BANGLADESH ECONOMY-PROBLEMS AND PROSPECTS - Part I

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BANGLADESH ECONOMY-PROBLEMS AND PROSPECTS - Part I
« on: May 20, 2012, 03:18:23 PM »
By Kazi Anwarul Masud
27-March-2010

INTRODUCTION

Bangladesh is known to be one of the world's poorest and most densely populated countries in the world. But can one argue that density wise -so is Holland? Bangladesh has been able to become almost self-sufficient in food with an ever increasing population. It is universally recognized that per capita income is not the best way to measure the development of a country. While knowledge of English language is essential to prosper in today’s competitive world, literacy rate is not measured according to knowledge of a foreign language.

On the positive side Bangladesh has made major strides to improve its economic condition from the ruinous situation left by the kleptocratic centre-right religion oriented government that ruled Bangladesh in 2001-2005 periods. Bangladesh's predominantly agricultural economy depends heavily on an erratic monsoonal cycle, with periodic flooding and drought.

Although improving, infrastructure to support transportation, communications, and power supply is poorly developed. Bangladesh is limited in its reserves of coal and oil and its industrial base is weak. The country's main endowments include its vast human resource base, rich agricultural land, relatively abundant water, and substantial reserves of natural gas.

It is believed that Bangladesh has modernized rapidly in recent years with a per capita income of. US$1,500 (adjusted by purchasing power parity) significantly lowers than India, Pakistan, both which is also lower than the world average of $10,497.  According to the gradation by the International Monetary Fund, Bangladesh ranked as the 48th largest economy in the world in 2008, with a gross domestic product of US$224.889 billion. The economy has grown at the rate of 6-7% p.a. over the past few years. More than half of the GDP belongs to the service sector, nearly half of Bangladeshis are employed in the agriculture sector, with RMG, fish, vegetables, leather and leather goods, ceramics, rice as other important produce, (wikipedia)

BANGLADESH AS PART OF PAKISTAN

The united government of Pakistan since the partition of India in 1947 did not succeed in reducing regional disparity and the rural population generally became poorer between 1947 and 1971 because improvements did not keep pace with rural population increase. Pakistan's five-year plans opted for a development strategy based on industrialization, but the major share of the development budget went to West Pakistan, that is, contemporary Pakistan. The lack of natural resources meant that East Pakistan was heavily dependent on imports, creating a balance of payments problem. Without a substantial industrialization program or adequate agrarian expansion, the economy of East Pakistan steadily declined. Blame was placed by various quarters, but especially the Bengalis in East Pakistan, on the West Pakistani leaders who not only dominated the government but also most of the fledgling industries in East Pakistan. The hypocritical political game played by then West Pakistani leaders and the brutal military crackdown by then Pakistan army under President General Yahaya Khan led to the  war of liberation and the independence of Bangladesh as a sovereign country.

SINCE INDEPENDENCE

Since independence in 1971, Bangladesh has received more than $30 billion in grant aid and loan commitments from foreign donors, about $15 billion of which has been disbursed. Major donors include the World Bank, the Asian Development Bank, the UN Development Program, the United States, Japan, Saudi Arabia, and West European countries. Bangladesh historically has run a large trade deficit, financed largely through aid receipts and remittances from workers overseas. Foreign reserves dropped markedly in 2001 but stabilized in the $3 to $4 billion range (or about 3 months' import cover). In January 2007, reserves stood at $3.74 billion, and they increased to $10 billion by 2010, according to the Bank of Bangladesh, the central bank.

Although one of the world's poorest and most densely populated countries, Bangladesh has made major strides to meet the food needs of its increasing population, through increased domestic production augmented by imports. The land is devoted mainly to rice and jute cultivation, although wheat production has increased in recent years; the country is largely self-sufficient in rice production. Nonetheless, an estimated 10% to 15% of the population faces serious nutritional risk. Bangladesh is limited in its reserves of coal and oil and its industrial base is weak. The country's main endowments include its vast human resource base, rich agricultural land, relatively abundant water, and substantial reserves of natural gas. (CIA FACT book 2009/ US State Department Country Background notes)

In the past during the BNP-Jamaat alliance government increasingly the donor countries and institutions dismayed at the deterioration in governance had publicly taken then government to task for its repeated failures to effect structural and regulatory reforms promised them earlier and for failing to arrest the slide in law and order in the country so central to the development process. Professor Nurul Islam (Making of a Nation- Bangladesh) described Bangladesh authorities and donors as unequal partners and the donors from the 60s till today continue to nudge forward Bangladesh development strategy instead of it being country owned towards the donors’ priorities from meeting basic needs, reducing poverty, human development, environment, gender, children to participation, social inclusion, human rights and political freedom.

