Aid and development in Bangladesh
Wednesday, 18 July 2007
Syed Fattahul Alim
THERE is no gainsaying the importance of aid in the development of an underdeveloped economy. The American aid did play a revitalising role for the post-World War economies of Europe and Japan.
The American aid was certainly put to good use in the post-war nations of Europe and in Japan; otherwise they would not have been able to rebuild their destroyed economies so fast. From the pace and magnitude of later-day economic development in Europe and Japan, it is hard to believe that those parts of the world were literally flattened as a result of the carpet bombing carried out both by the Allied and Axis powers.
Unfortunately, the same result could not be obtained in the case of the post-colonial nations in the Third World. The volumes of aid that poured into these countries have been colossal. But except in a few cases, the rate of success with foreign aid is not worth mentioning. From Latin America to Africa to Asia, the number of successes with the help of foreign aid is not many. But then what happened to the aid worth billions of dollars received thus far?
What is Bangladesh's share of this generous fund received from the various sources including bilateral and multilateral donors? According to the Economic Relations Division (ERD) till June 2006, Bangladesh received foreign aid to the tune of US $45 billion. Of the total aid thus received about 62 per cent came in the form of project aid, while the rest amounting some 24 per cent and 14 per cent were used as commodity aid and food aid. The aid reached us from 34 donor agencies over all these years. When one draws comparison, the amount is many times the size of the country's annual budget. But can the ERD, which keeps track of the foreign aid, say how far that money has contributed to the economic development of the country?
In fact, aid as such cannot contribute much towards the development of an economy, unless there is proper socio-political and administrative as well as industrial infrastructure to utilise the money. All the post-colonial and underdeveloped nations have not been able to demonstrate an equal level of success in attaining worthwhile progress with foreign aid. In our particular case, however, foreign aid sometimes becomes an important issue. The question of context in time comes here because in the recent move the incumbent caretaker government has jacked up the prices of oil, gas and power at one go. The issue is very sensitive, since the price level of these very essential items have already been upwardly adjusted a number of times. Meanwhile, the prices of all the daily necessaries have also spiralled upward inexorably. The economy is experiencing inflation driven by cost of foodstuff and other essentials. So, with the latest move to hike up the tariffs on the utilities and the price of oil, a lot of controversy has been created in the media, among the intelligentsia and the people at large. The increase is again going to trigger a chain reaction in the market. The cost of living is going to have another upward push. But how are people, who are in the service, doing odd jobs or living on daily wages, or engaged in small business will be able to manage their monthly family budgets with the additional expenses added to them?
What has piled on their woes is that the central bank has taken the policies of tightening the supply of money in the market and increasing the cost of fund by raising the interest on bank lending. The overall impact of the restrictive monetary policy and increase in bank interest on credit is that there will be less investment in the private sector and as such fewer new jobs created in the economy. In the same breath, the government has increased its borrowing from the banks, while the private sector is shying away from the banks due to higher cost of funds. This is creating an anomalous situation so far as the flow of fund in the economy is concerned.
The uneasy question that arises here is what have these government measures to do with foreign aid. If truth be told, the government decision or decisions to raise the price of utilities is directly linked to foreign aid, especially to that provided by the multilateral donors like the World Bank and the International Monetary Fund (IMF). In the present case, the IMF's recommendations to enhance the prices of oil, gas and power aim to help government to reduce its budgetary deficit.
Admitting that the decision is going to be a painful one, the finance adviser on Sunday said that the government has no alternative but to go for the upward adjustment all the same. The IMF resident representative, too, has admitted that the increase will impact on the prevailing inflationary trend negatively. However, what both the government and the multilateral donor agency, IMF, denied is that the government was under any kind of external pressure while taking the decision. It is worthwhile to mention here that a local socio-economic research think tank, the Centre for Policy Dialogue, has directly accused the government of yielding to donors' especially IMF's, pressure in its latest move to enhance the prices of oil, gas and power.
Despite the denials, the fact remains that compliance with the donors' condition has remained a cornerstone of the successive governments' economic policies since long. The World Bank or the IMF often spells out their conditions openly. The government has either to comply with those conditions or forgo the particular development assistance in question. It is a standard practice on the part of the multilateral donor agencies and they make no bones about imposing those on the recipient governments either.
In fact, under the post-colonial dispensation, many Third World governments turned into aid addicts as a result of generous aid provided by the donor community. One cannot say that Bangladesh remained beyond the purview of this overall scenario.
Unfortunately, the generous bilateral and multilateral aid from the donors has hardly helped Bangladesh to make any breakthrough in terms of significant economic growth. The lack of success has been due mainly to the choice and use of the foreign aid by the recipient. The failure rests partly with social and administrative infrastructure in existence and partly with the prevailing economic infrastructure.
And, it is up to the political leadership to improve the necessary social and administrative infrastructure. The nation is yet to overcome this bottleneck.
