Worldwide financial sector meltdowns signal troubled times ahead
Thursday, 9 October 2008
Enayet Rasul
The passage of the $ 700 billion bill by US Congress has not quite stemmed the tide in the financial sectors worldwide as was expected proving that any major fissure in the integrated world economy would send more than strong ripples across the length and breadth of it. Thus, stock markets round the world continue to fall like nine pins in quick fashion . The turnaround in the market following the bailout package simply did not happen. Rather the markets --worldwide-- have been seized by a meltdown mood and seem to be in a race with each other in the matter.
It was hoped that the EU countries could retain their financial and economic strengths to provide an alternative to the US economy for the players in the global economy. But that hope is also fast vanishing. Stock markets values in the UK tumbled down badly on Sunday and Monday. Similar developments are noted in Germany and other European Union (EU) countries. An emergency meeting of EU heads of government has been planning this week to go to work to devise a US type of bailout plan for the growing number of sick financial institutions in that continent. The scenes across developed Asian countries like Japan and Korea are not significantly better with their stock markets getting caught in a downward syndrome. Even in Turkey and other emerging economies the current US disease appears to be repeating in varying degrees. Thus, the entire global economy seems to be getting caught up in a slowdown and stressed mood the like of which was not seen before in living memory.
A country like Bangladesh with its fledgling economy cannot but be concerned with these global developments. It is observed that the Bangladesh economy is not substantially integrated into the world economy. Its comparative insularity will help it to stand up to the adverse external developments. In fact, there is also a strong silver lining for the Bangladesh economy amid the rising troubles in the global economy. For one outcome of the deepening troubles in the economies of the developed countries, is the reduction in the prices of basic commodities. For example, the price of oil slid below $90 per barrel on Tuesday and further sliding in its price is expected as major economies go into recession and economic slowdown due to their present financial problems. A general depression in the economies of the developed countries with that depression sustaining for quite some time, will inevitably mean less economic activities or an economic slowdown in these countries. Thus, these developed economies will lose their capacity to be heavy users of basic commodities like oil leading to a sustainable fall in their prices in world markets.
A country like Bangladesh can find itself benefited under such conditions as its fuel bill on account of import that had been among its very high worries-- till recently-will now stand a good chance of declining substantially. Not only cheaper import of fuel oils, cheaper imports of other raw materials can be a plus factor for its competitive export-oriented industries. It can also be good news for its industries that cater to domestic markets or local consumers with products made from imported raw materials or imported intermediate goods.
There are some worries that the main export earner of Bangladesh, readymade garments (RMG), might hit some snags as recession becomes a persisting factor in the US economy as the US is the single biggest buyer of RMG products from Bangladesh. But that view may be an exaggerated one. Bangladeshi RMG producers export mainly basic products such as shirts, trousers and sweaters to the US market which have inelastic demand or which people tend to buy under any condition of their financial abilities. Thus, Bangladeshi RMG may not be so badly affected in US and European markets.
But that does not mean that the sector may completely escape any notable fall in demand. As coping strategies, government here could come to the aid of the RMG industries by helping to enhance their competitiveness by upping the cash incentives for the sector ; the banks may be persuaded to lower their lending rate for the RMG sector and port and other official charges can be readjusted on the lower side as far as feasible. The RMG exporters need to embark on immediate initiatives of their own to find out and create new markets such as in Russia and the former Soviet era republics, in Latin America, East Asia and elsewhere. The commercial sections of our diplomatic missions will have to be geared to a much higher state of functioning abilities in support of these endeavours by RMG sector entrepreneurs.
The remitters of foreign currency to Bangladesh are concentrated mainly in the Middle Eastern or Gulf countries. As the possessors of massive foreign currency reserves and the windfalls received from their recent sale of fuel oil at soaring prices, these countries are unlikely to lose their developmental momentum-- requiring inflow of overseas workers--in the near future. Bangladesh will be, thus, able to go on exploiting these opportunities. Only, the greatest care must be taken officially to keep smoothened the entry of our workers into these countries in the desired number as some untoward incidents had created a psychological barriers to the process recently. The same must be overcome along with more dynamism achieved in the implementation of policies to search out manpower export opportunities in new and potential destinations.
Bangladesh Bank (BB) keeps invested over $5.0 billion of its resources in overseas markets. This amount, together with the functional foreign currency reserve, are practically all the liquid resources the country has to meet external debts and for carrying out import operations successfully. Thus, the greatest care needs to be taken not on fortnightly basis but on a day to day basis to ensure the safety and security of these investments. There has to be real proactivism in this area to sense any weakness in the management of the invested finds to be able to pull the same out in time for re-investment in more secure and paying entities.
