Towards a better govt-business rapport
Syed Fattahul Alim | Wednesday, 25 June 2008
AT a recent post-budget discussion at the National Press Club attended by the business leaders with the finance adviser as the chief guest, some very important and at the same time sensitive issues came up. The main point of contention, as raised by the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), was that the banks are facing liquidity crisis with the result that the private sector is suffering. The upshot of this is credit crunch, which, the business leaders noted again is affecting their business.
The finance adviser, however, refuted the claim of the business leader on the basis of the central bank statistics on the liquidity situation in the commercial banks. According to him, there should not be any liquidity crisis as just two months back the banks were holding an excess liquidity of Tk. 120 billion. So, how is it possible that the banks are shy of extending loans to the businesses due to shortage of funds, he contended.
Alluding to his personal experience about bank loan, the FBCCI chief suggested a number of reasons behind, what he claimed, liquidity crisis in the banks, since the anti-corruption drive might have discouraged the people from keeping their money in the banks. And on this score, he came up with the suggestion that people are hoarding bank notes of higher denomination, especially the 500 taka notes, in the areas near the border areas. In that case, the best way to get out of the situation is to demonetise the 500 taka notes, the FBCCI chief put it to the Finance Adviser, which the finance adviser rejected forthwith.
Once the report on the post-budget discussion was carried by the media, people naturally got a bit jittery, particularly about the part of the conversation on demonetising 500 taka notes. Though the finance adviser dismissed such possibility, the speculation continued to persist. The central bank later categorically stated that there was no possibility whatsoever for any such demonitisation.
Demonetisation of bank notes of higher denomination is a matter of grave concern, even for the small savers. That is because, opening an account in the banks and then carrying out the task of transactions with bank are still a time consuming and difficult one for savers like small traders, unlettered women and the people belonging to the lower rung of society. The old and the infirm, who have some savings would prefer to keep their money with them instead of going to banks. There is nothing wrong in it and one cannot term it as hoarding.
And strangely though, there are still some people in the rural areas who would rather like to keep their money with them than depositing it into bank simply because they are yet to develop enough confidence in the banks. Frankly speaking, the banks, too, are yet to be very friendly to the people belonging to this social class. And naturally these people keep their money with them, especially in bank notes of higher denomination, if their savings amount to, say, a few thousand taka. These people are the hardest hit when the bank notes are demonetised as they are often not well-informed about what to do in case the government goes for such a move. These savers out of the ambit of the banks are certainly not hoarders of money. But they run the risk of being affected by any government move to this end all the same. People who have the past experience of such demonetisation know it well and as such are scared of such a possibility. Naturally, they are the gullible lot, whenever any rumour on the issue starts going the rounds.
The real hoarders of the bank notes, on the other hand, are very smart people and maintain necessary channels to deposit their ill-gotten money in the banks under different names. And even if any money is lost in the process, they, unlike the aforementioned small savers, have the necessary capacity to stand the loss. So, demonetisation is a serious move on the part of the government, an option it resorts to only under very special circumstances.
However, there should be no scope for alarm in this regard because the finance adviser on the day the post-budget discussion was being held and the central bank governor on the day that followed assured the public that demonetisation of the 500 taka note is quite out of question. And this should put an end to any further speculation or rumour on the issue.
Having said that one may well return to the main issue of the post-budget discussion as introduced in the beginning of this write-up. Now even if any move towards demonetisation, as suggested by the FBCCI chief, is out of question, what has one to say about the credit crunch that is being or is likely to be faced by the business in the private sector? Being the head of the apex forum of all the business bodies of Bangladesh, the FBCCI president mentioned a "real" case -- that of his own -- to lend substance to his claim. Reportedly, he did not get the required fund from any commercial bank for his project because of liquidity problem in the banking sector. However, it is not yet know whether this case represents the liquidity problems of the banks or any other factor concerning the requirements and norms as well as standards that the banks have to comply with before disbursement of credit in accordance with the directives given by the central bank. But the government must not make any more delay to find out what the banks are doing with the excess liquidity worth Tk 120 billion that the Finance Adviser had checked lying with the banking system just two months back. Meanwhile, the points made of the FBCCI chief should not be taken lightly either. This is more so at a time, when the business is gradually getting over the shock and fear of the anti-corruption drive. As in the overwhelming number of cases in this country, business and moneymaking has not been very clean anytime in the past, the anti-corruption drive has naturally left an irreversible impact on the economy. Now that the confidence of the business community has been restored, every effort should be in place not to destroy it by all means. And there is no point in this regard for the business community and the government to be at cross purposes on the issue.
