Economist pushes for market-driven 'shock therapy' to cure macro woes

The exchange and interest rates should be left to market forces, a top economist reiterated his call, as he argued the shift would act as "shock therapy" to stabilise the stressed macroeconomy.

"The shock therapy will strengthen the country's export and have a positive impact on remittance," said Professor Mustafizur Rahman, distinguished fellow at the local think-tank Centre for Policy Dialogue (CPD).

Speaking at a roundtable on the Bangladesh Bank's Monetary Policy Statement, the economist admitted the possible inflationary impact of such measures on imports, but argued that the nation's economy is "80 per cent reliant on the domestic market".

Prof Rahman said multiple exchange rates cannot be allowed in the long run as the need for market-driven rates is further underlined by the upcoming graduation from the least developed country (LDC) club.

However, the economist's stance met counterarguments from former state minister Dr Shamsul Alam, who advocated for managed exchange rates to control inflation.

Urging continued controlled crawls for the time being, Dr Shamsul Alam warned that immediate liberalisation could cause uncontrollable inflation.

The former state minister also called for increased expenditure efficiency through cost and time management due to limited resources.

Dr Shamsul Alam also called for relaxed import restrictions on capital machinery and industrial raw materials.

He pitched his arguments focusing on the growing unemployment and inflationary concerns that the government must prioritise.

However, both Prof Rahman and Dr Alam agreed on managing the "impossible trinity" of interest rates, exchange rates and inflation, but diverged on the optimal methods to achieve stability.

The roundtable, organised by the Institute of Chartered Accountants of Bangladesh (ICAB), sparked a vital debate on the direction of the country's economic policy at a critical juncture.

At the programme, economist Dr Jamaluddin Ahmed alleged money laundering through printing new money, demanding oversight and investigation into the process.

He pointed to the surge in money exchangers from 250 to 750 and called for scrutiny. "This sudden rise in numbers warrants investigation."

Dr Ahmed also called for market-based interest rates.

Dr Ashikur Rahman, senior economist at the Policy Research Institute, joined the chorus, cautioning against the devastating effects of printing money for lending to ailing banks.

He cited the Tk 380 billion granted to Islami banks, contradicting the intended contractionary monetary policy.

He linked this to the central bank's lack of good governance and independence, advocating for inflation control through interest rate hikes instead of printing excessive notes.

In his speech, ICAB President Mohammed Forkan Uddin said that the monetary policy by the central bank expects the average inflation to align with the government's revised 7.5 per cent target by next June.

He noted the policy objectives: tackling inflation and easing the balance of payments pressure.

Adjusting the policy rate, he said, is the central bank's responsibility in managing the money supply to achieve these goals.

The roundtable was moderated by ICAB Council Member and past president Md Humayun Kabir.

Dhaka Chamber of Commerce and Industry President Ashraf Ahmed, Metropolitan Chamber of Commerce & Industry, Dhaka (MCCI) President Kamran Tanvirur Rahman and former revenue board chairman Muhammad Abdul Mazid also spoke.

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