rates go up on US treasuries, which we've already seen, borrowing costs go up all over the place. And of course, if capital is more scarce and if you just can't get access to capital, it's a problem in all developing countries.

But the line directly, of course, is that as everything slows down, as markets drop, as economic activity slows down, we often forget that it does have a direct impact on the poorest.

QUEST: Are you making as yet contingency plans for what might, could happen?

KIM: We've been very good at responding to various disasters, from when the economic crisis hit, we increased our lending a lot. And we're ready to move just as we have before to support the poorest countries.

They -- many of them will just need direct budget support in order to just keep their governments running to provide basic services. We've done it before, and we're ready to do it again.

QUEST: So, to be clear --

KIM: Yes.

QUEST: -- in the event that the debt ceiling crisis turns into a debt ceiling catastrophe, the World Bank is ready to come to support.

KIM: Absolutely. We -- we responded in previous times. There was a lot of confidence and strong, positive reviews of what we were able to do in crisis in the last five years. We're ready to do it again. And --

(CROSSTALK)

QUEST: So, you've had meetings here about this?

KIM: Oh, of course. We're continuously following the situation, and because we've done this before, the muscle memory is still in place. It just happened five years ago. We're ready to go.

(END VIDEOTAPE)

QUEST: President Kim talking to me earlier. You'll hear more from him later on the program on his new strategy for the World Bank and its renewed focus.

On Wall Street, look at the numbers. Investors kept their focus squarely on the gridlock. The market was down and up and down for most of the session, and then suddenly it rallied sharply only to evaporate to the close.

Alison Kosik is live for us at the New York Stock Exchange. What happened in the afternoon? Was it the Yellen factor?

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: The Yellen factor was part of it. Look, we saw stocks swing from the red to the green, as you said, and listen, the good part of it is stocks did end in the green after seeing a lot of red for many, many sessions before today.

We saw investors buy in today in what turned out to be a bit of a rebound. A lot of what drove it was actually a ten-year treasury auction that went better than expected. This shows that, listen, there's still an appetite for US debt, even as we march closer to that crucial day of October 17th --

QUEST: Right.

KOSIK: -- the deadline for reaching that debt ceiling. Also, you have to look at stocks as a whole. The sell-off, some traders tell me, has been pretty much over-sold, so you saw investors come back in. But no doubt about it, there was a split focus between Washington and Janet Yellen as well. Wall Street is sweet on Janet Yellen. Richard?

QUEST: Alison Kosik at the New York Stock Exchange for us this evening. The European session, if you think for some reason that maybe we are spending too much time talking about the debt ceiling crisis and what's happening in the US markets, well, look at what happened in Europe.

Lower on Wednesday, and one fund manager was very clear, writing to the client saying, "The shutdown overshadows all other topics. Fear is increasing every day because of a possible US default, and that hits sentiment." And that is why we are talking about it extensively and why we are in Washington tonight.

The shutdown showdown, the debt deadline's not the only concerns. After the break, if Janet Yellen succeeds Ben Bernanke, she'll need to oversee a gradual, modest tapering. After the break.

(RINGS BELL)

(COMMERCIAL BREAK)

QUEST: The economic agenda is overloaded and overflowing. Discussions in Washington at the IMF and World Bank may be dominated by the government shutdown and the debt ceiling. It's not the only threat to the global economy. How the US decides to withdraw tapering and stimulus is an issue.

The IMF is warning an abrupt end to the vast stimulus program could blow a $2.3 trillion hole in the global bond market, and the report adds, "The exit must be carefully managed and carefully and clearly communicated."

Joining us is the lead author of the IMF's global financial stability report, Jose Vinals. He's the IMF financial counselor and director, joins me from the IMF. It's really -- it's a classic case, isn't it? It's one thing to dig a hole. It's quite another to get yourself out of it.

JOSE VINALS, FINANCIAL COUNSELOR AND DIRECTOR, IMF: Yes, that's right. And we think that, hopefully, the US economy, if the shutdown and the debt ceiling are resolved, the US economy has now better economic prospects ahead of it, and over time, this will mean that the Fed could normalize its monetary policy conditions, first through tapering and later on through tightening.