Despite aid money’s declining importance as a percentage of GDP or public expenditure it still accounts for considerable part of annual development expenditure. Besides infrastructural development –roads, highways, bridges, electricity plants, deep sea ports-would be impossible to be financed from domestic revenue income. Unsurprisingly therefore the donors insist on good governance containing elements of accountability, transparency, participation and predictability. The donors, regardless of the quantum of aid being given the allocation of which has shifted from need basis to performance basis remain unsatisfied at the slow progress of reforms and the failure of the authorities to improve governance. According to World Bank bad governance has high cost that retards the rate of growth and particularly hurts the poor.

CORRUPTION

Bangladesh is counted among the poorest countries of the world where most of the people have insufficient income to provide for minimum standard of living there being no appreciable reduction in the number of people living in extreme poverty which Manuel Castell would call misery. In Marxian analysis poverty stricken great majority of people have nothing to sell but themselves as opposed to the wealth of the few that increases constantly. Inevitably the process of accumulation of wealth has been corruption-ridden. Yves Menay(La corruption de la Republique) has ascribed four invariant characteristics of corruption;- (a) violation of social rules and norms; (b) secret exchange among political, social and economic markets; (c) illegal access given to individuals and groups to the process of political and administrative decision making; and (d) resultant tangible benefits to the parties involved in the transaction.

By any definition corruption is illegal and in the first instance results from collusion between political and money elites-the first party abuses public position of trust for private gains of both parties. Former country director of World Bank in Bangladesh was candid enough to publicly point out the "system loss" in power sector resulting from collusive theft by the employees of the sector and the consumers; port inefficiencies costing over $ one billion a year; governance problem and inefficiency in the banking sector slowing down GDP growth over one percent per anum; Taka 30-40 crores of public procurement lost every year due to corruption. Giving a detailed analysis one of the former World Bank representative had concluded that Bangladesh was losing 2-3% GDP growth a year due to corruption. The GDP loss should be seen in the context of global interpersonal inequality in which the rich is getting richer and the poor is getting poorer.

CODE OF CONDUCT

With the disappearance of the US’ "unipolar moment" Charles Kindelberger’s Theory of Hegemonic Stability has become one of the many theories found unsuitable for the present day global structure. To keep the rogue states in check the international community demands that  morality be used  in judging both the national and international behavior of states and the evaluation of the code of conduct, more or less uniform in character, prescribed to be followed by the civilized states have placed morality as the center piece in global theater. Perhaps one of the greatest benefits of decolonization has been the imperceptible regression of presumptions relating to "racial superiority and civilized mode of behavior" of the metropolitan people vis-à-vis those living in the periphery.

There is, however, no denying the fact that the world divided as it is into First, Second and the Third( or even Fourth- Cold War coinage) worlds does testify to the great existential divide among the people living in these well defined worlds where division is more vertical than horizontal and promotion from one to another is well nigh impossible.  As it is from the beginning of history social stratification or societal division based on wealth, power and status has been a defining characteristic of civilizations. Social stratification took global shape with the advent of colonization and poverty began to be distributed among the people living in the periphery and the wealth of the periphery was shipped to the metropolis.

One of the most bizarre aspects of colonization was the self-assumed patriarchal attitude of the colonizers towards the colonized and their missionary zeal to carry on their shoulders "the White Man’s Burden" of educating the "natives" unable to stand on their feet. Little heed was paid to the scholars who committed the sacrilege of pointing out that though some among the "natives" were indeed cannibals but a vast majority of them were adorned with etiquette and mores which were superior to the ones the metropolitans were determined to impose on the periphery. In effect both in their own lands and in the conquered territories the colonizers were subscribing to the FIRST PRINCIPLES of Scottish socialist philosopher Robert Owen who thematized that it was necessary for a large part of mankind to exist in ignorance and poverty to secure for the remaining part such degree of happiness as they now enjoyed.

During and after the process of decolonization the newly and aspirant independent countries began to question the hypothesis inherent in the modernization theory which explained underdevelopment in terms of lack of certain qualities in the "underdeveloped" societies such as drive, entrepreneurial skill, creativity and problem solving ability. The newly independent people  rebelling against intellectual dystrophy and sanitized academic orthodoxy by and large put their faith in the dependency theory which explained that the continued impoverishment of the Third World was not internally generated but was a structural condition of global domination in which the dominant forced the dominated to be producers of raw materials and food stuff for the industrialized metropolitan center. However the entire colonial discourse should not be seen through the prism of Manichaeism expressed in binary structure between good and evil because the colonizers were not totally exploitive in nature but were also donors of liberal values and compassion shown by the West through aid to tsunami victims and the expected financial pledge following publication of the report by the Africa Commission.

INVISIBLE HAND OF THE STATE

Despite the end of Communism, first articulated by Austrian economist Ludwig von Misses that vesting  ownership of all productive resources in the State was deeply irrational it now recognized by even market fundamentalist Milton Friedman that the role of an "invisible hand", interpreted differently by different economists, was necessary for  "properly regulated capitalism" , a system which seeks to maximize economic efficiency and growth while minimizing the social ills and injustices which unfettered capitalism can throw up. Though theoretically the market system to operate perfectly would demand withdrawal of the state experience has shown, particularly in the Third World, the role state must play to ensure proper development of the market economy. In gist, the state must ensure that the system and services needed for a market economy to function efficiently exist. Importantly the legal system embodying the commercial and corporate law must exist. The basic infrastructure and social services must also be provided by the state. In the final analysis there is no unique constellation of conditions that would require the state to play its role which would vary according to the stage of development an economy is already in. The global economic meltdown has sharpened the efficacy of free market mechanism leading many economists to question whether the end of free market has begun.

