India will rue the loss of central bank governor Raghuram Rajan but in Brazil, having Henrique Meirelles back in government is the best news the crisis-torn country has had in quite a while, writes Brian Caplen.

Remember how they used to be called 'the BRICs' and were held up as the economic champions of the 21st century? Since then, the economies of Brazil, Russia, India and China have experienced widely differing fortunes. 

Currently, Brazil’s economy is in deep crisis whereas, India’s can lay claim to being one of the few major emerging markets still outperforming. But if things carry on as they are, in terms of the key appointments being made, their positions could reverse. 

Raghuram Rajan may not have been the most tactful of central bank governors but he got things done. When he took over in India three years ago he had to handle a currency crisis, and since then he has brought inflation under control and started work on cleaning up the state-owned banks. But he really needed another term at least to fully cement his reforms and make low inflation a permanent part of the landscape. 

Political opposition to high interest rates seems to have played a role in Mr Rajan’s decision to return to academia after his current term expires in September. Losing a respected central bank governor to the vagaries of politics is the last thing India needs right now with so much uncertainty in the global economy and domestic reforms still to do. 

On the other side of the globe, Brazilians could tell the Indians a thing or two about the cost of politically inspired economic policies. A failure to control spending has compounded the impact of an unfavourable external environment and produced one of the worst recessions in a generation. On top of this the political temperature has been at boiling point with the impeachment process brought against president Dilma Rousseff. 

Stabilising measures are badly needed and Mr Meirelles' appointment as finance minister bodes well in this respect. As a previous central bank governor he gained a reputation for sound decision making and for being able to talk to the markets. As the new finance minister, Mr Meirelles is already talking about the things investors need to hear – long-term stability in budget making over and above politics. 

Clearly two changes in appointment alone​ cannot reverse the contrasting fortunes of Brazil and India and we have yet to see who replaces Mr Rajan. But if crisis sometimes produces much-needed reform, as seems to be happening in Brazil, it is also the case that when the economy is performing well – as in India – it is time to entrench rather than risk the reforms that created the growth. 

Brian Caplen is the editor of The Banker.

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