QUEST: Right. But tightening is a long way down the road. Tapering is more immediate, and we already saw in August the effect of a threat of tapering on emerging markets, particularly India. So I ask you, who will bear the brunt of the tapering action?

VINALS: Well, the brunt of the tapering action, one needs to be careful. First, insofar as the tapering is on the back of a growing US economy, there are going to be benefits for the world in terms of more exports to the United States and so on.

However, there may be economies which are hit by capital outflows, and those economies which have poorer economic fundamentals in terms of current account deficits, in terms of fiscal deficits --

QUEST: Right.

VINALS: -- inflation which is not under control. These are those which are likely to suffer the most.

QUEST: The Fed has done a pretty poor job in the last few months of communicating its intentions. That's not my words. If you talk to economists -- and I suspect privately, you would say the same thing -- not to taper last month having led everybody to believe they would as not, perhaps, the wisest thing. So, the communication strategy, what are you going to be looking for in what they say?

VINALS: Well, I -- respectfully disagree. I think that not tapering in September was a wise thing to do insofar as the strength of the economy was not yet sufficient. Going forward, I think that there have been some misunderstandings on the part of the markets, and I think that in September, the communication by the Fed is a lot more clear.

So, I hope that this learning game converges soon to a situation where the Fed and the markets can be on the same page and therefore can be no further misunderstandings. But again, this is something that needs to happen, hasn't happened yet.

QUEST: And we would agree. Finally and briefly, we are completely in uncharted territory here.

VINALS: Yes, we are. Because the exit is both in terms of quantitative easing and conventional monetary policies, so it's on both dimensions, and because the entry has been rather large, there would be an exit process which would be long and complex. So, uncharted territory, but we hope that it can be managed in a skillful manner so that we can go back to better world economic situation at the end of the process.

QUEST: Hope and skills. We thank you, Jose Vinals, joining me from the IMF. We'll hear a lot more from the IMF in the days ahead.

Don't mind the hyperbole in hysteria about what's happening here in Washington. It's proof positive that the government of America is working as it should. That's the view of my next guest, who saw through two government shutdowns. Newt Gingrich joins me.

(RINGS BELL)

QUEST: QUEST MEANS BUSINESS after the break.

(COMMERCIAL BREAK)

QUEST: Now, one Republican senator says the debt ceiling shouldn't be raised. Senator Tom Coburn says hitting the country's overdraft limit shouldn't necessarily mean that America defaults on its obligations, and he wants politicians to face up to what he's calling "hard choices" and cut spending.

(BEGIN VIDEO CLIP)

SEN. TOM COBURN (R), OKLAHOMA: The problem is we continue to kick it down the road, and pretty soon, everything's going to continue as it is until it doesn't. And when it doesn't, that's when the catastrophe comes.

So, I'd rather have a managed catastrophe now, which I don't think will be there. Here's the thing that all the media does, say is default equals not raising the debt ceiling. That's not true. That is not true. Those are two -- two different and distinct things.

(END VIDEO CLIP)

QUEST: If Tom Coburn is content to hit the debt ceiling, Newt Gingrich seems to be happy, at least -- if not happy, maybe content -- to the government shutdown. He'll justify himself in a second.

But he ought to know. The former Republican House speaker was in the middle of two shutdowns, 95 and 96, and he believes that back then, people understood shutdowns were a part of the negotiating process. They happened often and showed that Washington was working. Here is Speaker Gingrich in 1995 talking about negotiating with another Democratic president.

(BEGIN VIDEO CLIP)

NEWT GINGRICH, FORMER SPEAKER OF THE HOUSE: It's very difficult to work with a president who seems to be primarily driven by his political advisors to engage in public relation stunts, and instead of having serious negotiations to do the things the country needs to get to a balanced budget and save our children's future --

(END VIDEO CLIP)

QUEST: You haven't aged a bit since that picture--

(LAUGHTER)

GINGRICH: No, I'm heavier and older and -- but it's --

QUEST: Newt Gingrich, thank you for joining --

GINGRICH: It's good to look to back sometimes.

