Why Brexit Britain needs Raghuram Rajan as BoE chief

Raghuram Rajan has delivered some uncomfortable economic truths in a career spanning the International Monetary Fund and powerful positions in his native India. The question is whether Brexit Britain is ready to hear them from another foreign Bank of England Governor.

The only outsider

The job of stewarding the UK’s monetary policy and maintaining its financial stability has rarely been more political, and Rajan is the only outsider among the top contenders in the running to replace Mark Carney, according to bookmakers and economists who follow the 325-year-old institution.

Carney’s tenure has been overshadowed by the convulsions over Brexit, with some hardliners in the governing Conservatives accusing the Canadian of exaggerating the economic pain and underplaying the benefits of leaving the European Union. As the party chooses a new leader following the resignation of Prime Minister Theresa May, her potential successors have vowed to deliver Brexit, and the latest deadline is October 31.

Rajan has made sympathetic noises toward the UK’s dilemma, particularly the disillusionment in parts of the country that fuelled the Brexit vote. He told the Times newspaper in March, though, that success depends on the UK reengaging with the world.

That would start with his appointment, according to David Blanchflower, an economics professor at Dartmouth College and a former Bank of England policymaker. The other top candidates for the job, including front-runner Andrew Bailey, already work at the bank or financial regulator.

“It is a pretty unimpressive bunch, with Rajan sitting head and shoulders above the rest of them,” said Blanchflower. “The problem is, why would anybody want to put themselves in the position of having to deal with Brexit”?

Rajan, 56, a professor at the Chicago Booth School of Business, declined to comment about his potential candidacy when contacted by Bloomberg, as did the Bank of England.

The UK Treasury, which is responsible for hiring the next governor, declined to comment on who had applied by last week’s deadline. Chancellor of the Exchequer, Philip Hammond, has stressed the need to look internationally for the next appointment, though it’s not clear if he will still be in his job when the decision is made.

The right track record

What is clear, though, is that Rajan has the right sort of track record. He was chief economist of the IMF from 2003 to 2006, and then worked as an adviser to the Indian government before becoming governor of the Reserve Bank of India in 2013.

At the elite Jackson Hole annual economic gathering in 2005 when he was at the IMF, Rajan warned that risks were building up in the global financial system. At the time, former US Treasury secretary Larry Summers criticised Rajan as a luddite. Three years later, Lehman Brothers collapsed.

As RBI Governor, Rajan introduced inflation targeting and led an effort to clean up bad loans in the banking industry. He remained for just one three-year term running RBI after heavy criticism from segments of the government for offering opinions on matters unrelated to monetary policy.

Subramanian Swamy, an outspoken lawmaker in Prime Minister Narendra Modi’s ruling party, said Rajan was mentally not fully Indian and kept interest rates too high.

In 2016, Swamy wrote a letter to Modi calling for Rajan to be either fired or dismissed at the end of his term.

In his 2017 book, I do what I do , Rajan said he warned the government against demonetisation an attempt to withdraw cash from circulation saying the short-term economic costs would outweigh the long-term benefits. “He handled some very treacherous shoals very well,” said Anne Krueger, a former IMF first deputy managing director who helped recruit Rajan. “He did not cave under political pressure, and on the other hand he did the best he could to advance what he thought was right.”

Political attacks have also been a hallmark of Carney’s time at the Bank of England. Pro-Brexit lawmaker Jacob Rees-Mogg at one point called him a second-tier Canadian politician who failed to get a job at home as well as an enemy of Brexit.

Rajan has indeed hinted the role could be too politically fraught. “Central banking jobs are very polluted,” he said in an interview last week.

“You have to have a very good sense of where the political terrain lies and how far you can go without upsetting the balance.” Bloomberg

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