Time to be cautious about decisions
Wednesday, 12 November 2008
Syed Fattahul Alim
The economic recession in the USA and Europe is gradually affecting rest of the globe. Now the speculation is rife over how is the recession going to impact Bangladesh?
However, Bangladesh's economy is yet to attain the scale of financial transactions that has led to the collapse of banks and other financial institutions in the USA and some European Union (EU) nations. In fact, sometimes backwardness can be a blessing in disguise. But there is nothing to be enthused over it either. For the hard currency reserve of the country might be affected in the long run if the recessionary trend continues for an indefinite period in the USA and Europe. The behaviour of consumer spending is an important indicator of recession. Falling consumer demand may hit our export industry hard.
The Bangladesh Garments Manufacturers and Exporters Association (BGMEA) leaders have already complained of falling Christmas sales in the US and EU countries having the potential to affect the readymade garment (RMG) exports in those countries. However, looking at the trend in the supply order for garment and knitwear products in the major importing nations, all the speculation over the issue so far as it affects Bangladesh export directly still appears premature. The Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) for example reported that they have received a higher volume of export order in the last October than they did in the same month in the previous fiscal. This is certainly a reassuring trend to allay unnecessary fears over the developments in Europe and America.
However, though there is still no visible impact of global recession on the small export basket of Bangladesh, there should also be no room for complacency either. For the European market does still appear to be more dependable for Bangladesh export than another very large market, the US one. The Generalised System of Preference (GSP) facility that the European Union (EU) provides for the products from the Least Developed Countries (LDCs) like Bangladesh is still a saving grace for our exports. Such arrangement has kept the price of our products in the European markets lower than those from economically stronger nations like China or India. So, to all appearances our export industry is going to have a lot of breathing space to keep its house in order before the full impact of the American and European financial collapse may finally crash against our shores.
However, the demands raised by our exporters, especially from the garment sector, that the value of Taka which has appreciated against US$ as well as other major currencies should be readjusted has to be responded with caution. For we have also to consider the fast eroding purchasing power of taka in the domestic market. If the government readjusts Taka against the US dollar or any other foreign currency there is no reason that it will leave no impact on the price of goods and services in the local market. For we have the unfortunate experience that the local market manipulators have the power to increase the price of commodities, especially of the essential ones, without any rhyme or reason.
However, though the inward flow of foreign remittance at around 3 billion US$ has still shown an increase of about 36.80 per cent in the first quarter of the current fiscal over that of the previous one, the monthly figure of remittance has, however, shown a downtrend in the last October compared to what it was in September last. Understandably, the reason lies in the more conservative attitude of the remitters. Because stronger taka against dollar means the families of the Non-resident Bangladeshis (NRBs) would now get less amount of taka against each dollar than before.
But should the demand of the RMG exporters or the cautious attitude of the remitters be enough reason to go for immediate depreciation of taka against dollar?
The government has to be very cautious this time for the simple reason that the global financial system is still in turmoil. The leaders of the highly industrial nations are in a race against time to find a way out of the sagging credentials of the western financial system. With ever-eroding standard of dollar as the universally recognised standard of exchange, the leaders of the advanced nations will have to reach a new consensus over the universal standard of exchange sooner than later.
Under the circumstances, the government will need to watch the international development very cautiously and wait until things settle down a bit before rushing to any decision about any readjustment or devaluation of Taka against the still dominant foreign currencies of the world.
At the moment, everyone one is watching. This is true of the importers, too. There is yet no extra demand for hard currency, since fewer letters of credit are being opened in the banks for import from abroad.
So far, we have remained more or less untouched by the turmoil that has been raging across both the sides of the Atlantic. But the relative comfort does not promise any guaranteed security even in the future. While the entire advanced world has now started to look inward and taking stock of their profligate financial practices pursued thus far, we need also to go into similar exercise abut our own. Though we could not simply afford to be extravagant in the western sense of the term, still we had to follow them suit to some extent, if only to win the appreciation from the donor communities, especially the International Monetary Fund (IMF) and the World Bank.
The unrelenting pressure for deregulation of whatever was controlled by the state under the neo-liberal dispensation has caused the recent implosion in the western economic system. And most of the emerging economies of Asia and elsewhere were dictated by the model of growth as prescribed by the American and other western guardians of the system. But the recent experience of US and other major economies in Europe has obviously sealed the future of that kind of growth at breakneck pace. Change is undoubtedly coming in the USA itself, especially after Barack Obama was elected president there with a mandate that is different from his predecessors.
And the hints of what is coming has already become clear from the way the US government has taken over one collapsing financial behemoth one after another. Such taking over of privately-owned banks and other financial institutions by the state has, however, been taken with a grain of salt by many proponents of the just-battered laissez faire. And neither the president-elect Barack Obama himself has held out any further promise for the failed speculators and bankers of the Wall Street. On the contrary, he has spoken in favour of higher tax, creation of jobs, more attention to the small business and small savers. If the products of the smaller businesses are to be treated fairly, those have to be protected from unfair competition from the imported goods of similar kind. So, future policy of the US government, it is feared, may put more restriction on such products exported from the third world countries like Bangladesh.
Under the circumstances, it would a sheer waste of time and opportunity to wait for the Armageddon to come.
While the West will be busy putting its own house in order, Bangladesh, too, will have to think up its own strategy to adjust to the changing world order.