QUEST: Your argument is fundamentally that -- and we'll break it down into shutdown and debt ceiling, but your argument is fundamentally that this is evidence of the US government working as it should

GINGRICH: Sure, the American constitution divides powers. Now, if that division is real, then you're going to have tension, and you have fundamental difference between the House Republicans, who are much more conservative and a very, very liberal president. And so, that kind of tension is normal.

QUEST: But the spirit of compromise that would have seen out the great men and the founding fathers -- although, I grant you, they battled hard and frequently -- but the spirit of compromise doesn't seem to be there.

GINGRICH: No, I think that's a mistake. In 95, 96, one of the things is, you don't shut down the government down capriciously. You do it because you haven't found an agreement yet, and then you try to find an agreement.

In 95, 96, which were the 16th and 17th shutdowns since 1976 -- so it's not -- wasn't uncommon, Clinton and I were trying every day to find a common ground to get the government back open. I don't sense Obama -- he's pretty clear, he's not willing to talk to anybody.

QUEST: The difference then, and of all the other shutdowns perhaps, is that the economic situation globally and here is much more perilous.

GINGRICH: Oh, I think that's right. I think this is the weakest we have seen the Western world probably since World War II, and I think that there are a lot of reasons to worry about some big event suddenly pushing us back into an even deeper recession, which as you know, in the eurozone, if you push Greece, Italy, Portugal, Spain, you get into a really bad situation.

QUEST: Right. Which -- but that's the point, isn't it? No matter what the system of government has tensions within it, because the macro economic situation is more serious, they shouldn't be doing it.

GINGRICH: Well, and it makes you wonder why Obama is rolling the dice. He as president is trying to break two patterns --

QUEST: You're making a political point here. Let's -- but well, as it's easily the same about the speaker.

GINGRICH: No, I -- but it's not true. I'm not just making a political point. We have attached things to the debt ceiling since 1953. For 60 years, we've had this pattern. We have routinely fought over spending. This president is now saying, "I will not negotiate." Well, that' s a violation of the entire spirit of the American constitutional system.

QUEST: And talking about that, and you're a scholar of constitutional law and the system, in your recent article in the FT, you talk -- you harken back to Magna Carta and to Runnymede and to the battle between king and country and democracy. Do you think we can see strains of those sort of battles in this dispute?

GINGRICH: Absolutely. This is precisely why the founding fathers wrote the constitution and divided power. It's precisely why they put the power of the purse in our version of the House of Commons, which is the House of Representatives. And they intended for political leaders to have to negotiate with each other. This was the essence of the congressional -- the constitutional system.

QUEST: So, to viewers watching around the world -- and "The Economist" summed it up on their front cover last week, you would have seen it -- "This is no way to run a country."

GINGRICH: Well, it's a --

QUEST: What would you say?

GINGRICH: I would say this is the hardest, most difficult system to run in the world, and it was designed to preserve freedom. It's designed to make it -- this is a machine so inefficient that no dictator could force it to work. We can barely get it to work voluntarily.

And I would suggest, despite all the political scientists, it has done a better job of preserving freedom through that division of power than you would have in a unitary system that was quite efficient.

QUEST: Mr. Speaker, thank you for joining us --

GINGRICH: Thank you.

QUEST: -- and putting that point of view. Interesting to talk to you. Thank you for joining us tonight.

Coming up next, the president of the World Bank and why Jim Yong Kim did not think the World Bank was fit for purpose to take on world poverty. And, of course, his plans for reform. In a moment.

(RINGS BELL)

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment. This is CNN, and on this network, the news always comes first.

Barack Obama has named Janet Yellen as his choice to lead the US Fed. Dr. Yellen now awaits confirmation from the Senate. Around an hour ago, she said more help was needed to help the United States' economic recovery.

The man leading the effort to track and destroy Syria's chemical weapons stockpile says the regime is cooperating with weapons inspectors on the ground. The chief of the Organization for the Prohibition of Chemical Weapons also called for a temporary cease-fire so inspectors can meet the 2014 deadline set by the UN Security Council.

