Scanning the Scam

The present government can duly claim some positive achievements. The economy is poised to generate a growth rate of about 7.0 per cent this fiscal year, and available indicators seem to point to that direction. Second, more than 1000 MW of electricity has already been added to the national grid within two and a half years in office of this government. Although far short of the requirement, the earnestness and the endeavour should be appreciated. Third, a pro-poor and pro-agricultural policy is at work with full swing to revamp the rural economy. And possibly a few more could be added to the list of achievements e.g. a secular and sustainable education policy, trial of war criminals etc. But it is unfortunate that there is a back slide, too. The recent stock market crush has cast a cloud on the horizon of comforts. Seemingly the scam has put the government on a back-foot. Politically it would mean erosion in vote bank since small investors, robbed of their returns, constitute a large chunk of the middle class, and more so, the stakeholders are young people. In economic terms, the scam would imply that the market has become a mockery - most brutal in burying the coins of the commoners. The confidence so shaken in this market could affect investment in other areas also. The good news is that the government has quickly formed an enquiry committee to peep deep into the crisis. The report has been handed over within the stipulated time. The committee was headed by a renowned and respectable person with long experiences in the banking sector. We appreciate Ibrahim Khaled's sincerity and courage with which he steered the show. It appears that he has done his job without fear or favour. But whether the chair of the committee should have disclosed the contents (or a part thereof) could be questioned. After all, and as I reckon too, the Terms of Reference (TOR) of a Commission or Committee is to present the findings to the authority without disclosing the contents. The rationale of this attempt, however, lies in the quirk that an enquiry report in the hands of the government never sees the light and thus is deemed to a gradual demise. In that case, the onus lies on the civil society, opposition parties - both in parliament and outside parliament - and media to put pressure and force the government in bringing out the outcome of the report to the public discourse. However, as the Finance minister has committed, we are expecting that a detailed report would soon see the light of the world. We are also assured by the Minister that the culprits would be brought to the book, irrespective of political affiliations. In this context, allow me to comment on some apparent misconceptions prevailing among a section of the critics of the scam. Our stock market of late has been griped by asymmetry of information, adverse selection, herd behaviour and moral hazards to create the chaos and anarchy. The solution lies in addressing them in right earnest and endeavour. But, for reasons unknown, Bangladesh Bank (BB) has been drawn to the 'drama' in the share market. Money market and stock market are separate entities although, admittedly, ripples in one might affect the other. The former is solely controlled and monitored by the BB with its mandated instruments of operations. The stock market falls under the purview of the Securities and Exchange Commission (SEC) with regulatory framework at its disposal. Besides, BB has also the objective of furthering economic growth by selected interventions. For example, provisions for opening of 10 million bank accounts by the poor or disbursement of special credit to the sharecroppers - all speak of the steps towards rural development led by the custodian of the money market. The benefits of such programmes are reaped home by people across the board. As opposed to this, the capital market is only to raise capital for industrial ventures. In fact, overplay or distortions in the capital market at times could eat into the vitality of the money market when BB has very little to tinker with the happenings. This seems to have happened in the recent past. Nor the central bank of a country like ours should be seen as a "house-wife" of the government. The epithet of behaving like a housewife by the central bank comes from a former foreign central banker who himself saw how pragmatic suggestions from the central bank were overruled by the government, and the custodian of the money market had to swallow the bitter pills after a prolonged nagging. The independence of the central bank had been a long cry since then. That Allan Green Span was more 'powerful' than President George Bush - as far as monetary matters, and even of economy, were concerned - was just on account of that independence of the Fed. However, there is little shade of doubt that the scam in the stock market is basically a structural problem. The guardian of the capital market, the SEC, miserably failed to uphold the rules of the game in the market. It is a criminal offence when the relatives of the SEC members are alleged to be engaged in the trading of shares in the market. Again almost the same syndicate of known faces seems to have made investors go broke. The members of the syndicate have different political affiliations but they stand united to suck the blood of the share holders. They have strong lobby both in major two political parties. By and large, the umpire of the game allegedly became a player in the game that seemingly caused the debacle in the market. The successive governments paid little attention to this phenomenon of inside-manipulations. Thus, without overhauling SEC and punishing the criminals, any attempt to rectify the market would amount to leaving the chickens in the hands of the fox. Second, no matter what the political affiliations of the alleged 'villains' are, the government must treat them with iron hand to avert its own political setbacks. Third, irregularities such as placement shares should be banned and, if possible, with retrospective effect. The companies with such shares should face heavy penalty, even prohibition of market entry. Finally, as far as possible, the commercial banks should be made cautious in entering into the slippery field of stock market by investing peoples' deposits. Bailing out a stock market cannot be the destined goal of a money market. Let investors try their luck in the stock market in their own ways by calculating the risks and the premium. The government should only make the field level-playing by developing an arsenal of regulatory devices. As said before, money and capital markets have different objectives and authorities, and any attempt to put them pursuing the same objective might rock, if not capsize, the boat. The bottom line is that the supply of shares must be augmented to meet growing demand of shares. It is a good sign that small investors have chosen stock market to eke out a living in a regime where not many profitable opportunities are available. The students, the pension holders, the small savers - all have the right to play in the market at their own stake. The government should only see that the fence does not grab the crops. The future lies in making market meaningful through establishing a credible and transparent authority to look after the game in the stock market by imposing exemplary punishments to the suspects. It also needs educating the public about the fundamentals of the companies concerned. Media has a large role to play in this regard. Abdul Bayes is a Professor of economics at Jahangirnagar University. He can be reached at e-mail: abdulbayes@yahoo.com