When Rajan, Subramanian Got Flak at IMF for Leaked Paper

Pune: Top financial gurus - Reserve Bank of India Governor Raghuram Rajan and Chief Economic Advisor Arvind Subramanian - got a "little flak" when at the International Monetary Fund or IMF, after a research paper by them on aid by rich nations got leaked to the media.

Undeterred by the leak, which created headline "IMF says aid doesn't work", the two worked further on the paper and it went on to become one of the "most cited" researches after finally being published.

Recalling the incident that took place years ago, Mr Rajan said they were to present the paper at a summit attended by all rich countries to discuss the aid given by them to the developing countries.

"Seven days before the Gleneagles Summit, the paper went public because of some 'responsible' journalists and the headline was 'IMF says aid doesn't work'... Now, I was an academic from outside and I had a job. That day 18 finance ministers called the Managing Director of the IMF to complain about the kind of the work IMF was doing," Mr Rajan said.

He was addressing students of RBI-run National Institute of Bank Management (NIBM) here during their convocation.

"We tried after that (some) sort of working on that paper and publish later on. I got a little of flak," the RBI Governor said.

Mr Rajan was the Chief Economist and Director of Research at the IMF from 2003 to 2006, while Mr Subramanian was also part of its Research Department.

Speaking to the NIBM students here on Friday, Mr Subramanian said he wanted to make a "confession".

"Let me tell you that I failed the IAS exam. I failed in getting into the most prestigious stream at IMF. I wrote a mediocre PhD thesis. I had many many more academic papers rejected than accepted. And, just that Raghu (Raghuram Rajan) does get too bloated, let me remind that he and I wrote a paper that was rejected three times."

Taking the comments from Mr Subramanian forward, Mr Rajan later said, "Arvind (Subramanian) talked about a paper we wrote which had many rejections."

He went on to say: "Let me explain the context of that paper. Arvind was a career employee in the Fund (IMF) and I had come in from outside as an academic who was positioned for a short while in the Fund."

"Arvind had this great idea about aid. His fundamental assessment was that aid didn't work. It must help countries grow... that's what data says. Arvind wanted to do it rigorously and carefully and we wrote this paper very quietly because it was a great controversial topic."

"Seven days before the Gleneagles Summit... it was a summit where all the rich countries go and think together to determine higher quantities of aid to the developing countries... the paper went public," he said.

The RBI chief further said that he and Mr Subramanian at the time took the risk and it was a "reason other than quality" because of which the paper was not published.

"The point, however, was... people did not simply like the message. Now it is one of the most cited paper in literature because when it finally got published, people stated reading it and citing it," he said.

Mr Rajan, currently on leave from the University of Chicago where he was Professor of Finance, has a large number of research papers to his credit. His research interests include banking, corporate finance and economic development, especially the role finance plays in it.

Mr Subramanian, on his part, has written extensively on growth, trade, development, institutions, aid, oil, India, Africa, and the World Trade Organization. He has published widely in academic and other journals. He also has many IMF Staff papers to his credit.