The president of the World Bank says he aims to cut world poverty in half within the next seven years. Speaking to me at the opening of the meetings here in Washington, Jim Yong Kim warned the world's poorest countries will suffer from a failure to address the US debt crisis.

A Chinese high court has agreed to hear an appeal from the displaced politician Bo Xilai, the former Communist Party chief was handed a life sentence last month on charges of corruption and embezzlement and abuse of power.

The mess and chaos in Washington continues and here in the American capital we saw a rare and very small breakthrough in the U.S. government shutdown talks. The House voted to fund benefits for the relatives of fallen U.S. soldiers. Joining me now is Wolf Blitzer of course of the "Situation Room." Wolf. How - you've obviously studied these in so many years. How do you characterize what's going on here? And how do you explain it?

WOLF BLITZER, CNN ANCHOR: It's a real mess, basically. That's - it's an awful situation from every standpoint and the fact that they got to this - the fact that they got to this horrible situation because they couldn't agree on what you need to fund the government speaks volumes about the real division within Washington right now, and so, it's a bad situation. The ramifications are enormous, and if they don't raise the debt ceiling, it's only going to get a whole lot worse.

QUEST: And yet talking to the Speaker, the former Speaker just then, and talking to politicians, they all seem to believe it's not going to happen. Do they - are they deceiving themselves? I mean, is it likely a deal is done at the last moment?

BLITZER: Yes, it's likely a deal will be done. I think everybody - all the grownups - everybody appreciates what could happen if there were a failure to raise the debt ceiling, if there were some sort of default, the U.S. dollar and the economy and the ramifications for around the world. So I think in the end that will not happen. Then again, I have to say, I didn't think there would be a government shutdown either. I thought there would be a last-minute deal on that. But the government shutdown is one thing. That's happened on many occasions. Defaulting on the value of the U.S. dollar, defaulting on the U.S. debt obligations here in the United States and around the world, that is an whole other situation.

QUEST: This is a really - this is taking you into deep waters - you can plead the fifth. The Republicans say Obama won't negotiate. Obama says the Republicans won't bring it to the House. Who's right in this? Anybody watching it says 'I don't understand who's telling the truth.'

BLITZER: Yes, well, I think they have to finesse - I mean they got to bring in somebody who can help them - forget about the word 'negotiate'. Let's have a separate word where they can have one deal in which the President will say 'I didn't negotiate, I didn't make any concessions to raise the debt ceiling, yet the government reopened,' but at the same time have a parallel track in which the Republicans'll say 'We did get some commitments from the President, some commitments in writing, not necessarily official directly linked to these two demands, but it's sort of part of that same diplomatic nuance that they could create - this notion that all sides might you know emerge a winner.

QUEST: Is this the most amongst the most toxic political environments that you've seen in this -

BLITZER: It's very toxic and it's bad for Democrats, it's bad for Republicans. It's very bad for the President of the United States - his job approval numbers are not good at all. They've really gone down. He is the president and the second-term president, he was reelected by five million votes, so he's got a lot of credibility out there. But if there is an economic downturn right now as a result of the government shutdown -

QUEST: Who is to blame?

BLITZER: He'll get a lot of blame because he's the president of the United States and people will say why couldn't he put this deal together - you know - where was he? He should have done x, y and z. There'll be a blame for everybody, but the President will get plenty of blame as well.

QUEST: And those who are looking on both sides to replace him in three, four years' time, are they keeping their heads down? Is this a no - is this a no-winner? You don't want to get involved.

BLITZER: Well, you notice that Paul Ryan, the chairman of the House Budget Committee, the vice presidential nominee the last time around, he did write an op-ed article in the "Wall Street Journal" today in which he came up with all sorts of solutions. He did not mention Obamacare once, as one of those things that have to be included in some sort of grand bargain or grand deal or whatever you want to call it. So, you know, he was relatively quiet. You know who else has been very quiet in this whole thing - the Vice President Joe Biden. We've heard and seen very little of him in this entire debate.

QUEST: Which tells us everything really, doesn't it?

BLITZER: I don't think it's for political reasons because he wants to run for president and get the Democratic nomination in three years, but I think it's - you know there's some Democrats and some Republicans who don't necessarily want him to be part of this negotiation.

