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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Geta Gopenath has been Deputy Managing Director of the International

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Speaker 2: Monetary Fund during one of the most transformative economic periods

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Speaker 2: in modern history, including the pandemic, inflation shock, and the

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Speaker 2: push to deglobalized. After seven years at the IMF, she's

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Speaker 2: stepping down tomorrow and joined us now for a final conversation.

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Speaker 3: Geta.

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Speaker 2: Welcome back to Bloomberg Surveillance, and thank you for sharing

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Speaker 2: your time with us this morning.

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Speaker 3: Let's start there. Let's look at your.

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Speaker 2: Time at the International Monetary Fund. Just how much has

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Speaker 2: changed over almost a decade.

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Speaker 4: Hi, I'm a pleasure to join you. Pretty much. I

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Speaker 4: think everything has changed. I started at the IMF in

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Speaker 4: twenty nineteen, and that feels like that was the calm

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Speaker 4: before the storm, and you had the pandemic, you had

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Speaker 4: warn Ukraine, and now geoeconomic fragmentation. I think the global

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Speaker 4: economic order is transforming in ways we haven't seen in decades,

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Speaker 4: and it's still highly unclear where the global economy will settle.

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Speaker 4: I think the second big difference between twenty nineteen and

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Speaker 4: now is on the fiscal front. Death levels are incredibly high,

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Speaker 4: they are ever increasing and while in the past you

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Speaker 4: might have said, so what markets will take it, that's

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Speaker 4: not the case anymore, even in advanced economies. You see

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Speaker 4: that in France, the UK, and also in terms of

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Speaker 4: long yields in the US. And I say that third

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Speaker 4: big change is on technology. AI over the last few

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Speaker 4: years has certainly cut the imagination of everybody. Huge promise

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Speaker 4: but also huge risks.

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Speaker 1: How has the IMF's for all changed during this period,

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Speaker 1: given that it was set up under a very different

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Speaker 1: infrastructure at a time, and a lot of people are

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Speaker 1: saying we're now in the post Breton Woods.

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Speaker 4: Era, the IMF has great experience dealing with turbulence. You know,

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Speaker 4: there was a period when you had the end of

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Speaker 4: Breton Woods going off the fixed exchange rate to the

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Speaker 4: dollar and the dollar to gold. That change happened and

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Speaker 4: the IMF adapted, and we are obviously now in a

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Speaker 4: world with big shifts in terms of how countries work

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Speaker 4: with each other. The IMF has always functioned as trying

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Speaker 4: to do the art of the possible, which is due

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Speaker 4: the best you can given the constraints, and done it

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Speaker 4: very successfully. So if ever there was a time for

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Speaker 4: this institution, it's super important now it has the ability

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Speaker 4: to bring different countries together around the table, good discussions

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Speaker 4: to happen in the economy. On the outlook, again, a

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Speaker 4: very vital institution for the world.

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Speaker 1: Do you see a risk that it doesn't survive though

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Speaker 1: at a time when funding is really in question with

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Speaker 1: a lot of major economies, we've seen China go it alone.

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Speaker 1: There have been questions about the United States.

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Speaker 4: Firstly, the IMFs funding structure doesn't rely on any budgetary

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Speaker 4: support from any country, so it's in a very strong

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Speaker 4: place because of that, and everything we've seen so far

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Speaker 4: points to all the members wanting the IMF to continue

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Speaker 4: functioning as it has. We work very closely with the

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Speaker 4: US administration. That engagement is going extremely well, but also

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Speaker 4: the other one hundred and ninety member countries that we

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Speaker 4: have so as of now, lots of support. Of course,

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Speaker 4: the environment has changed and the IMF is going to

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Speaker 4: adapt to it in this new geopolitical environment that we have,

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Speaker 4: but it has a lot of experience dealing with these

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Speaker 4: kinds of events.

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Speaker 1: One thing that you've done during your tenure at the

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Speaker 1: IMF is really study the change in the geopolitical relationship.

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Speaker 1: You've talked a lot about that including the reliance on

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Speaker 1: the dollar, and that's been a point of big speculation

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Speaker 1: of late in markets as well. How much you actually

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Speaker 1: seeing worldwide nations try to shift to alternatives from the

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Speaker 1: green back, this idea of insulating themselves from some of

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Speaker 1: the policy uncertainty that have made a lot of headlines

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Speaker 1: this year.