THERE is no gainsaying the importance of aid in the development of an underdeveloped economy. The American aid did play a revitalising role for the post-World War economies of Europe and Japan.
The American aid was certainly put to good use in the post-war nations of Europe and in Japan; otherwise they would not have been able to rebuild their destroyed economies so fast. From the pace and magnitude of later-day economic development in Europe and Japan, it is hard to believe that those parts of the world were literally flattened as a result of the carpet bombing carried out both by the Allied and Axis powers.
Unfortunately, the same result could not be obtained in the case of the post-colonial nations in the Third World. The volumes of aid that poured into these countries have been colossal. But except in a few cases, the rate of success with foreign aid is not worth mentioning. From Latin America to Africa to Asia, the number of successes with the help of foreign aid is not many. But then what happened to the aid worth billions of dollars received thus far?
What is Bangladesh's share of this generous fund received from the various sources including bilateral and multilateral donors? According to the Economic Relations Division (ERD) till June 2006, Bangladesh received foreign aid to the tune of US $45 billion. Of the total aid thus received about 62 per cent came in the form of project aid, while the rest amounting some 24 per cent and 14 per cent were used as commodity aid and food aid. The aid reached us from 34 donor agencies over all these years. When one draws comparison, the amount is many times the size of the country's annual budget. But can the ERD, which keeps track of the foreign aid, say how far that money has contributed to the economic development of the country?
In fact, aid as such cannot contribute much towards the development of an economy, unless there is proper socio-political and administrative as well as industrial infrastructure to utilise the money. All the post-colonial and underdeveloped nations have not been able to demonstrate an equal level of success in attaining worthwhile progress with foreign aid. In our particular case, however, foreign aid sometimes becomes an important issue. The question of context in time comes here because in the recent move the incumbent caretaker government has jacked up the prices of oil, gas and power at one go. The issue is very sensitive, since the price level of these very essential items have already been upwardly adjusted a number of times. Meanwhile, the prices of all the daily necessaries have also spiralled upward inexorably. The economy is experiencing inflation driven by cost of foodstuff and other essentials. So, with the latest move to hike up the tariffs on the utilities and the price of oil, a lot of controversy has been created in the media, among the intelligentsia and the people at large. The increase is again going to trigger a chain reaction in the market. The cost of living is going to have another upward push. But how are people, who are in the service, doing odd jobs or living on daily wages, or engaged in small business will be able to manage their monthly family budgets with the additional expenses added to them?
What has piled on their woes is that the central bank has taken the policies of tightening the supply of money in the market and increasing the cost of fund by raising the interest on bank lending. The overall impact of the restrictive monetary policy and increase in bank interest on credit is that there will be less investment in the private sector and as such fewer new jobs created in the economy. In the same breath, the government has increased its borrowing from the banks, while the private sector is shying away from the banks due to higher cost of funds. This is creating an anomalous situation so far as the flow of fund in the economy is concerned.
The uneasy question that arises here is what have these government measures to do with foreign aid. If truth be told, the government decision or decisions to raise the price of utilities is directly linked to foreign aid, especially to that provided by the multilateral donors like the World Bank and the International Monetary Fund (IMF). In the present case, the IMF's recommendations to enhance the prices of oil, gas and power aim to help government to reduce its budgetary deficit.
Admitting that the decision is going to be a painful one, the finance adviser on Sunday said that the government has no alternative but to go for the upward adjustment all the same. The IMF resident representative, too, has admitted that the increase will impact on the prevailing inflationary trend negatively. However, what both the government and the multilateral donor agency, IMF, denied is that the government was under any kind of external pressure while taking the decision. It is worthwhile to mention here that a local socio-economic research think tank, the Centre for Policy Dialogue, has directly accused the government of yielding to donors' especially IMF's, pressure in its latest move to enhance the prices of oil, gas and power.
Despite the denials, the fact remains that compliance with the donors' condition has remained a cornerstone of the successive governments' economic policies since long. The World Bank or the IMF often spells out their conditions openly. The government has either to comply with those conditions or forgo the particular development assistance in question. It is a standard practice on the part of the multilateral donor agencies and they make no bones about imposing those on the recipient governments either.
In fact, under the post-colonial dispensation, many Third World governments turned into aid addicts as a result of generous aid provided by the donor community. One cannot say that Bangladesh remained beyond the purview of this overall scenario.
Unfortunately, the generous bilateral and multilateral aid from the donors has hardly helped Bangladesh to make any breakthrough in terms of significant economic growth. The lack of success has been due mainly to the choice and use of the foreign aid by the recipient. The failure rests partly with social and administrative infrastructure in existence and partly with the prevailing economic infrastructure.
And, it is up to the political leadership to improve the necessary social and administrative infrastructure. The nation is yet to overcome this bottleneck.