The passage of the $ 700 billion bill by US Congress has not quite stemmed the tide in the financial sectors worldwide as was expected proving that any major fissure in the integrated world economy would send more than strong ripples across the length and breadth of it. Thus, stock markets round the world continue to fall like nine pins in quick fashion . The turnaround in the market following the bailout package simply did not happen. Rather the markets --worldwide-- have been seized by a meltdown mood and seem to be in a race with each other in the matter.
It was hoped that the EU countries could retain their financial and economic strengths to provide an alternative to the US economy for the players in the global economy. But that hope is also fast vanishing. Stock markets values in the UK tumbled down badly on Sunday and Monday. Similar developments are noted in Germany and other European Union (EU) countries. An emergency meeting of EU heads of government has been planning this week to go to work to devise a US type of bailout plan for the growing number of sick financial institutions in that continent. The scenes across developed Asian countries like Japan and Korea are not significantly better with their stock markets getting caught in a downward syndrome. Even in Turkey and other emerging economies the current US disease appears to be repeating in varying degrees. Thus, the entire global economy seems to be getting caught up in a slowdown and stressed mood the like of which was not seen before in living memory.
A country like Bangladesh with its fledgling economy cannot but be concerned with these global developments. It is observed that the Bangladesh economy is not substantially integrated into the world economy. Its comparative insularity will help it to stand up to the adverse external developments. In fact, there is also a strong silver lining for the Bangladesh economy amid the rising troubles in the global economy. For one outcome of the deepening troubles in the economies of the developed countries, is the reduction in the prices of basic commodities. For example, the price of oil slid below $90 per barrel on Tuesday and further sliding in its price is expected as major economies go into recession and economic slowdown due to their present financial problems. A general depression in the economies of the developed countries with that depression sustaining for quite some time, will inevitably mean less economic activities or an economic slowdown in these countries. Thus, these developed economies will lose their capacity to be heavy users of basic commodities like oil leading to a sustainable fall in their prices in world markets.
A country like Bangladesh can find itself benefited under such conditions as its fuel bill on account of import that had been among its very high worries-- till recently-will now stand a good chance of declining substantially. Not only cheaper import of fuel oils, cheaper imports of other raw materials can be a plus factor for its competitive export-oriented industries. It can also be good news for its industries that cater to domestic markets or local consumers with products made from imported raw materials or imported intermediate goods.
There are some worries that the main export earner of Bangladesh, readymade garments (RMG), might hit some snags as recession becomes a persisting factor in the US economy as the US is the single biggest buyer of RMG products from Bangladesh. But that view may be an exaggerated one. Bangladeshi RMG producers export mainly basic products such as shirts, trousers and sweaters to the US market which have inelastic demand or which people tend to buy under any condition of their financial abilities. Thus, Bangladeshi RMG may not be so badly affected in US and European markets.
But that does not mean that the sector may completely escape any notable fall in demand. As coping strategies, government here could come to the aid of the RMG industries by helping to enhance their competitiveness by upping the cash incentives for the sector ; the banks may be persuaded to lower their lending rate for the RMG sector and port and other official charges can be readjusted on the lower side as far as feasible. The RMG exporters need to embark on immediate initiatives of their own to find out and create new markets such as in Russia and the former Soviet era republics, in Latin America, East Asia and elsewhere. The commercial sections of our diplomatic missions will have to be geared to a much higher state of functioning abilities in support of these endeavours by RMG sector entrepreneurs.
The remitters of foreign currency to Bangladesh are concentrated mainly in the Middle Eastern or Gulf countries. As the possessors of massive foreign currency reserves and the windfalls received from their recent sale of fuel oil at soaring prices, these countries are unlikely to lose their developmental momentum-- requiring inflow of overseas workers--in the near future. Bangladesh will be, thus, able to go on exploiting these opportunities. Only, the greatest care must be taken officially to keep smoothened the entry of our workers into these countries in the desired number as some untoward incidents had created a psychological barriers to the process recently. The same must be overcome along with more dynamism achieved in the implementation of policies to search out manpower export opportunities in new and potential destinations.
Bangladesh Bank (BB) keeps invested over $5.0 billion of its resources in overseas markets. This amount, together with the functional foreign currency reserve, are practically all the liquid resources the country has to meet external debts and for carrying out import operations successfully. Thus, the greatest care needs to be taken not on fortnightly basis but on a day to day basis to ensure the safety and security of these investments. There has to be real proactivism in this area to sense any weakness in the management of the invested finds to be able to pull the same out in time for re-investment in more secure and paying entities.