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Speaker 4: So we do see small shifts on the margin. We

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Speaker 4: are seeing countries diversifying out of the US, but again

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Speaker 4: on the margin because they were so exposed to the

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Speaker 4: US averal of them are hedging against dollar risk.

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Speaker 5: We're seeing some of that too.

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Speaker 4: But I think the narrative that somehow something is dramatically

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Speaker 4: changed about the behavior of the dollar, it's really too early.

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Speaker 4: People point to the correlation between what's happening with long

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Speaker 4: term bond eels and the strength of the dollar and saying, well,

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Speaker 4: that's changed, and therefore something has changed dramatically.

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Speaker 5: That's not the case. We take long enough period.

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Speaker 4: The relationship between the dollar and borrowing costs is you know,

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Speaker 4: it can move in different ways, so there's nothing unprecedented.

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Speaker 4: But of course these are still early days. We shall

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Speaker 4: see where all of the shifts in the global economic

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Speaker 4: order are headed. And I think that's the source of

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Speaker 4: tremendous uncertainty that's still weighing on the world economy.

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Speaker 1: How much has any perceived loss of FED independence changed that?

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Speaker 1: And we've been talking about how there's this dissonance between

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Speaker 1: the commentary by a lot of analysts and economists about

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Speaker 1: the fear of some sort of loss of independence and

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Speaker 1: then a lack of market reaction that you would kind

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Speaker 1: of expect on the other side. Are you seeing any

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Speaker 1: shifts that maybe are less visible.

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Speaker 4: I think everybody agrees, and this would be markets and

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Speaker 4: economic professionals, policymakers. Everybody agrees that central bank independence is critical,

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Speaker 4: launetary policy independence is critical. So if we are not

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Speaker 4: seeing much market reaction, it must be that people think

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Speaker 4: that well, that independence is still intact, that independence has

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Speaker 4: been critical to bring down inflation from the high levels

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Speaker 4: we saw post pandemic inflation. Expectations were anchored because of that,

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Speaker 4: inflation came down.

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Speaker 5: So I don't think there's any ibsen butts about that.

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Speaker 4: It must be that everybody still believes that independence, especially

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Speaker 4: operational independence in terms of setting luntary policy rates, will

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Speaker 4: be maintained.

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Speaker 1: So you reject the idea that the market's just somehow

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Speaker 1: ignoring a reality or something like that. You think the

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Speaker 1: market's speaking and that we should listen to the market.

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Speaker 4: Oh, I just think that everybody at this point is

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Speaker 4: functioning on the fog of uncertainty. There's really a lot

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Speaker 4: of information thrown out there.

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Speaker 5: Separating the week from the chef.

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Speaker 4: It's not that easy, and so I think everybody is

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Speaker 4: on wait and see mode. And right now, at least,

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Speaker 4: of course, I think that the markets are putting very

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Speaker 4: very low probability on any big negative event that may

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Speaker 4: be excessive. I think is more to worry about than

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Speaker 4: what the markets are showing right now. But again, we

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Speaker 4: should have to wait and see.

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Speaker 3: GATA. Let's put some of these things together.

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Speaker 2: If you look at developments in the UK, in France,

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Speaker 2: the inability to address fiscal concerns and find that additional

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Speaker 2: fiscal space, the latest developments here in America as well,

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Speaker 2: are you witnessing Do you think we're witnessing a convergence

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Speaker 2: between the kind of dynamics we typically see an EM

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Speaker 2: with DM and do you think those terms are useful anymore?

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Speaker 3: In quite the same way.

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Speaker 4: I think we have certainly moved away from the case

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Speaker 4: of advanced economies rich economies can keep increasing their debt,

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Speaker 4: which is what's projected to happen, and there's not much

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Speaker 4: to worry about. I think we certainly pass that major

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Speaker 4: economies are beginning to worry about what's happening to their eels.

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Speaker 4: You're seeing that it's a major concern in France right

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Speaker 4: now as we speak. But even in the US long

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Speaker 4: term meals are basically back to pre GFC level. We

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Speaker 4: are away from that world of a big global savings glucked,

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Speaker 4: away from that world of central banks buying large amounts

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Speaker 4: of government assets.

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Speaker 5: So I think it would be really.