The economic recession in the USA and Europe is gradually affecting rest of the globe. Now the speculation is rife over how is the recession going to impact Bangladesh?
However, Bangladesh's economy is yet to attain the scale of financial transactions that has led to the collapse of banks and other financial institutions in the USA and some European Union (EU) nations. In fact, sometimes backwardness can be a blessing in disguise. But there is nothing to be enthused over it either. For the hard currency reserve of the country might be affected in the long run if the recessionary trend continues for an indefinite period in the USA and Europe. The behaviour of consumer spending is an important indicator of recession. Falling consumer demand may hit our export industry hard.
The Bangladesh Garments Manufacturers and Exporters Association (BGMEA) leaders have already complained of falling Christmas sales in the US and EU countries having the potential to affect the readymade garment (RMG) exports in those countries. However, looking at the trend in the supply order for garment and knitwear products in the major importing nations, all the speculation over the issue so far as it affects Bangladesh export directly still appears premature. The Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) for example reported that they have received a higher volume of export order in the last October than they did in the same month in the previous fiscal. This is certainly a reassuring trend to allay unnecessary fears over the developments in Europe and America.
However, though there is still no visible impact of global recession on the small export basket of Bangladesh, there should also be no room for complacency either. For the European market does still appear to be more dependable for Bangladesh export than another very large market, the US one. The Generalised System of Preference (GSP) facility that the European Union (EU) provides for the products from the Least Developed Countries (LDCs) like Bangladesh is still a saving grace for our exports. Such arrangement has kept the price of our products in the European markets lower than those from economically stronger nations like China or India. So, to all appearances our export industry is going to have a lot of breathing space to keep its house in order before the full impact of the American and European financial collapse may finally crash against our shores.
However, the demands raised by our exporters, especially from the garment sector, that the value of Taka which has appreciated against US$ as well as other major currencies should be readjusted has to be responded with caution. For we have also to consider the fast eroding purchasing power of taka in the domestic market. If the government readjusts Taka against the US dollar or any other foreign currency there is no reason that it will leave no impact on the price of goods and services in the local market. For we have the unfortunate experience that the local market manipulators have the power to increase the price of commodities, especially of the essential ones, without any rhyme or reason.
However, though the inward flow of foreign remittance at around 3 billion US$ has still shown an increase of about 36.80 per cent in the first quarter of the current fiscal over that of the previous one, the monthly figure of remittance has, however, shown a downtrend in the last October compared to what it was in September last. Understandably, the reason lies in the more conservative attitude of the remitters. Because stronger taka against dollar means the families of the Non-resident Bangladeshis (NRBs) would now get less amount of taka against each dollar than before.
But should the demand of the RMG exporters or the cautious attitude of the remitters be enough reason to go for immediate depreciation of taka against dollar?
The government has to be very cautious this time for the simple reason that the global financial system is still in turmoil. The leaders of the highly industrial nations are in a race against time to find a way out of the sagging credentials of the western financial system. With ever-eroding standard of dollar as the universally recognised standard of exchange, the leaders of the advanced nations will have to reach a new consensus over the universal standard of exchange sooner than later.
Under the circumstances, the government will need to watch the international development very cautiously and wait until things settle down a bit before rushing to any decision about any readjustment or devaluation of Taka against the still dominant foreign currencies of the world.
At the moment, everyone one is watching. This is true of the importers, too. There is yet no extra demand for hard currency, since fewer letters of credit are being opened in the banks for import from abroad.
So far, we have remained more or less untouched by the turmoil that has been raging across both the sides of the Atlantic. But the relative comfort does not promise any guaranteed security even in the future. While the entire advanced world has now started to look inward and taking stock of their profligate financial practices pursued thus far, we need also to go into similar exercise abut our own. Though we could not simply afford to be extravagant in the western sense of the term, still we had to follow them suit to some extent, if only to win the appreciation from the donor communities, especially the International Monetary Fund (IMF) and the World Bank.
The unrelenting pressure for deregulation of whatever was controlled by the state under the neo-liberal dispensation has caused the recent implosion in the western economic system. And most of the emerging economies of Asia and elsewhere were dictated by the model of growth as prescribed by the American and other western guardians of the system. But the recent experience of US and other major economies in Europe has obviously sealed the future of that kind of growth at breakneck pace. Change is undoubtedly coming in the USA itself, especially after Barack Obama was elected president there with a mandate that is different from his predecessors.
And the hints of what is coming has already become clear from the way the US government has taken over one collapsing financial behemoth one after another. Such taking over of privately-owned banks and other financial institutions by the state has, however, been taken with a grain of salt by many proponents of the just-battered laissez faire. And neither the president-elect Barack Obama himself has held out any further promise for the failed speculators and bankers of the Wall Street. On the contrary, he has spoken in favour of higher tax, creation of jobs, more attention to the small business and small savers. If the products of the smaller businesses are to be treated fairly, those have to be protected from unfair competition from the imported goods of similar kind. So, future policy of the US government, it is feared, may put more restriction on such products exported from the third world countries like Bangladesh.
Under the circumstances, it would a sheer waste of time and opportunity to wait for the Armageddon to come.
While the West will be busy putting its own house in order, Bangladesh, too, will have to think up its own strategy to adjust to the changing world order.