Yes, we can! Let's make Subbarao the IMF chief

In an interconnected world, the arc of history bends to connect seemingly unrelated events. And even when it doesn’t, we can on occasion bend it to our advantage.

[caption id=“attachment_10532” align=“alignleft” width=“380” caption=“RBI Governor D Subbarao should spread his wings and heal the monetary world. Reuters”] [/caption]

We are at just such a moment following the sensational arrest of IMF’s Managing Director Dominique Strauss-Kahn for allegedly sexually assaulting a hotel maid in Manhattan.

Equity and currency markets around the world are nervous as hell because Strauss-Kahn’s exit has plunged the ongoing talks to resolve the European debt crisis into disarray. Greece, that blessed country that operates in a parallel economic universe , is on the verge of a technical default on its debt, the consequences of which will have serious consequences on global markets.

With Strauss-Kahn now cooling his heels in the slammer, Eurozone has lost a man who lent considerable heft to the talks to resolve the debt crisis. The IMF has named Deputy Managing Director John Lipsky to step up, but - here’s the problem - the man is already counting down the days to his retirement in August.

In other words, just when the global economy needs a steady hand at the till at the IMF to calm its frayed nerves, the organisation finds itself headless - and mired in scandal.

Fortunately for the world, the hour produces the man. And India can serve up just such a steady hand to head the IMF: our very own RBI Governor Duvvuri Subbarao.

The circumstances for the ascension of an Indian to the top job at the IMF have never been more propitious.Just last month, British Prime Minister David Cameron, in an interview to BBC4 , said it was about time the IMF looked to pick a leader from “another part of the world” (than the developed West).

“It may well be that actually when you think that the IMF has got to be listened to and taken seriously by countries not just in the West but all over the world, it may well be that it’s time to actually have a candidate from another part of the world in order to increase its standing in the world.

“If you think about the general principle, you’ve got the rise of India and China and South Asia, a shift in the world’s focus, and it may well be the time for the IMF to start thinking about that shift in focus.”

Cameron was saying this principally to spite his predecessor, Gordon Brown , but why should that inhibit us? Why can’t we pay the Brits back in their ‘divide-and-rule’ coin and leverage their dissensions to our advantage?

When it comes to a showdown between the Indian and the Chinese central banks over monetary policy management, the RBI knocks the People’s Bank of China out of the ballpark.

The RBI is, in the assessment of internationally renowned economists, arguably the “world’s best central bank.” Indicatively, in an interview to Firstpost (which you can watch here ), economist Dr Jim Walker compared the central banks in India and China.

“The RBI continues to be one of the best central banks around for monitoring the people under its supervision - which is the Indian banking system. It picks up on problems within specific banks very quickly and forces them to make specific provisions or change its risk asset weightages on property, on mortgages… In that sense, the RBI is still a model central bank.

“This is the contrast between India and China. In India, we’re looking at 13-14% interest rates, which send a disciplinary signal to the private sector… The discipline of high interest means you get very high returns and the result of that usually is that a private non-financial corporate sector that can sustain their companies in downturns because they have such a high margin on their investments. You get exactly the reverse in China.”

As the man who heads the RBI today, Subbarao hasn’t hesitated to take harsh decisions when they were needed, as reflected in the RBI’s recent hike in interest rates, which beat market expectations. The IMF could do with just such a man at the top.

By a confluence of circumstances, Subbarao’s services could soon become available: his term as RBI Governor ends in September 2011, barely months from now. Rather than retiring with a good book -or taking up a political appointment as a State Governor - Subbarao should spread his wings and heal the monetary world.

He would make a heck of an IMF chief in other ways too. He is given to quoting Groucho Marx , mangling Chinese sayings , and quoting Latin while explaining his monetary policy approach.

And to top it all, he’d never embarrass the IMF the way Strauss-Kahn did.