QUEST: Wolf, thank you very much indeed.

BLITZER: Thank you.

QUEST: "Situation Room" at the top of the hour. Many thanks indeed.

BLITZER: I'll see you in the "Situation Room."

QUEST: You're willing to? Absolutely.

BLITZER: Of course.

QUEST: Many thanks. Now, more of my interview with the president of the World Bank, Jim Yong Kim. The World Bank president says the organization as not fit to tackle world poverty when he took over. And he's vowing that's about to change. Implementing serious reforms and announcing goals to cut poverty in half by 2020. I asked him about this strategy.

JIM YONG KIM, PRESIDENT OF THE WORLD BANK: We have target to end poverty by 2030 which means bringing it down to a level as low as we can possibly go. And that's really three percent. I mean, there's so much conflict in the world, people going in and out - three percent is about as good as we can do. So, the strategy is focused on getting us to the target. The second focus for us is what we call shared prosperity. And that means we're focusing specifically on the income of the bottom 40 percent. So it's not just getting above a dollar twenty-five a day which is extreme poverty, it's really looking at how much the bottom 40 percent are participating in the overall economic growth.

QUEST: You see, I'm slightly surprised it took you a year to come up with a conclusion to end poverty and shared prosperity.

KIM: Um, have you worked at the World Bank before, Richard? Let me put it this way, this is really the first time that we've had two over- arching goals for the entire institution and it's been voted on by the member countries.

QUEST: You say this is the first time there's been a single - or two true goals in this way. I don't understand what's so different about saying we're going to end poverty which is exactly what - well I thought you were always doing - and that you were going to have shared prosperity.

KIM: Let me explain. So for example, when you look at the growth numbers over the last 20 years, and you say if we have the same growth rate in the developing world as you've had over the last 20years, how close will we get to three percent poverty? And the answer is actually not very close. We'll only get to eight percent. And so the difference between eight percent and three percent is huge. And once you get to eight percent, what's left are not low-hanging fruit. These are the highest hanging fruit. These are going to be the most difficult people to reach and lift out of poverty. And so if you go backward from there, you have to then say well, then if you want to get to three percent, what has to happen? And what has to happen is the countries have to perform when they were --- as if they were performing at their best. And it's different varying different periods - three years, five years, ten years - but they've all got to get to the point where they were at their best over the last 20 years, not the average. And so we have a huge amount of work to do. How do we get countries there? How can we help them get there?

QUEST: So, where are we now in percentage terms on poverty?

KIM: We're about 18 percent.

QUEST: Eighteen percent --

KIM: Yes.

QUEST: -- at the moment, and you're about to come out with a new target.

KIM: Right. (Well) you asked me about it last time we talked, Richard, 'what's your interim target?' And so we looked again carefully at it and we don't think that there's any way that we can get to three percent unless we're at least at nine percent by 2020. So, we have an interim target now. And we want to have poverty -

QUEST: Now this is new?

KIM: This is new. This is -

QUEST: Today?

KIM: -- I'm announcing it right now to you because you asked me about it last time. And the great thing about having a real target that's given to us by our board, the really good thing about it is then you have to go backwards and say 'So what do we need to do differently to get - to help developing countries get to the point where over the next 17 years they're growing as well as they did during their best period over the last 20. That's a huge job. What were they doing in terms of fiscal policy? What were they doing in terms of investments? What were they doing in terms of health and education? We have to really understand what the strategies were that worked, and then we also have to then understand that the context is different now than it was before - so what will be the best strategy for them going forward?

QUEST: To do this, it's not a one-size-fits-all.

KIM: Absolutely not.

QUEST: Every country has a different -

KIM: Right.

QUEST: -- set of dynamics, set of solutions, and but you have a single organization that has to deal with that.

KIM: Right.

QUEST: And you're repositioning the Bank. So tell me how you're repositioning it.

