Autonomy for BB

If everything goes according to the plan, the Bangladesh Bank (BB)---the country's monetary authority, is all set to emerge as an autonomous financial institute. To make this happen, as incumbent governor of the central bank Dr Ahsan H Mansur discloses in an interview with the FE, the process of bringing about the necessary revision to the Bangladesh Bank Order 1972 is under way right now. With this move Bangladesh stands poised to break free from the stereotyped notion that only the developed, not the developing or least developed, countries deserve independent central banks. In fact, the central bank in every country should enjoy some degree of independence in performing its core functions like monetary policy and financial stability. It may be accountable as much as required for maintaining transparency and responsiveness to crises through reporting to the finance ministry or parliament.

The nation will be waiting to see how far the horizon of the BB's autonomy can be extended under the legal provisions now getting worked out on the anvil. That the incumbent BB governor has made it clear that he has not been under any pressure from the government is understandable. It is, however, one thing under the rule of an interim government but quite another when a political government takes over. Political governments more or less exert pressure on the central banks everywhere at times to take popular decisions for reasons of political expediency. The national banks in advanced countries have safeguards equal to the task of withstanding such pressures without getting swayed by political pressures in favour of adopting short-term populist policies. Instead, the central bank undertakes the task of navigating the tortuous and painful course to achieve the long-term economic goals even if the policy is unpopular. If the BB is made structurally sound and legally strong to go about the business of focusing on its long-term goals such as framing effective monetary policy, controlling inflation and managing financial crises arising even out of external developments, it will be an excellent job.

It must be recognised that the BB has already given a good account of itself.   During the remaining period, it will have to build on this to leave a legacy for the political government to continue with such an enabling equation. If this happens, it will be a great gift from the incumbent governor and the interim government to the nation. It is because of such mutually beneficial relations between the government and the BB, the later could take a few unpopular decisions such as leaving the exchange rate between dollar and Taka on the open market and supporting at least two banks to have an appreciable turnaround.

Next to come, according to the governor, the most crucial decision on the non-performing banks. Merger of a few of them and takeover of others on the basis of assessment the BB made are on the cards now. The banks that face severe liquidity crisis will be taken over but not dissolved. The government can hardly afford to operate such sick banks. If not divested to raise funds, the other ways of their survival will be handing over to private hands or injecting more minted money. The last option is undesirable. Perhaps a middle course based on a combination of disposal of some assets, thriftiness in operation and the barest minimum injection of fund can help wobbling banks to gradually stand on their feet.