Gita Gopinath, thank you so much for joining us.
Welcome to The Daily Social Distancing Show.
Thank you, Trevor. I'm just happy
that you want to talk to an economist.
(chuckles) I think economists are some of the people
we need to speak to the most right now.
Because, um, money is going to be
the second biggest "loser," I guess, in coronavirus.
Obviously, human life comes first,
and then you have money,
which people need to sustain themselves and survive.
As the IMF, you lend money to countries,
which means you can learn a lot
about what countries are going through and what they need.
What have you garnered, you know, from...
from your insights into what countries need right now?
So, the first thing I just want to flag, uh, Trevor,
is that we've had over 90 countries, uh, come to us
to discuss financial assistance.
And so this is unprecedented.
It hasn't happened before.
So it tells you the scale of the crisis
that we're dealing with.
Uh, and I think what we need to keep in mind
is this crisis is very different from any others we've seen.
You know, the Great Depression,
the Great Recession, which is the global financial crisis,
and now this is the Great Lockdown
that we're living through.
So, it... So, firstly, the shock is so unique.
I mean, like you said, this is a human tragedy first.
-Mm-hmm. -It's a health crisis.
This is not something that we're used to.
Second, in terms of helping countries
and telling them to think about what comes next,
there's so much uncertainty
because economic policy is not going to be able
to determine the spread of the virus
or-or how intense it's going to be
or how many deaths there will be.
-Mm-hmm. -All of that comes from public health and science.
And the third factor is that while in the past,
if you lent a country money and you told them to spend it,
uh, that would stimulate activity.
But this time around,
we actually don't want people to go out and spend.
We want them to stay at home.
So, this is about maintaining their economic system
so that when this disease is under control,
uh, you can see a faster recovery.
I know this may sound like a really stupid question,
but is there a point where money just runs out?
If-if very few people are working,
if everything is shut down,
if nobody is moving money around,
earning money, spending money,
is there a point where governments say,
"We don't have..."
Or what-what happens at that point?
What is the tipping point that, as an economist,
you're worried about?
So, this is a crisis where,
given the scale of spending that we're seeing,
we're going to see countries
running very large fiscal deficits
with their debt-to-GDP going up quite substantially,
with central banks putting in a lot of stimulus.
Now, now, in theory, central banks can always put in
as much stimulus as they want to.
With that said, there are limits to what they can also do.
But this is a real challenge
that countries are grappling with.
But that said, you have to think about the counterfactor,
which is if you don't do what you're doing now,
you could actually end up in a worse situation
because the economic activity would collapse so severely
that your debt-to-GDP would be even worse.
Right? So, things could be worse
if you didn't do what was needed right now.
And I think that is something
everybody recognizes at this point.
Some people have argued that the economy
could be put into a coma right now,
and it-it's not, in effect, dead
because unlike the Great Depression
and unlike the recession, as you said,
there isn't, you know,
a-a real underlying cause in the same way.
It's not, you know, it's not a-a loophole
in the market that's causing something,
or it's not a failure in real estate that's happened.
It's an... It's a strange thing
that's affected the entire market,
and some argue that that means
we can experience a huge jump afterwards
where everything goes back to normal.
Can that happen? And if so,
how long would it take for that to happen?
Uh, great question, Trevor. I...
So, to answer the question of what comes next,
I think besides economists and policymakers,
it's going to depend a lot on what health experts tell us.
Right? Because it's not going to be possible
to bring the economy back up to 100%
if we don't get this particular virus under containment.
So, there's that huge piece that's there.
Now, it is true that if all of this levels out
and you're seeing some hopeful signs in some countries,
you see some leveling off,
then you can see a scenario
where, you know, activity resumes going forward.
So, in fact, our projection is that 2021
will be one of, uh, recovery.
But there's so much uncertainty at this point.
If this... If the containment measures work
and this is not a very prolonged period,
if people can get back to work much more quickly,
then we can think about a rebound coming.
Uh, you know, and policies that have been put in place,
if they're effective, then we can see a rebound happening.
So, before I let you go, we-we're obviously talking
about the economics of-of a health crisis
that has affected every aspect of human life.
Policymakers, as you've said many times,
are going to be instrumental
in deciding how governments respond
and how nations are, in fact, going to be affected
and how their people are affected.
What is the advice you've given to leaders out there
in how they figure out what to do with their economies?
So, the first thing we... Uh, first advice we've given
is that when it comes to matter of health, do whatever it is.
Right? Do the spending that's needed
to protect people's lives,
to protect medical professionals,
first responders,
because that is the number one thing
that countries need to care about at this time.
Secondly, it is very important
to make sure that people who are losing jobs have ac...
have... can maintain a basic lifestyle.
So, they have the income to be able to, uh, feed themselves,
to take care of their health.
You know, basic services have to be provided to them.
And it's very important to make sure that firms
and small and medium enterprises
have the resources that they need
so that they can stay alive
so that once we pass this phase,
we can see a recovery happening much faster.
Well, I hope they take your advice.
Thank you so much for taking your time
to explain some of this to us.
And, uh, I hope that you're right,
and I hope it happens sooner than later.