KIM: Well, there are a couple of things that are really critical for us. First of all, one of the things that we're hearing from everyone is that it's really critical for us to do for example public/private partnerships. And so in every country in the world, people understand that just foreign assistance is not going to lift them out of poverty. What they really have to do is to use foreign assistance and their government resources to really make the private sector work. The private sector creates 90 percent of the jobs in the developing world. If we want to see growth, we've got to see public and private work together. And the Bank has not been very good at having its public sector and private sector branches working together. We're completely changing that. We're going to be working together in every single country with the joint strategies for every country that's public and private. That's what people want. That's just one example.

The other example is we're going to ask ourselves everyday are we making progress toward these goals? Is everyone here united toward these goals? Because what happens in bureaucracies, Richard, is that the incentives sometimes get a little bit misaligned with the mission. In other words, if the incentive is to get your loan or get your deal through the Board as quickly as possible, we end up with a hodgepodge of a lot of little projects that were good for the career advancement of individuals, but maybe not aligned with the strategy of a country to actually end extreme poverty. That's the biggest change we're making.

QUEST: Your strategy, your twin strategy of repositioning the Bank, when do you expect to see results?

KIM: We've already had some results. We're going to do most of our reorganization over the next six to nine months. By July 1st of 2014, we will be a different organization and I think we will be fit for purpose to end poverty and boost shared prosperity.

QUEST: You were not fit for purpose before?

KIM: Well, that's what the staff told me in our survey -

QUEST: (Inaudible) your opinion.

KIM: Was that my opinion?

QUEST: Yes.

KIM: Yes, it was my opinion.

QUEST: And now you believe this will turn it 'round?

KIM: I believe this will turn it around.

QUEST: There you have it. Can't get clearer than that. Coming up next on "Quest Means Business" tonight - carrier in crisis Alitalia risks being grounded. The airline is facing the most serious threat yet to its survival. Good evening tonight from Washington.

(COMMERCIAL BREAK)

QUEST: Now time for today's "Business Traveller" update. And well I'm afraid it once again brings us back to the debt ceiling and the drama on the budget in the U.S. U.S Airways was hoping to be in possession of a shiny new airbus plane this afternoon, but the U.S. shutdown put a stop to that. A spokesman told CNN U.S. Airways was unable to ship a brand new airbus A330 from Toulouse over the weekend because they couldn't get the authorization from the Federal Aviation Authority, the office that does the paperwork is closed. So it won't get to Charlotte until the office reopens. Now one airline that's still flying but maybe only just Alitalia's future is looking increasingly uncertain. Its fuel provider, ENI, has threatened to cut off supplies if Alitalia fails to secure financing. It owes only $40 million. Alitalia's board says it will come up with a plan by Thursday. Aegean of Greece, Aegean Airlines has won permission to buy its competitor Olympic. Now the carrier Olympic was founded by the shipping billionaire Aristotle Onassis. The EU approved $96 million deal. There's no negative effect on competition it says. Of course it keeps Olympic flying and some would say that in itself is a distorting effect. Shares in Jet of India tumbled three percent in Mumbai. India's Supreme Court said it would examine the Etihad had plan to buy a 24 percent stake in Jet. Opposition lawmakers asked the court to block the deal after the Indian government gave it the green light. The deals (inaudible) $379 million and was unveiled in April. It's a cornerstone of Etihad's plans. So tonight our forecast. Jenny Harrison is at the World Weather Center. Jenny, I don't know what part of the world you're starting in, but I can tell you there's a definite (inaudible) frosty air here in Washington.

JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: Yes, well, very (inaudible) in many parts of (inaudible) of the northern hemisphere. I wasn't going to start where you are, we're going to start instead in Europe because, my goodness, you add on to that autumnal feel winds up to 96 kilometers an hour, yet 96 kilometers an hour and I can tell you what it'll feel pretty more like winter. This is the culprit, this area of low pressure's going to work its way down through the North Sea. It's really going to impact the eastern coastal areas of the UK. So it'll turn a lot cooler. We're going to see a lot of moisture coming in with this as well, and also, not surprisingly, we're going to see quite a bit of snow accumulating across the line of the Alps (ph) maybe as much as half a meter of snow.

