The economic price of political leverage

As a country we are paying unnecessary economic levies for our individual and collective political decisions. This important point has been articulated, rightly or inadvertently, and noted in several observations and specific articles, published in this daily in last few weeks.

Thus, the government's decision for bank bailout in midst of banking sector systemic crisis, capacity payment for liquefied natural gas (LNG) without infrastructure being ready and early celebration for the move-out from the LDC (least developed country) category are results of blindsided policy decisions without contemplating the long-term economic price to be paid.

Mr. Mazher Mir wrote an excellent article in the FE's issue of March 07, 2018, highlighting the possibility of gaining financial leverage through better hedging options on the part of Bangladesh as a country and a business entity. The exchequer of the country and monetary authority do not have to take such advice verbatim. However, contemplating such options, with necessary modifications, would definitely provide Bangladesh a better leverage to remain solvent. The government and its policymakers must realise that solely focusing on scenarios of political outcome surrounding the 2018 national election blindsides them from the true fractures building in the system. These fractures are linked to the economy, finance, infrastructure, etc.

Bangladesh as a country can hedge its foreign reserve to gain more leverage. It's, however, easier said than done. Given our current track record it would be very difficult to trust the true intent and also the competency of the government to see such an initiative through and through. The sage economic and financing decision that would provide long-term political stability is replaced by crony profiteering backed by passive support from the government. Capital market, banking system, commodity supply, energy contracts, etc., all are going through "reforms" -- reforms that are designed and implemented to serve a select group of people. As a policy and systems researcher, this writer knows from experience that certain capitalist latitudes are needed to govern and manage countries with large populations. However, even the privileged groups need to heed the warning signs that without good governance profits would falter eventually. For example, a banking system in a country of 170 million would render more than enough sustainable return with proper regulation and its implementation. Unfortunately, that is not the case and the current malpractice and hypocritical government decisions about the bank management would turn the same banking system to be our economy's Achilles' heel.

In the last decade or so, government's repeated decision to bailout malfunctioning banks have exacerbated the infrastructural vulnerability of the banking system. The recent decision to bailout Farmers Bank through offloading 60 per cent of its toxic assets to other banks does not save the bank; rather, it infects the other somewhat functional banks and creates risks of their failing as well. It almost seems like that as a private entity or institution, the Farmers Bank committed financial crime. Rather than holding the bank and its management accountable, the government and the regulators are trying to save such an entity using the state's resources - inherently the citizens' resources. The unsavoury practices in the banking system are condoned due to bank management's political leverage and if this continues then the fallout would not be political rather economic.

The recent capacity payment issue regarding LNG supply highlights the issue of economic levies because of political decision. In last few years, the government hastily signed multiple LNG terminal contracts to not only meet the energy demand but also to appease the sell-side speculators and other interest groups that would enjoy commissions and profit. As responsible and patriotic policymakers, there should have been more due diligence regarding the timeline of project completion, buy-side responsibilities and better rates. Instead, the government has to pay extra amount as per capacity payment clause due to unpreparedness in taking delivery of the LNG to be supplied now. This clause stipulates that when the builder of the LNG terminal is ready to supply the full volume contracted, then, even if the government fails to receive the full volume due to buy-side fault, it has to pay for the whole amount. The gas transmission pipeline is not yet fully laid-out and as long as this pipeline is not ready we, as a country, have to pay for the gas that we are not getting.

Bangladesh has shown capacity to continue the growth momentum even under very adverse conditions - political, environmental, social and regional. This week the United Nations (UN) Committee for Development Policy (CPD) confirmed that Bangladesh is on track to move out from the LDC category. This is definitely a piece of good news; it confirms that we are developing but there is more to that narrative. Just as 50 plus banks did not make our banking system better, just as cachet full of GPA 5 does not confirm that our education system has become better, graduating from the LDC category, in a similar manner, does not mean we, as a country, have become better. Bangladesh has truly taken benefit of its LDC status through trade quotas, lower tariff and tax rates in global trades, prioritised funding, donations or grants for social programmes and infrastructures, etc. During our last 47 years of the LDC period, we failed to build a resilient and diversified economy, a globally competitive workforce and to reduce the income inequality. The eligibility criteria for LDC graduation only highlight the broad numbers and we have to ask the right questions to see if these numbers truly represent our progress as a country. If our gross national income (GNI) has truly increased, then how come, people in rural areas are taking less caloric meals? Have we secretly become so rich that our rural people are now following California Diet! The economic vulnerability index truly shows the level of our economic resilience. Is our banking system so strong that we can easily absorb toxic assets of a private bank with the help of our state-owned banks (SoBs)? Our country's human asset index also reflects the "true" picture of our human resources. Is our human resource so qualified that we have one of the highest number of unemployment rate for college graduates?

The government and its leadership are focused on gaining political leverage to not only pass the hurdle of 2018 national election but also to enjoy impunity afterwards. Given the regional and global political atmosphere probability is high that they will pass the upcoming hurdle.

Political leverage is short-term but it blindsides economic leverages and we, as a country, might not have in the long run the capacity to pay the economic price for such a political leverage.

Safwan Rob is Archer Fellow, Lee Kuan Yew Scholar. e-mail: [email protected]