Will new IMF chief economist remodel it?

Last week, the International Monetary Fund (IMF) appointed tenured Harvard economics professor Gita Gopinath as its new Economic Counsellor and director of the institution’s research department.

Today, I wish to digress from applied economics and delve into the more technical subject of macroeconomics – how does the future look for IMF macroeconomics framework in light of the incoming IMF chief economist.

To begin with, her appointment is a big win for the “girl power” movement, the economics profession is characterized by a serious gender diversity problem bigger than STEM, according to the American Economics Association. Graduating from Delhi School of Economics in India Gita rose to become a tenured Harvard economics professor at the age of 38.

She is the third woman in the history of Harvard to be a tenured professor at its esteemed economics department. To show how this is not an ordinary achievement, Janet Yellen former Federal Reserve chairman (the only woman to serve in that position) with her impeccable qualification years back failed to get a tenure as a Harvard professor.

Now, eight years after becoming the third woman tenured Harvard professor, Gita will begin 2019 as the first female IMF chief economist. In her new role, she will lead the IMF research team in constantly monitoring the global economy as well as comb through and influence IMF member countries macroeconomic policies.

Her appointment comes at a time when IMF conservative macroeconomic framework; its view of what constitutes macroeconomic stability, its failure to take “needs-based” approach in assessing countries macroeconomic framework, and too-tight structural reforms – continues to be heavily criticised by macroeconomics practitioners.

After failing to foresee the 2007-2008 financial crisis, the confidence in the institution as an expositor of macroeconomics has been waning among practitioners. Then came the Greece financial crisis which dented the credibility of the institution further after disastrously miscalculating the impact of its structural adjustment proposed to Greece.

The institution was forced to admit that it had actually underestimated the Greece crisis when it mandated structural reforms that proved ineffective and counterproductive whilst designing the recovery plan.

Nobel laureate Joseph Stiglitz, a former World Bank chief economist, is one of the biggest critics of IMF macroeconomic framework saying the institution advocates for flawed economic policies with its “quick-fix” structural reforms and calls for drastic austerity measures when economies faces a shock.

Though it has in the recent past been stating that it has moved away from structural adjustment programmes there is evidence of IMF-mandated structural adjustment programmes being used in many developing countries in the global south.

In Africa, macroeconomics in general is losing confidence and to some extent a number of African countries have in fact been accused of manipulating their GDP numbers and macroeconomic data, which is happening under the watch of IMF.

In his book, ‘‘Poor Numbers: How we are misled by African development statistics and what about it’’, economist Morten Jerven describes how atrociously inaccurate macroeconomic data of sub-Saharan Africa economies are, thereby misleading when using them to assess their economic performances.

With majority of IMF clients coming from the developing economies in the global south, Gita is already tasked with redefining the image of modern macroeconomics, more specifically the IMF macroeconomic framework.

A number of influential economists led by Paul Volcker (former Fed Chairman) have already come together a new global community of scholars called the Institute of New Economic Thinking to try and redefine the current macro-economic models that dominate the field.

But what is promising about Gita’s appointment is that since she comes from India and has been closely analysing India’s economic performance, also acting as an advisor on economic Affairs to India’s Kerala State, the optimism is that she intuitively understands the macroeconomics upheavals in developing economies.