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IMF’s Macro Mystic

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Gita Gopinath, 

First Deputy MD
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The fact that her 2001 doctoral dissertation titled, Three Essays On International Capital Flows: A Search Theoretic Approach, was overseen by the-then IMF chief economist, Kenneth Rogoff, and Princeton University professors Pierre-OIivier Gourinchas and Ben Bemanke (who later went on to chair the U.S. Fed in 2005), speaks volumes about the academic background of Gita Gopinath, who today runs the office of the First Deputy Managing Director (FDMD), the second-highest position at the International Monetary Fund (IMF). She received her Ph.D. in economics from Princeton University in 2001 after earning a B.A. from Lady Shri Ram College and M.A. degrees from Delhi School of Economics and University of Washington.
Incidentally, the 51-year-old was to return to her academic position —she was the John Zwaanstra Professor of International Studies — at Harvard University in 2022 after completing her stint as the Fund’s chief economist by the end of 2021. But fate had something else in store as the IMF was keen to hold her back. The impact that Gopinath had made during her stint was articulated by IMF managing director Kristalina Georgieva who said, “Especially given that the pandemic has led to an increase in the scale and scope of the macroeconomic challenges facing our member countries, I believe that Gita — universally recognised as one of the world’s leading macroeconomists — has precisely the expertise that we need for the FDMD role at this point. Her particular skill set, combined with her years of experience at the Fund as chief economist, make her uniquely well qualified. She is the right person at the right time.”
The last comment defines Gopinath’s role at the institution. She has been instrumental in co-authoring a timely paper on how to end Covid-19, which set widely recognised targets for vaccination in the world. An outcome of the work resulted in the formation of the Multilateral Task Force by the IMF, World Bank, WTO, and WHO, to find a way to get out of the pandemic, besides creating a working group with vaccine producers to identify trade impediments, and fast-track vaccines to low- and lower-middle-income nations. Gopinath, whose spouse, Iqbal Singh Dhaliwal, is the global executive director at Abdul Latif Jameel Poverty Action Lab at the Massachusetts Institute of Technology, has also collaborated with diverse stakeholders on creating a new analytical approach to help nations adapt to international capital flows through an integrated policy framework. A 1983 IAS batch officer of the Rajasthan cadre, Subhash Garg, who was the secretary of economic affairs between 2017 and 2019, recalls his engaging interactions with Gopinath. “She came across as intelligent and knowledgeable and expressed herself very well,” Garg, who has since retired, tells Fortune India. Georgieva, too, said that under Gopinath’s leadership, the IMF’s research department had gone from “strength to strength.”
For instance, the 2023 annual external sector report has referred to three research papers co-authored by Gopinath — Patterns of Invoicing Currency in Global Trade: New Evidence, Monetary Policy Cyclicality in Emerging Economies and The Global Financial Cycle. Given her expertise in capital flows, it’s not surprising to see Gopinath’s recent tweet mentioning a key takeaway from the report that highlights that a 10% dollar appreciation decreases economic output in emerging economies by 1.9% after a year, and the drag lingers for over two-and-half years. In contrast, the negative effects in advanced economies are smaller, peaking at 0.6% after a quarter and dissipating in a year.
Gopinath has also cautioned central banks on the pitfalls of going slow in the war against inflation.
At the European Central Bank’s forum held on June 26, Gopinath cautioned central banks not to let their guard down against inflation. Taking the centre stage at Sintra in Portugal, she cautioned central bankers by stating, “Central banks must continue to fight high inflation now, while also determining if — and how —monetary policy strategy may need to change in the future. This is, of course, no easy task.” She said it was time to confront the three uncomfortable truths of monetary policy. The first is that inflation is taking too long to get back to target. This means central banks, including the ECB, must remain committed to fighting inflation despite risks of weaker economic growth. The second is that financial stresses could generate tensions between central banks’ price and financial stability objectives. Achieving “separation” through additional tools is possible, but not a fait accompli. And the third is that going forward central banks are likely to experience more upside inflation risks than before the pandemic. Monetary policy strategies and use of tools such as forward guidance and quantitative easing must be refined accordingly.
While officials of the IMF or the World Bank can’t speak publicly as independent economists or public policy professionals, Garg believes Gopinath is good at bringing out the institutional view. “Given the constraints, she has reflected a very balanced opinion,” feels Garg.
With a third of the world in recession this year, the IMF believes 2023 will be a year of reckoning. Though economists believe that the U.S. economy will see a soft landing or a mild recession, Gopinath’s view reflects the cautionary stance of the IMF. “We can’t have sustained economic growth without a return to price stability. The good news is that while low inflation may seem elusive, it is certainly no stranger, and central bank actions can deliver it. Unlike the characters in Godot, we are not waiting for a potential stranger to arrive; we are inviting an old friend to return,” is how Gopinath summed up her remarks at the forum.
Going by the current state of affairs, Gopinath could well be right.