There's some more weather as well as just that, but it's also going to be rather unsettled through the central Mediterranean, pushing towards the southeast of Europe, so again, we've got some more warnings Wednesday into Thursday. There may be some strong winds there - tornadoes or the threat of those, and possibly mixed in with this rain some large and damaging hail.

But, it's Wednesday, so it's time to look ahead to the weekend. And I know, because we're talking about that cold autumnal weather, you're thinking you want to go somewhere nice and sunny, so how about somewhere where've got some (inaudible) nice culture, some nice beach weather, some sea. And look at this, you could do far better --- it's far worse I should say - and get a rose in Greece. It's going to be glorious this weekend. Clear, sunny skies, 26 on Saturday, 27 Celsius on Sunday, and the overnight temperature pretty good as well, 21 Celsius both evenings. And then how about Sofia in Bulgaria for a nice weekend in the city because, again, the weather is going to be very, very nice - 26 Celsius on both days. Just a little bit more cloud around on Sunday. It'll be chillier of course in the overnight hours, but even so, a very nice weekend away in either of those places.

However, Thursday, be prepared for some fairly (lengthy) delays. Munich we've got some quite thick cloud at 90 (inaudible) in the evening hours, London Gatwick we've got some thick cloud as well despite the fact we've got those very, very strong winds down the east coast of the UK. Marseilles some strong winds in the evening hours, though we often have some strong, blustery winds in Marseilles, but not really causing too many delays at the airports.

Very nice weekend ahead actually in Paris as well, but it is going to be a lot cooler than the average. So look at this - Thursday, Friday (inaudible) 11 Celsius is the average of 16. But at least that comes with some pretty good sunshine. London as well below the average temperatures in the low teens and also Toulouse in France with (inaudible) temperatures below the average. There's that area of low pressure - doesn't look too threatening. It's bringing the rain, it'll turn to snow across the Alps, but also remember those very, very strong winds - the UK Met Office has put out those warnings. The rain and thunderstorms throughout the central met, and there is that snow accumulating along the line of the Alps. A little bit early for me to start talking about the ski conditions, but beginning to get some pretty good snow cover, and when it comes to temperatures there on Thursday, double figures in most places - 13 in London, 25 in Madrid. But again, that does come with quite a bit of cloud and some showers. Richard.

QUEST: (Inaudible) the idea of where to go the weekend, now is the time to book it if you're going away. Jenny Harrison at the World Weather Center. Jenny, we thank you for that. Now, Wall Street is watching Washington's every move. The heads of Goldman Sachs and Bank of America spoke out last week, warning of adverse consequences if the shutdown and debt limits aren't resolved. Tonight, we'll hear from the man who represents the nation's most powerful bank chief execs. In a moment.

(COMMERCIAL BREAK)

QUEST: Major British banks have been speaking to regulators about how they'll cope with a debt ceiling catastrophe according to "The Wall Street Journal." Here in the U.S., many major banks' interests are represented by the Financial Services Forum. That includes Lloyd Blankfen of Goldman Sachs, Brian Moynihan of Bank of America. JPMorgan's Jamie Dimon, Citigroup's Michael Corbat, as well as the heads of 15 other banks from around the world. They are represented by this organization, and the organization is represented by Rob Nichols, the president and chief exec of the Financial Services Forum. Well, thank you.

ROB NICHOLS, PRESIDENT ND CHIEF EXECUTIVE OFFICER OF THE FINANCIAL SERVICES FORUM: Thank you.

QUEST: Are you know starting to hear from CEOs about putting in place contingency plans?

NICHOLS: Yes they are. There's a great degree of concern over this issue. There's two things of course happening right now in Washington. One, the government shutdown which is unfortunate, but that's small potatoes compared to the inability to raise the debt ceiling. So that right now is - that's the key issue.

QUEST: Right. But are they making plans for what might happen? Give me the - without mentioning names, give me the gist of the private conversations bank CEOs are having with each other or you.

NICHOLS: Right. Well, they're starting to think about several things. What would happen if the U.S. failed to pay some of its obligations, what would happen to the price of treasuries. Treasuries as you well know basically are the underpinning of the global financial system. So if those were to re-price, how would that impact collateral? There's another thing that they're starting to think about, Richard, which is with their customers, what if their customers are solely reliant on government payments such as social security and those electronic payments didn't start coming in? What will they do to help manage their clients and care for their customers.