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Speaker 4: Complacent for any government, rich or poor to say that, well, no,

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Speaker 4: our debt will always be bought. And I think one

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Speaker 4: point I want to make is that we talk about

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Speaker 4: resilience for the global economy, which has been really the

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Speaker 4: the positive of these last many years, despite all these shocks.

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Speaker 5: But we should recognize that the reason we've seen resilience.

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Speaker 4: Is because we haven't had a financial crisis. Despite the pandemic,

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Speaker 4: despite wards, despite geoeconomic fragmentation, despite FED rates going up

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Speaker 4: very sharply, we've not had a financial crisis. That doesn't

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Speaker 4: mean that that will never happen. We have very high

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Speaker 4: levels of debt around the world. I think bond markets

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Speaker 4: are in.

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Speaker 5: A fragile place.

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Speaker 4: You have valuations in equity markets that are sky high.

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Speaker 4: So I would say trede carefully because if you do

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Speaker 4: have a financial crisis, we know those the scarring that

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Speaker 4: comes from that is long lasting.

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Speaker 1: And when you talk about a financial crisis, some people

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Speaker 1: are wondering what can potentially trigger it. Are you saying

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Speaker 1: that the sovereign debt market of developed markets is of

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Speaker 1: the greatest concern at this point?

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Speaker 4: I mean, usually when you get a financial crisis, it's

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Speaker 4: a combination of events that can trigger it, right, And

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Speaker 4: so if you have multiple markets that seem to be

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Speaker 4: in a vulnerable position, you could end up with a

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Speaker 4: negative event, right.

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Speaker 5: And so the bond.

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Speaker 4: Markets what you're seeing with very high levels of debt

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Speaker 4: fragility associated with that equity valuations that are very high. Yes,

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Speaker 4: there's the promise that maybe AI will truly transform the world,

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Speaker 4: but as we know from the dot com even a

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Speaker 4: technology like the Internet that did transform the world went

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Speaker 4: through a boombus cycle. So that combination non bank financial

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Speaker 4: institutions we've never had a crisis, well, they've been as

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Speaker 4: large as they are right now. The amount of corporate

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Speaker 4: borrowing that's happening with nbfis much higher than pre twenty nineteen.

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Speaker 4: So there's a lot that looks stretched at this moment.

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Speaker 4: And at the same time, I think the world economy

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Speaker 4: is gambling with all kinds of new policies. So I

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Speaker 4: would say treade carefully make sure that financial supervision and

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Speaker 4: regulation is continued. See what needs to be done with

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Speaker 4: nbfis what's the appropriate level of supervision and regulation that's

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Speaker 4: required over there?

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Speaker 5: All of that is going to be very important.

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Speaker 1: So you're leaving the IMF and you're going back to Harvard,

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Speaker 1: a university that you've known very well. What are you

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Speaker 1: going to be doing there and how important is it

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Speaker 1: for you to really get this sense back in the

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Speaker 1: economics profession of pure research and true rigor versus some

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Speaker 1: of the politicization that we've seen recently.

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Speaker 4: So I think the reason that the economics profession has

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Speaker 4: been able to contribute so well over these last few

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Speaker 4: years is because in the phase of unprecedented shocks, you

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Speaker 4: really need to go back to some of your training

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Speaker 4: to figure out how you're going to respond to a

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Speaker 4: pandemic that you haven't seen in one hundred years or

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Speaker 4: war in Europe, right, So having that base of knowledge

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Speaker 4: is very important. But at the same time, I think

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Speaker 4: the economics profession has to recognize that there is something

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Speaker 4: of a trust deficit, especially with mainstream economists, and how

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Speaker 4: do we get over that. There's broad consensus in the

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Speaker 4: economics profession that open trade, central bank independence super important.

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Speaker 4: Those are the crown jewels for good economic policy, and

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Speaker 4: yet the policy direction is away from that.

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Speaker 5: So I think there is absolutely.

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Speaker 4: Some bit of soul searching, some bit of stepping back

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Speaker 4: and asking yourself, how do you solve this trust episode?

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Speaker 4: How do you make sure this in this new world

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Speaker 4: of communication, that the good ideas still come through?

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Speaker 3: GETA.

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Speaker 2: You've always been generous with your time. We appreciate it

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Speaker 2: and we wish you the best of luck. Thanks for

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Speaker 2: sharing your time with us this morning.

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Speaker 3: Thank you. Good to go open at the IMF