CLASS DIVISION

 Review of the book by Robert Perruchi and Earl Wysong (The new class society: Goodbye American Dream) portrays a US class system consisting of a "privileged class" composed of a "super class", "credentialed class managers" and "professionals" representing 20% of the population; while the rest 80% are engaged in wage labor, modest self-employment or part time work. In the US increasing class polarization has been seen since 1970s and since 1980s workers and their families have been experiencing downward mobility. Perruchi and Wysong speaks of the "secession of the successful" combining physical and social separation, increasing number of privately provided services with the ideology of neo-liberalism and free market fundamentalism, separatist social identity and secession mentality.

The Baffler magazine (March 2010) quotes Reinhold Niebuhr’s Moral Man and Immoral Society as follows; - since inequalities of privilege are greater than could possibly be defended rationally, the intelligence of the privileged group is usually applied to the task of inventing specious proof for the theory that universal values spring   from, and that general interests are served by, the special privileges they hold. The article goes on to say that in the US the budget commitments to salvage the financial sector come to $3 trillion or more than $20000 per federal income tax payer. The average employee at Goldman Sachs made $630000 in 2007. The meltdown has been diagnosed as having been caused, among others, management debacle, a natural outcome of excessive risk-taking, lack of oversight etc. According to Nobel Laureate Paul Krugman John Maynard Keynes played the role of Reformation leader Martin Luther with his theory that free market could not be counted on to provide full employment (currently running at 10% and including underemployment the figure would be around 17% in the US) that created a new rationale for governmental intervention.   

QUESTION OF SOVEREIGNTY

National and international intervention brings up the debate of the limit put on sovereignty through infusion of transnational capital, be it in the form of aid, loan or investment. One does not have to ingest Hobbesian philosophy to believe that man is basically self-interested seeking gain and glory but at the same time being fearful of one another would prefer concentrated power to create order. But since Kindelberger’s theory of hegemonic stability has fallen by the wayside due to global apprehension over doctrine of preemption despite Professor Nial Ferguson’s exhortation that the US should take up the call of history and behave like an empire because otherwise the power vacuum would be filled with "anarchic new Dark Age, an era of waning empire and religious fanaticism.. And civilization’s retreat to a few fortified enclaves", the relentless erosion of Westphalian sovereignty continues to frighten, particularly Gunar Myardal’s "soft states" which should include Bangladesh.

In the ultimate analysis umbrage taken by Bangladesh authorities in the past over public criticism of its domestic behavior lacks moral clarity. Political dystrophy and dissonance destroying the present and shrouding the illumination of the future can not but invite international criticism. Space must be given to all shades of opinion barring religious fanatics to air their views so that inequality, polarization, poverty and misery do not lead to social exclusion of a large number of people. Satow’s guide to diplomacy and the Vienna Convention on diplomatic practices are not immutable religious texts but are subject to interpretation and integration of new commentaries. Sovereignty should not be so brittle that it can not withstand constructive criticism. The solution lies in mending one’s aberrant ways and to be in total compliance with the internationally accepted code of conduct.

QUESTION OF POVERTY

It may take a while for the credit crunch to go away. In the interim period middle and small business would be cagey to borrow (the banks may have more stringent lending conditions) and import less from foreign sources. This possible scenario would affect RMG and textile sectors in Bangladesh. If the housing sector, both in Bangladesh and in the Middle East, were to shrink then direct effect on remittance cannot be avoided.  Our export basket consists of few items involving low technology, and now with buyers’ conservatism the price of our exportable is coming down further. The other foreign exchange earner-remittance-of our workers abroad also faces uncertainty as no one knows what shape the construction sector will take in the coming months and years. Remittance, a quarter coming from the developed countries, will shrink. It is impossible to put figures to these variables as these will depend on the evolving condition of the global economy. The rate of interest being reduced by the central banks throughout the world is to encourage investment. But in countries like Bangladesh interest rate cut to reduce the cost of money will mean reduced rate for different types of deposits putting the depositors in greater financial difficulty resulting from reduced income from deposits-a class of people who have already been pushed into poverty from middle income bracket, and those living from relative poverty due to price hike into the group of abject poverty. Besides devaluation of our currency would have made sense had demand elasticity of our exportable been price responsive. It would also make our imports dearer.

Since external factors appear to be unfavorable in the short term Bangladesh has to develop its agriculture that accounts for 30% of our GDP at present. Monetary policy should be conservative. Tax net could be extended and tax payers must pay their dues. Corruption that eats away about 3% of our growth has to be brought under control.

(To be completed in Part II.)