Raghuram Rajan said Gita Gopinath's new job requires much more than insightful economic thinkingGita Gopinath has a knack for asking kind of questions that, not so long ago, might have raised eyebrows inside International Monetary Fund, where she just took over as chief economist.What if more emerging markets actively managed their currencies, like China does What if an influx of capital risks sapping a nation's productivity, not boosting itInterrogating data for answers, and using them to poke holes in conventional playbooks for economic policy, was a hallmark of 47 year old Gopinath's work at Harvard.
Now she'll be expected to recommend practical fixes -- at a turbulent moment when free-market principles promoted by Fund for decades are under attack.Especially in borrower countries like Greece and Argentina, IMF still gets portrayed as an enforcer of one-size-fits-all policies based on austerity and unimpeded flow of goods and money.
But that's been out of date for a while now.
Fund economists advocated debt relief in Greece.
They've said capital controls can be useful, and cautiously backed redistributive taxes.
When Argentina had to find budget savings, they insisted that poor shouldn't bear too much of burden.Don't Be DogmaticThe shift is likely to continue under Gopinath, who became first woman to hold one of most influential jobs in economics when she took over from Maurice Obstfeld this month.
She'll oversee Fund's research, including its closely watched growth forecasts at a time when uncertainty is mounting.The IMF on Monday downgraded its global outlook for second time in three months to show weakest expansion this year since 2016.
More than a decade since IMF and other economists failed to predict financial crisis, Gopinath used her debut press conference to highlight mounting risks, including trade war and tightening credit.In her new role, Gopinath plans to use "broadest lens possible" in search of solutions.
Part of her job will be to review fund's loan programs, giving her a voice in practical policy making."A rethink of globalization is pressing,'' and it should address distribution of benefits as well as impact of new technologies, she said in an emailed response to questions.In her academic career, Gopinath has been willing to follow empirical evidence wherever it leads."What Gita's thinking has pointed out is, let's not be dogmatic,'' said Mohamed El-Erian, chief economic adviser at Allianz SE and a former IMF economist.
"With all uncertainties that global system is having to navigate, it's reassuring that at IMF, you have someone like Gita.''She's an authority on one key part of that system: currency regimes.
The Fund has tended to back floating exchange rates for reasons laid out by Milton Friedman.
Allow currency to fall, theory goes, and exports become cheaper relative to imports, so country can sell more goods abroad and boost growth.Gopinath's research suggests that reality is more complicated -- and dollar dominance is one reason why.
For example, Japan-U.S.
trade is overwhelmingly priced in greenbacks -- so a weaker yen doesn't trigger a corresponding jump in Japanese exports.Crawling PegsThat undercuts argument of those, like President Donald Trump, who accuse competitors of gaming their currencies to gain an edge.
It also complicates matters for IMF, whose charter requires members to avoid "discriminatory'' currency practices.The Fund has struggled to develop a consistent policy, said James Boughton, a senior fellow at Centre for International Governance Innovation.
In between fixed and floating currencies lies a bewildering range of options -- from Botswana's "crawling peg'' to China's "stabilized arrangement.''"Gopinath's research interests and expertise could really help,'' said Boughton, who was IMF's official historian for two decades.
"She's been well grounded in practical consequences of exchange-rate policies, without getting bogged down in ideology.''It's far from an academic matter.
Rising U.S.
interest rates hammered emerging-market currencies last year.
Argentina, whose peso collapsed, turned to IMF for a record $56 billion bailout.
The deal permits central bank to intervene, but only outside a specified peso range -- an example of hybrid approach backed by Gopinath's work, according to El-Erian, who writes columns for Bloomberg Opinion."Exchange rates can overshoot, and overshoot for a long time,'' he said.
"We have to consider different ways of approaching that issue.''Communist KerfuffleAnother Gopinath research topic is impact of capital flows.
She looked at southern Europe and found a "significant decline'' in productivity because money that poured in after euro's launch wasn't allocated efficiently.
The IMF, which once considered capital controls taboo, now sees them as potentially useful stabilizers when markets seesaw.To Gopinath, these are technical questions, not articles of faith.
She sees herself as not beholden to any political ideology.
She was surprised when a kerfuffle broke out over her appointment in 2016 as a government adviser in Kerala.
Some members voiced fears that Gopinath would impose "neoliberal'' policies.At IMF, too, it won't be easy to stay out of political fray.The Fund is a pillar of global order enshrined after World War II and now showing signs of strain.
Its headquarters are in Washington, three blocks from White House -- where Trump issues periodic threats to pull America out of multilateral institutions it created.
Relations are tense: The IMF has slammed Trump's trade war as a threat to world growth, while U.S.
Treasury has rejected a boost in IMF funding.In that climate, Gopinath's new job requires much more than insightful economic thinking, according to Raghuram Rajan, who held post last decade.
She'll "find her way,'' said Rajan, who's also a former chief of Reserve Bank of India.
But she'll have to be, if not a politician, then at least a diplomat."It's not an easy situation for anyone, because of political tensions,'' he said.
"It's a very visible position.
And she will have to tread carefully.''