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Harvard’s Carmen Reinhart Named World Bank Chief Economist

Eric Martin
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Harvard’s Carmen Reinhart Named World Bank Chief Economist

(Bloomberg) -- The World Bank named Harvard University professor Carmen Reinhart as its chief economist, tapping an expert in the history of debt and financial crises as the global economy suffers its deepest downturn since the Great Depression.

The appointment is effective June 15, President David Malpass said in a statement Wednesday. Reinhart is known as co-author, with Kenneth Rogoff, of the 2009 book “This Time Is Different: Eight Centuries of Financial Folly.” The book made them go-to resources on the history of government defaults, recessions, bank runs, currency sell-offs, and inflationary spikes.

Reinhart joins the World Bank at a time when Malpass has expressed concern that 60 million people may fall into extreme poverty due to the COVID-19 pandemic. Malpass this week urged private creditors and the world’s poorest nations to accelerate debt relief talks to help mobilize resources for healthcare and the economy, and he expressed frustration about the slow pace of progress.

“Carmen is a highly regarded economist who will bring a lot to some of the leading challenges facing the bank in the current environment,” said Scott Morris, a senior fellow at the Center for Global Development. “Like it or not, the World Bank is in the crisis management business for the foreseeable future, and Reinhart brings a wealth of knowledge to this work.”

Reinhart previously was a senior fellow at the Peterson Institute for International Economics, as well as a senior policy adviser and deputy director at the International Monetary Fund. She was also chief economist at Bear Stearns in the 1980s, preceding Malpass in that role.

Reinhart, who was born in Cuba and moved to the U.S. with her family as a child, is the third person in the past three years to hold the position of World Bank chief economist. Penny Goldberg departed in March, and before that, Paul Romer resigned in January 2018. He won the Nobel Prize in economics later that year.

In an interview with Bloomberg Markets Magazine published this week, Reinhart said the global economic recovery “is unlikely to be V-shaped, and we’re unlikely to return to the pre-pandemic world.”

“One thing that’s clear is the numbers are going to look spectacularly great in some months simply because you’re coming out from a base that was pretty devastated,” she said. “That doesn’t imply that per capita incomes are going to go back in V-shape to what they were before.”

‘Unsustainable Debt’

She also warned of a “very broad” hit to emerging markets from the virus and collapse in oil prices, adding many will need help paying their debts and that China will have to provide relief, given that its role as a lender has grown in recent decades.

“She is a great choice, particularly at this moment,” said Brad Setser, an economist at the U.S. Treasury Department during the Obama administration who is now at the Council on Foreign Relations. “ She really understands the risks that come with large amounts of external borrowing.”

Reinhart and Rogoff, also a professor at Harvard, were criticized in 2013 for a 2010 paper where they concluded that countries with public debt greater than 90 percent of gross domestic product suffered slower economic growth. The economists, in response to a paper by researchers from the University of Massachusetts at Amherst, acknowledged that they had inadvertently left some data out of their calculations in the study. The error didn’t change their basic findings, the Harvard economists said.

Read more: What Alternative Data Says On Downturn, Recovery

Reinhart’s expertise on sovereign debt will be valuable at a time of stress for many economies, said Mark Sobel, a former U.S. Treasury official now at the Official Monetary and Financial Institutions Forum, a think-tank focused on economic policy and central banking.

“That is likely to prove extremely important because the crisis will undoubtedly force many countries into unsustainable debt positions,” Sobel said.

(Updates with Bloomberg Markets interview in eighth paragraph.)

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