Can diktats run parallel with freedom?

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Shamsul Huq Zahid
Dr. Salehuddin Ahmed, the incumbent governor of the country's central bank, possibly, has understood by now the difference between perceived-freedom and real-freedom and the difficulties in making adjustments to the first one.
His predecessors who included top bureaucrats and renowned bankers worked in a condition worse than what is prevailing now but they had never bothered about the issue of central bank's freedom. The past governors were happy working under the 'system' that made them subservient to diktats of the finance ministry.
But Ahmed seems to be an exception. On a couple of occasions recently, he has openly admitted the absence of autonomy on the part of the central bank and that the bank could not take important decisions without prior approval of the finance ministry.
The governor while addressing the newly recruited assistant directors of the bank Monday said the Bangladesh Bank is unable to formulate monetary policy independently for various reasons. But he did not elaborate.
However, Finance Adviser Dr. Mirza Azizul Islam claimed the other day that the central bank--- the entire capital of the bank amounting to only Tk. 30 million is vested and allotted to the government-- was enjoying full freedom.
What does the Bangladesh Bank Order say about the central bank's independence in the formulation of monetary policy?
According to the article 7A that was added to the BB Order of 1972 through the Bangladesh Bank (Amendment) Act 2003, one of the main functions of the central bank is formulation and implementation of monetary policy. Under the same article, the bank is to give advice to the government on the interaction of monetary policy with fiscal and exchange rate policies.
The incumbent central bank governor recently also mentioned about the lack of coordination between monetary and fiscal policies, meaning that its advice on the issue is being sidetracked by the government.
The pressure coming from the multilateral donors via the government in shaping up monetary policy could be one of the irritants to the central bank's relations with the finance ministry. For instance, the Bangladesh Bank, in compliance with an advice (?) from the International Monetary Fund (IMF) has been pursuing a restrictive monetary policy for sometime. The IMF wanted the government to follow its advice with a view to containing the inflationary pressure. But the measure until now has failed to prove its effectiveness because of the cost-push nature of the inflation.
The central bank under article 81 of the Bangladesh Bank Order is empowered to adopt policies and take remedial measures whenever it 'anticipates economic disturbances that are likely to threaten domestic monetary stability' in the country or 'whenever abnormal movements of money supply or in the price level are endangering such stability'. The bank is also required to submit to the government a detailed report on the cause of anticipated economic disturbances or, of the actual abnormal movements of the money supply or the price level; the probable effects of such disturbances on production, employment and real income. While informing the government about the actions it has taken, the central bank, according to the article, shall make proposals on monetary, fiscal and administrative measures for adoption by the government.
The amended Bangladesh Bank Order has given independent authority to the central bank on matters of monetary policy and supervision and control of banks and financial institutions. One cannot rule out the possibility of government's interference in administrative and regulatory affairs of the central bank. But the obvious question one may like to ask: What is about the accountability of the central bank?
The amended Bangladesh Bank Order, however, has provided for a system of accountability-a democratic one-- for the central bank.
According to the article 38A, the governor of the Bangladesh Bank 'shall at least once a year or at any other instance, if summoned to appear before the Parliamentary Committee on Finance to report on the monetary policy and of other activities of the Bank and to answer questions'.
It is not known whether or not the parliamentary committee on finance of the immediate past parliament (the article 38A was added to the Bangladesh Bank order through amendment act in 2003) had summoned the governor even once to explain the monetary policy or any other matter of the central bank.
The members of the parliamentary committee might have found the monetary policy issue an uninteresting one and did not spoil their valuable time on it. But the fact remains that the article in question determines the central bank's accountability part. So, the bank is not subservient either to the government or any other alien lending agency. For its policies and actions, it remains accountable to the people's representatives. Besides, the Bangladesh Bank Order clearly defines the relations between the government and the central bank on functional and administrative matters. However, there could be scopes for making the central bank more independent. That would be a step in right direction for making the country's economic management stronger.