The fact that the government will have to go for domestic borrowing on a large scale -- to the tune of 300 billion taka -- to finance its development activities in the next financial year(2008-09), which is just round the corner, there is worry among the members of the business community about their access to bank credit being limited. So, the government would do well to allay their fears by explaining why there will be enough liquidity available for them in the bank and other financial institutions, notwithstanding very large borrowing by the government. This is how a better rapport will develop between the government and the business in these trying times.
The finance adviser, however, refuted the claim of the business leader on the basis of the central bank statistics on the liquidity situation in the commercial banks. According to him, there should not be any liquidity crisis as just two months back the banks were holding an excess liquidity of Tk. 120 billion. So, how is it possible that the banks are shy of extending loans to the businesses due to shortage of funds, he contended.
Alluding to his personal experience about bank loan, the FBCCI chief suggested a number of reasons behind, what he claimed, liquidity crisis in the banks, since the anti-corruption drive might have discouraged the people from keeping their money in the banks. And on this score, he came up with the suggestion that people are hoarding bank notes of higher denomination, especially the 500 taka notes, in the areas near the border areas. In that case, the best way to get out of the situation is to demonetise the 500 taka notes, the FBCCI chief put it to the Finance Adviser, which the finance adviser rejected forthwith.
Once the report on the post-budget discussion was carried by the media, people naturally got a bit jittery, particularly about the part of the conversation on demonetising 500 taka notes. Though the finance adviser dismissed such possibility, the speculation continued to persist. The central bank later categorically stated that there was no possibility whatsoever for any such demonitisation.
Demonetisation of bank notes of higher denomination is a matter of grave concern, even for the small savers. That is because, opening an account in the banks and then carrying out the task of transactions with bank are still a time consuming and difficult one for savers like small traders, unlettered women and the people belonging to the lower rung of society. The old and the infirm, who have some savings would prefer to keep their money with them instead of going to banks. There is nothing wrong in it and one cannot term it as hoarding.
And strangely though, there are still some people in the rural areas who would rather like to keep their money with them than depositing it into bank simply because they are yet to develop enough confidence in the banks. Frankly speaking, the banks, too, are yet to be very friendly to the people belonging to this social class. And naturally these people keep their money with them, especially in bank notes of higher denomination, if their savings amount to, say, a few thousand taka. These people are the hardest hit when the bank notes are demonetised as they are often not well-informed about what to do in case the government goes for such a move. These savers out of the ambit of the banks are certainly not hoarders of money. But they run the risk of being affected by any government move to this end all the same. People who have the past experience of such demonetisation know it well and as such are scared of such a possibility. Naturally, they are the gullible lot, whenever any rumour on the issue starts going the rounds.
The real hoarders of the bank notes, on the other hand, are very smart people and maintain necessary channels to deposit their ill-gotten money in the banks under different names. And even if any money is lost in the process, they, unlike the aforementioned small savers, have the necessary capacity to stand the loss. So, demonetisation is a serious move on the part of the government, an option it resorts to only under very special circumstances.
However, there should be no scope for alarm in this regard because the finance adviser on the day the post-budget discussion was being held and the central bank governor on the day that followed assured the public that demonetisation of the 500 taka note is quite out of question. And this should put an end to any further speculation or rumour on the issue.
Having said that one may well return to the main issue of the post-budget discussion as introduced in the beginning of this write-up. Now even if any move towards demonetisation, as suggested by the FBCCI chief, is out of question, what has one to say about the credit crunch that is being or is likely to be faced by the business in the private sector? Being the head of the apex forum of all the business bodies of Bangladesh, the FBCCI president mentioned a "real" case -- that of his own -- to lend substance to his claim. Reportedly, he did not get the required fund from any commercial bank for his project because of liquidity problem in the banking sector. However, it is not yet know whether this case represents the liquidity problems of the banks or any other factor concerning the requirements and norms as well as standards that the banks have to comply with before disbursement of credit in accordance with the directives given by the central bank. But the government must not make any more delay to find out what the banks are doing with the excess liquidity worth Tk 120 billion that the Finance Adviser had checked lying with the banking system just two months back. Meanwhile, the points made of the FBCCI chief should not be taken lightly either. This is more so at a time, when the business is gradually getting over the shock and fear of the anti-corruption drive. As in the overwhelming number of cases in this country, business and moneymaking has not been very clean anytime in the past, the anti-corruption drive has naturally left an irreversible impact on the economy. Now that the confidence of the business community has been restored, every effort should be in place not to destroy it by all means. And there is no point in this regard for the business community and the government to be at cross purposes on the issue.
The fact that the government will have to go for domestic borrowing on a large scale -- to the tune of 300 billion taka -- to finance its development activities in the next financial year(2008-09), which is just round the corner, there is worry among the members of the business community about their access to bank credit being limited. So, the government would do well to allay their fears by explaining why there will be enough liquidity available for them in the bank and other financial institutions, notwithstanding very large borrowing by the government. This is how a better rapport will develop between the government and the business in these trying times.