Can 1947 foreign exchange regulation act support a digital Bangladesh ?

Mamun Rashid Few years back I was giving a presentation in a risk management seminar in China. The entire audience was surprised to hear that a local commercial bank in Bangladesh needs the central bank's approval to provide financing against a guarantee from an overseas bank, even if it is rated AAA. On the other hand no approval is required if the same guarantee is from a local bank, even if its credit rating is much worse or even it does have any credit rating as such. On another occasion an overseas colleague asked why Bangladeshi exporters need central bank approval to give even a single dollar of discount up front to their overseas buyers. These are only the tip of the iceberg. My 25 years of engagement with the global banks, at home and abroad, has given me glimpses of many more business-crashing ice chunks below the surface. Therefore, the imminent prospect of revising of the age old Foreign Exchange Regulation Act (FERA) encourages me and, along with many, kept me committed towards that for last several years. Here are a few issues that I will be looking forward to be addressed in the possible revision of the FERA: 1. The revised act should provide clear definitions of capital account transactions, current account transactions, services in export and import, and rules for securities and off-shore banking unit. It should allow local exporters to sell their short-term accounts receivable to an overseas buyer. Getting such up-front payment could trigger payment upon possession by the importer (via back to back LCs). This would help the local exporters and their banks by generating more appetite for credit. 2. Overseas investors are becoming interested, amid many other countries' declining sovereign debt ratings, in taking on Bangladeshi debt. It's not viable without a new structure to facilitate such self-liquidating short-term transactions, as short-term dealings don't fall under the jurisdiction of the Board of Investment (BOI). 3. Our leading business houses have been saying for long that selective overseas acquisitions could benefit this country's food processing, information technology, leather footwear and pharmaceutical industries. Bangladesh's top-tier corporations could make inroads into overseas markets, building brands and overseas marketing networks, while our nation becomes a production hub and more competitive source of supply. There are ways to arrange offshore acquisition financing, as were done by some Indian corporations. If so, the outflow of foreign exchange will also be minimal, allaying the main concern of the country's foreign exchange-related regulations. 4. The existing rules require an expatriate, even after getting a Board of Investment (BOI) work permit, to seek the permission of the central bank. Similarly, foreign companies must seek permission both from Bangladesh Bank and the BOI to operate here, a duplication that creates an unnecessary layer of bureaucracy and frustration among the investor. 5. FERA provides that a party is guilty until proven innocent, whereas under India's Foreign Exchange Management Act (FEMA) a party is innocent until proven guilty. FERA charges are treated as a criminal offence and punishable with imprisonment, whereas FEMA offences are civil and only punishable with a monetary penalty. Imprisonment applies only if one fails to pay. 6. FERA must address the growing demand for open-account transactions. In Bangladesh, these are still restricted to fully foreign-owned industries in export processing zones. They should be gradually and selectively liberalized to include ready made garment (RMG) concerns, given the demand from buyers of such exports. There are of course many other issues in between and many more are emerging every day. One may ask, if these are being addressed accordingly, will we march towards a digital Bangladesh? Not really. Bangladesh Bank has been continuously trying to help the market by bringing in changes in the 'Foreign Exchange Transaction Guideline' of 1996 and then again revised it to include additional circulars in 2008. However, it seems, unless we review and change the very foundation of our foreign exchange act, i.e. FERA 1947 in line with the changes took place in our economy and other competing countries, we would not be able to help meet the real need of our business community. Unless we change the foundation or the main engine, external or temporary denting and painting would not work much. Bangladesh Bank has to make serious efforts to get a new law in place with the help of ministry of finance and the ministry of law. Various business chambers have already echoed their support for a new foreign exchange act. Available information tells us, our development partners are also eager to help us in this process. Change is tough, change does necessitate lot of work, but again change is for moving forward and change is possible. India at one point saw even partial convertibility of the rupee as unthinkable. But in time that situation changed. Its enactment of FEMA in 2000 supplanted their FERA of 1973. That shifted the focus from conservation of foreign exchange to facilitating trade and payments. It also brought a new management regime consistent with the emerging framework of the World Trade Organization (WTO). Ours is a country with $ 22 billion-plus in exports and almost $34 billion in imports, which is growing year on year at around 15 plus per cent. Service sector payments, inward remittances, even foreign direct investment potential is growing every day with ever increasing cross border transactions. The 'M- commerce' and 'E-commerce' opportunity space is also growing fast. We must expand our narrow export base as well as destinations and attract more foreign direct investment and remittances -- while protecting the interests of domestic businesses. It is high time to tune our FERA accordingly. The existing 1947 act in no way would support the dream of a nation looking forward to be a digital nation in the near future and a middle income country by 2021, if not earlier. Let's put our acts together without any delay. mamun1960@gmail.com