Reserves depletion risks deep economic crisis

If the foreign-exchange reserves slide below US$10-billion mark, Bangladesh's economy could get into "deep crisis" and financiers turn their back, an eminent economist forewarns.
Professor Dr Rehman Sobhan is worried over the continuous decline in reserves and also cites some other symptoms -- especially at this juncture when the world witnesses upheavals and the country also experiences unease on the political front over polls.
"Even IMF (the International Monetary Fund) would not come (in aid) when it (reserves) plunges below $10 billion," he told economic reporters Monday.
His observations, incidentally, come at a time when an IMF mission is here assessing the country's latest economic situation and creditworthiness before releasing the next tranche of its loan.
The renowned economist, who was a caretaker government adviser, was in a meet with the country's economic reporters with the banner inscribed 'Conversation with Professor Dr Rehman Sobhan'.
The Economic Reporters' Forum (ERF) organised the conversation at its office in Dhaka with its president Mohammed Refayet Ullah Mridha in the chair, in their bid to get an expert view when there have been flurries of talk on the country's economy centering reserves, forex inflows, dollar dearth, inflation bites and the like.
Prof Sobhan points out that Bangladesh has a big RMG sector and good remittance inflows much better than that of Sri Lanka. The inflow of remittance has decreased in the country in recent times but it does not mean that the inflows actually came down.
The remittance earnings have not dropped in real sense as the relatives of the expatriates are getting it in another form called 'hundi' which bars the central bank from getting foreign exchanges.
And this is a key reason behind the reserves fall, he says to give the newsmen insights into the happenings.
He likened the remitters to big entrepreneurs of Bangladesh as they reach their destinations through many unethical means, and after a long struggle to reach their destinations they start their work.
"Actually they (expatriates) are big entrepreneurs."
Prof Sobhan, who is the founding chairman of the country's oldest think-tank, CPD, said there is a "deep nexus between politics and business".
Politics and business have merged together, he told the meet, adding that the two groups of people get together for their mutual benefit.
"Politics and economy are integrated now," he noted.
On the buildup of non-performing loans, Dr Sobhan said the culture of the country's financial sector, that is, non-repayment after borrowing has become the norm.
He said representatives of the World Bank and the IMF are now coming to Dhaka and asking to reduce default loans. "Their fathers and grandfathers had also come here and said the same things." But loan defaults are not declining.
The noted economist said normally governments retain autonomy over businesses. "But when government leaders become businessmen, then it's a problem."
He goes on: "Before bank's board meeting, they phone the CEOs of banks for favour and they get the favour."
Defaulters have become powerful figures within the government, Professor Rehman Sobhan said.
"If one person repays a loan after six months and another doesn't even after 10 years, then those two cannot compete."
He mentions that Bangladesh's official position is that defaulters cannot participate in election. "But before the election, there is a special provision to make a 5.0-percent down payment. Once the payment is made and the person is elected later, they do not pay anymore," he said.
Dr Sobhan said this nexus between business and government needed to be broken, even though it was said that doing so would be impossible.
Citing an example of missing FDI in Bangladesh, he said Samsung wanted to build its plant here during the tenure of Mr Tofael Ahmed as Industries Minister. They later invested in Vietnam.
He said Samsung exports around $20 billion worth of its products now from Vietnam.

jasimharoon@yahoo.com