The Unassuming Economist

From Harvard Gazette:

“Gita Gopinath, Harvard’s John Zwaanstra Professor of International Studies and of Economics, was appointed last month as economic counselor and director of research for the International Monetary Fund (IMF), becoming the chief economist of the powerful financial organization.

The role encompasses everything from helping determine financial assistance to countries to leading research by a vast department of economists. Gopinath’s appointment comes at an especially challenging time, as more countries are seeing a move away from globalization, and grappling with economic uncertainty. The Gazette caught up with Gopinath, who is also a faculty associate in the Weatherhead Center for International Affairs, to get her views on the biggest challenges facing the IMF today, what her priorities will be, and how she feels as the first woman in the job.

Q&A

GAZETTE: What was your reaction when you found out you were being offered this position?

GOPINATH: I was thrilled and honored. There were two rounds of interviews, but everything went very quickly. And I was very touched by the kind words of Managing Director Christine Lagarde and more generally by the reaction from family, friends, and colleagues to the announcement. My parents were flooded with congratulatory messages, which was a nice feeling. This is a very exciting job for me, given the areas that I work in as an international macroeconomist. There is really no other place in the world where I can work with such a large number of highly qualified international macroeconomists, and that is a great source of excitement for me. So I was very pleased, and very honored because I know that there were other good people who could have been given the job.

GAZETTE: Could you tell us a little bit about the role, and what your responsibilities will be?

GOPINATH: In terms of the job itself, there are two main parts. One is director of research, which oversees a department with about 100 economists who provide intellectual leadership on important policy questions. The questions range from if and how countries should manage international capital flows to how do we address growing inequality. The second part is serving as an economic counselor, giving advice to senior management of the fund on broad policy questions but also on providing financial assistance to countries. So there is always the question of how do you formulate a package to a given country? What kind of program do you design for them? I’m really looking forward to providing advice on those sorts of questions.

GAZETTE: What are some of the biggest issues IMF is facing right now?

GOPINATH: The one that is absolutely clear and present is that we are seeing the first serious retreat from globalization. This has not happened in the past 50 or 60 years, when the world moved toward lower tariffs and increasing trade across countries. Over the past several months, we have the U.S.-imposed tariffs and retaliation to them from China and other nations. There is in general growing uncertainty about trade policy, including with Brexit [the British move to leave the European Union]. While trade has reduced global poverty and raised livelihoods, its consequences for inequality, and on whether the rules of engagement are fair, are real concerns that need to be addressed.

There is also a concern about whether we have the right multilateral institutions and frameworks in place to make sure everybody feels that there is fairness in trade. And the same goes for capital flows. Foreign direct investment [FDI] was always viewed very favorably by countries. But because most FDI is now in tech-heavy firms, there are growing concerns about national security and international property theft. So I believe this retreat from globalization and this retreat from multilateralism is quite unique to the times we are living in.

Another important concern is the health of emerging markets as the U.S. continues to normalize its interest rates. Capital flows to several markets have reversed, putting pressure on their exchange rates and consequently on inflation, and on balance sheets, given that several emerging markets borrow heavily in dollars.

GAZETTE: Could you talk more about Brexit and the trend away from globalization? Do you see this trend as still being on the rise, or has it peaked already?

GOPINATH: I’d like to think we are at a peak right now, but we might stay there for a little while. How soon will things de-escalate? That is far from obvious. And that itself is a problem because large amounts of uncertainty do not help with economic growth. We have plenty of evidence that when you have uncertainty about policy, there are significant negative consequences. There is a genuine concern that, even if things de-escalate now, they can get bad again quickly in the future, so there is no point at which we can say we have a permanent resolution.

At this time a year ago, the world was actually in a very nice sweet spot. For the first time since the financial crisis, advanced markets, developing countries, and emerging markets were all growing and doing better than they had in the previous year. So the expectation was that 2018 would be a good year for the world economy. It is interesting to see how that changed so quickly over the last six months. We now have the phenomenon of a great divergence between the U.S., which has been growing fast, and the rest of the world. So while Europe seemed like it had recovered, things have been slowing down. Emerging markets have taken a big hit across the board — both oil-producing and oil-consuming countries have suffered. I believe we are looking at a period of sizable uncertainty and a period where the downside risks are significant.

GAZETTE: What do you think contributed to the shift away from a period of consistent growth in various markets to where we are now?

GOPINATH: A couple of things changed rather unexpectedly. Not many anticipated the severity of the trade conflicts in 2018. This has slowed growth in China, which, given its importance in world markets, has negatively impacted other countries. Secondly, commodity prices were expected to rise, but at a moderate pace. Geopolitical tensions in the world led to a sharp rise in commodity prices that was a negative shock for oil importers like India. The idiosyncratic problems in Argentina, Turkey, and Italy surfaced. What was expected was that the U.S. Fed would raise interest rates, and it has continued to do so in a predictable and gradual manner, but the new reality in terms of geopolitical tensions and escalation in trade conflicts has exacerbated the negative spillovers from these interest rate increases.”

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Gita Gopinath, the John Zwaanstra Professor of International Studies and of Economics at Harvard University was recently appointed as Chief Economist with the International Monetary Fund, IMF. Here she is seen in her Littauer Building office. Kris Snibbe/Harvard Staff Photographer