The meteoric rise of foreign exchange reserve

Syed Ashraf Ali | Published: February 04, 2014 00:00:00 | Updated: November 30, 2024 06:01:00

To everyone's surprise, both exports and imports of Bangladesh in December rose significantly in the backdrop of political stand-off punctuated with roadblocks, murders, arsons and work stoppages that put the economy on a limbo for most of 2013. A month later, in January last, the foreign exchange reserve also advanced a notch higher to reach a record level of $18 billion. It serves as a reassurance that resilience of our economy has reached a stage from where it can withstand shocks of assorted nature coming from within or outside.Â Â Â
Pessimists will always have their own way of conjuring a gloomy picture but in terms of performance of the economy and its future outlook, the present era for Bangladesh is what Charles Dickens would have probably called 'the best of times'. To borrow again from Dickens'sÂ A Tale of Two Cities, 'the worst of times' was the decade after the liberation of Bangladesh. The worry then centred on running out of foreign exchange reserve in contrast to the present worry -a pleasant worry, we can say - of a glut. As one who had the opportunity of observing the unfolding events from the vantage points of State Bank of Pakistan, Karachi and later Bangladesh Bank, I thought I could, for the benefit of the posterity, chronicle Bangladesh's rise from the ashes like the phoenix of Grecian legends.Â Â Â Â
Bangladesh, in fact, started with a clean slate - zero foreign exchange reserve, to be precise. The shrewd Pakistanis did whatever they could to strangle the fledgling republic from all fronts - political, social and economic. As part of their plan to strangulate the economy, the State Bank of Pakistan took away all the foreign exchange balances with central banks abroad even before General Niazi had signed the surrender instruments.
Back in Karachi they also tried to capture the overseas balances of the two East Pakistan-based banks, the Eastern Banking Corporation Ltd (present Uttara Bank) and Eastern Mercantile Bank Ltd. (present Pubali Bank). The State Bank of Pakistan summoned managers of these two banks' Karachi branches to issue instructions to the foreign banks in New York and London to transfer the balances to the State Bank from the accounts of their head offices. Fortunately, the managers did not have the authority from their head offices at Dhaka to operate the accounts.
The nature, it is said, has its own way of dispensing justice. Pakistan's economy is now in a shambles: their rupee is now worth only Bangladesh's 72 poisha, the foreign exchange reserve has plummeted to about $8 billion with potential to dry out to service the mounting short-term debt burden. It's a bad news for those who still lament about the good days they would have spent in a unified Pakistan. One of them, a relation of mine, thinks that rice must be available in Pakistan at a't anna (50 poisha) a kg.Â Â
When the dust of war had settled down late in December of 1971, Mr. Ijadur Rahman, a gentleman with a vision and a singular sense of humour, was carrying the mantle of what was called 'controller of foreign exchange'. He often quipped that he was a controller with nothing to control. When a small balance was later built, people started coming to him with applications for foreign exchange for foreign visits. His typical order was, 'allow Â£5 as a special case'. That tells us how unenviable his position was.
The scarcity with varying degrees of worries continued up to 1974 when the country was buffeted by very high price of oil and food grains in the world market and devastating flood in Bangladesh - and withholding of shipment of food grains by the USA exacerbated the troubles.
On the other hand, foreign exchange reserve had reached its nadir. When the time came for announcement of the Import Policy for the July-December '74 shipping period there was nothing in the kitty. The Policy was, therefore, drawn with provision for financing imports mainly with foreign exchange earnings of the Bangladesh expatriates and foreign aid. This was how the Wage Earners' Scheme was born in 1974. The scheme, which created multiple exchange rates, was scrapped in 1993 on the eve of declaration of taka as a controvertible currency for current transactions. In the meantime, the exchange rate of taka was adjusted for the umpteenth times to bring it closer to its intrinsic worth, ordinarily represented by so-called purchasing power parity.Â Â
How the Government of Bangabandhu Sheikh Mujibar Rahman rode out the cataclysm of the early days of Bangladesh is another story. It needed all his charisma, intelligence and diplomatic manoeuvres to avert the impending catastrophe. By June of 1975, the economy finally reached the pre-'71 level and was poised to take off. But a month and half later the assassins' bullets brought an end to his dream of building the Sonar Bangla (Bengal of Gold). That also paved the way for a succession of autocrats who did everything to erase the heroics of the founding fathers from the annals of Bangladesh.
Slowly, with assistance from the World Bank and other donors and friendly countries, the reserve crossed the threshold of a billion dollar in 1991, coinciding with the return of democracy of sort. There were celebrations in the Finance Ministry and Bangladesh Bank - some say, sweets were also ordered to sweeten the occasions. As the reserve continued to reach higher plateaus the political parties which alternately ruled the country, with brief intermissions to create space for the care takers, vaunted it as the sine qua non of their good governance. There are many other claimants, too, from one or the other business and trade associations mainly to buttress their demands for subsidies and other benefits.
The governments may certainly lay a claim but in the melee of the competing claims the real actors get neither the limelight nor a pat in the back. They comprise nearly 40 million farm workers, close to 7.0 million migrant workers and about 3.8 million garment workers, mainly girls from rural background.
The farm workers, including their minor children, work real hard literally with sweat and tear and innovative ideas to reduce our dependence on imported food grains but often find themselves at the wrong end of the equation. The present government addressed some of their problems by timely supply of fertiliser and prioritising supply of electricity for irrigation but much more needs to be done in terms of reasonable support price for their produce, reduced costs of inputs, adequate institutional credits and easing the constraints for marketing their produces.
The next group of important contributors to foreign exchange earnings comprises seven million or so mostly young men, with a splatter of girls, working in the inhospitable Arabian deserts, torturous Malaysian jungles and racist domains of white men. Most of them send their entire savings that swell the foreign exchange reserve but get a raw deal from the manpower agents and an array of government agencies. The government decorates some pseudo remitters with medals and CIP (commercially important person) status probably for whitening black money but the genuine mainstream remitters get only the lip service.Â Â Â Â Â Â Â Â
Not least important are the entrepreneurs who, with the assistance of a legion of girls from mostly rural background, wrote a new chapter in the history of Bangladesh's meteoric rise as one of the leading exporters of apparel in the world market. I can imagine that when Mr. Kissinger who conspired to assassinate some of the Third World leaders, picks up a piece of apparel with a 'made in Bangladesh'Â label in a downtown posh super market he must be wondering whatever has happened to the country he wrote off as a bottomless basket. However, the girls and the boys who helped the country to earn precious dollars and the laurels, get a pittance as wage in return for the backbreaking work with the potential risks to die in the inferno or under the rubbles of collapsed factories.
As I try to compose this piece, the news reader of a TV channel is telling that the number of crorapati (multi-millionaires) doubled during the last five years. It gladdens our heart but let us not forget that nearly 25 per cent of the people, who made this possible, live below the poverty line. We often fail to realise what it means to be living under this line and the pangs of hunger they endure without any complaint to Allah or any one. Let us spare a thought for these poor souls and work toward equitable distribution of wealth.Â Â Â Â Â Â Â Â Â
As every coin has two sides, so have the impacts of rising foreign exchange reserve. The other side, as some writers have pointed out, is the inflationary impacts on the economy in the wake of rising reserve. It calls for productive use of our external assets in ways that can sustain our pursuit for a prosperous Bangladesh without overheating the economy with printed money.
The writer is a formerÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â central bank official.Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â saali40@yahoo.com