From Reuters:
Indian central bank governor Raghuram Rajan’s abrupt decision to quit came as he increasingly felt he lacked support from his political bosses Finance Minister Arun Jaitley and Prime Minister Narendra Modi, according to friends and colleagues.
A newspaper report a week ago that a selection panel would consider a field of candidates rather than directly offer the former IMF chief economist an extension to his three-year term, effectively forcing him to reapply for his own job, may have been the final straw, according to these people and a finance ministry source.
“He felt it would belittle the position of the RBI governor if he had to appear before the committee,” said one senior commercial banker who knows Rajan personally but had not spoken to him since his decision
.
“It would reveal a lack of government support. Rather than have two more years of constant quibbling, he decided to go.”
The darling of international investors was also upset that Jaitley had not backed him more strongly after criticism from Hindu nationalists of both his policies and his perceived lack of “Indian-ness”, the sources said.
Rajan joked when he took over the top job at the Reserve Bank of India in September 2013 that he wasn’t expecting to win any votes or Facebook ‘likes’ in the position.
But the hostility he had faced of late from elements of Modi’s ruling party was evidently greater than he had counted on, the sources said.
When Rajan decided to leave, he did so without warning and on his own terms: in a sign of growing tensions he did not inform top members of the government before releasing an open letter to staff on Saturday, a move that took investors and the government by surprise.
What a shame we didn’t chase him to be RBA governor, from Wikipaedia:
Rajan advocates giving financial markets a greater role in the economy. In the book Saving Capitalism from the Capitalists: Unleashing the Power of Financial Markets to Create Wealth and Spread Opportunity[21] co-authored with Luigi Zingales, the two authors argue in favour of deregulated financial markets in order to facilitate access of the poor to finance: “Capitalism, or more precisely, the free market system, is the most effective way to organise production and distribution that human beings have found … healthy and competitive financial markets are an extraordinarily effective tool in spreading opportunity and fighting poverty. …Without vibrant, innovative financial markets, economies would ossify and decline.” (p 1)
In 2005, at a celebration honouring Alan Greenspan, who was about to retire as chairman of the US Federal Reserve, Rajan delivered a controversial paper that was critical of the financial sector.[22] In that paper, “Has Financial Development Made the World Riskier?”, Rajan “argued that disaster might loom.”[23] Rajan argued that financial sector managers were encouraged to “take risks that generate severe adverse consequences with small probability but, in return, offer generous compensation the rest of the time. These risks are known as tail risks. But perhaps the most important concern is whether banks will be able to provide liquidity to financial markets so that if the tail risk does materialise, financial positions can be unwound and losses allocated so that the consequences to the real economy are minimised.”
The response to Rajan’s paper at the time was negative. For example, former U.S. Treasury Secretary and former Harvard President Lawrence Summers called the warnings “misguided” and Rajan himself a “luddite”.[24] However, following the 2008 economic crisis, Rajan’s views came to be seen as prescient; by January 2009, The Wall Street Journal proclaimed that now, “few are dismissing his ideas.”[23] In fact, Rajan was extensively interviewed on the global crisis for the Academy Award-winning documentary film Inside Job. Rajan wrote in May 2012 that the causes of the ongoing economic crisis in the US and Europe in the 2008–2012 period were substantially due to workforce competitiveness issues in the globalisation era, which politicians attempted to “paper-over” with easy credit. He proposed supply-side solutions of a long-term structural or national competitiveness nature: “The industrial countries should treat the crisis as a wake-up call and move to fix all that has been papered over in the last few decades… Rather than attempting to return to their artificially inflated GDP numbers from before the crisis, governments need to address the underlying flaws in their economies. In the United States, that means educating or retraining the workers who are falling behind, encouraging entrepreneurship and innovation, and harnessing the power of the financial sector to do good while preventing it from going off track. In southern Europe, by contrast, it means removing the regulations that protect firms and workers from competition and shrinking the government’s presence in a number of areas, in the process eliminating unnecessary, unproductive jobs.”[25]
During May 2012, Rajan and Paul Krugman expressed alternate views on how to reinvigorate the economies in the US and Europe, with Krugman mentioning Rajan by name in an opinion editorial. This debate occurred against the backdrop of a significant “austerity vs stimulus” debate occurring at the time, with some economists arguing one side or the other or a combination of both strategies.[26][27][28] In an article in Foreign Affairs magazine, Rajan advocated structural or supply-side reforms to improve competitiveness of the workforce to better adapt to globalisation, while also supporting fiscal austerity measures (E.g., raising taxes and cutting spending), although he conceded that austerity could slow economies in the short-run and cause significant “pain” for certain constituencies.[25][29]Krugman rejected this focus on structural reforms combined with fiscal austerity. Instead he advocated traditional Keynesian fiscal (government spending and investment) and monetary stimulus, arguing that the primary factor slowing the developed economies at that time was a general shortfall in demand across all sectors of the economy, not structural or supply-side factors that affected particular sectors.[30]
In a 2014 interview, Rajan said his major targets as governor of the Reserve Bank of India were to lower inflation, increase savings and deepen financial markets, of which he believed reducing inflation was the most important. A panel he appointed proposed an inflation target for India of 6% for January 2016 and 4% (+-2%) thereafter.[18]
A focus on finance for commerce not itself would be most welcome in Australia, as would one of supply side reform to repair Australia’s ossified oligopolies, and a deep understanding of development economics to put on notice our thriving Banana Republicans.
A history of open debate and of standing up to authority would also help revive the RBA’s horrendous proclivity for group think, as well as put a rocket under fiscal authorities.
Such a man of outstanding character could also help clean out the remnants of the greatest central banking corruption scandal in history, as well as begin to repair the RBA’s sullied reputation.
Finally, Rajan appears to have had a salary of around $40k per annum so he could have restored the spirit of public service ruined by Glenn Steven’s grasping of the $1m.
Nah, give it to Phil Lowe for 25x as much!