QUEST: Are contingency plans being put in place? And by this, we're talking practicalities now. You know, suddenly you're stuffed to the gills with treasuries -

NICHOLS: Yes.

QUEST: What do you do with them? Are they building up cash buffers? What are you doing?

NICHOLS: They are doing all the things that you would think that they should be doing to be prudent managers and prudent investors to help their shareholders and their clients. Now I will say at the same time as in terms of what they're doing, they are strongly encouraging both parties to work together so we avoid this potential self-inflicted economic wound.

QUEST: Are you all in denial about the very real possibility of a debt default?

NICHOLS: No one's in denial, there is deep concern. That's why we have sounded the call and we have encouraged both parties to work together to do a big deal that will help put us on a long-term, fiscally-sustainable path, because that's another issue too - is our long-term entitlements are driving about 70 percent of our long-term debts. We need to take care of that and we cannot, we cannot default on our debt. And that's the message that we are sending to both parties here in Washington.

QUEST: And you and I will talk more about that in the future. Thank you, sir, for coming in and talking to us. Many thanks indeed.

NICHOLS: (Inaudible).

QUEST: Businesses big and small are being affected by the wrangling in Washington. We've just heard from the very biggest businesses, the banks. But I had a few spare minutes over lunch, so I popped into the Dubliner, a little watering hole nearby - it's a well-known Irish pub close to the Capitol, and there I met the manager and had a bite to eat.

(VIDEOCLIP BEGINS)

QUEST FROM VIDEOCLIP: Here's to a very fine lunchtime shepherd's pie at the Dubliner's, an excellent in fact. And (Inaudible) is the manager. The shepherd's pie is very good, but there aren't many people enjoying it. So what's happening?

Male FROM VIDEOCLIP: The shutdown. The shutdown ha affected business in D.C. At the Dubliner, next door, on the streets. All across town, all across the board.

QUEST: Who is not coming in?

Male: A lot of conventioners, staffers, tourists.

QUEST: And what about people who work for the government? The intern, those on Capitol Hill, I mean, are they just not here -

Male: We're not seeing them. They're not getting paid. They're not - the staffers aren't getting paid, they're not spending money at the Dubliner.

QUEST: Oh, dear. So what are you doing to try and entice them in besides fine shepherd's pie.

Male: Anything to get them in. Any kind of promotion - happy hour specials, food specials, furlough fries - this is one of example that we've come up with.

QUEST: So you are - you're giving government workers a bit of a break on the bill?

Male: Yes. Yes, as long as they have a government ID. We're going to ride it out. We've been through it before. We've weathered the storm.

QUEST: Thank you very much.

Male: Great.

QUEST: This is getting cold.

(VIDEOCLIP ENDS)

QUEST: The Obama administration - some news just in to us - the Obama administration has announced the suspension of significant military aid to Egypt. It comes in response to the government's violent crackdown on the Muslim Brotherhood this summer. The move is the culmination of months of debate in the White House. We'll have more on that in a moment, and a profitable moment after the break.

(COMMERCIAL BREAK)

QUEST: Now, tomorrow we have another special edition of "Quest Means Business" coming to you from Washington. And I'll be moderating an IMF panel discussion on a number of key issues, and in particular the U.S. debt ceiling crisis. We'll be talking about the global economy, we'll talk about the effects on the emerging markets, austerity, the tapering debate and crucially China's economic growth. And we'll put it in the context of the latest numbers from the (inaudible) which shows a slowdown in growth. It's literally top level The IMF's managing director Christine Lagarde, India's Central Bank governor, the man who says about Facebook being light, Spain's economics minister, the deputy governor of the People's Bank of China and President Obama's chair of economic advisors. If that's not all enough for you, good Lord knows what will be. We will be getting involved in the panel discussion at the IMF and World Bank. But for the moment, that is "Quest Means Business" tonight. I'm Richard Quest in Washington. As always, whatever you're up to in the hours ahead, hope it's profitable. I'll see you tomorrow.

END