The period was turbulent. Newly independent Bangladesh started its journey with a poor agricultural economy where much of the small physical infrastructures was destroyed in the nine months of the war in 1971. Father of the Nation Bangabandhu Sheikh Mujibur Rahman and his comrades had to start their journey to rebuild a war-ravaged country where most of the population was poor and illiterate. Neither the workforce they had to work with was skilled in the task. Resources were minimal, and the state coffer was almost empty. Then there was a severe problem of law and order due to widespread indiscipline and violence.
The government of Bangabandhu had thus faced a very uphill task to govern and manage the country by addressing the mounting problems. No doubt that one of the toughest problems his government faced was handling the economy. In the 1972-75 period of the regime, three years and eight months to be accurate, Bangladesh economy faced a series of external and internal shocks. These were: rising inflation, global oil shock, a decline in trade, drop in foreign aid, drought, cyclone, flood, an outbreak of famine, surge in smuggling and drop in food aid.
Inflation became a big concern immediately after the independence. As money supply surged by around 72 per cent in 1972, some orthodox economists argue that it fuelled inflation and eroded people's real purchasing power. However, the big jump in money supply was to meet the immediate need for cash for rehabilitation, relief and reconstruction works, and day-to-day expenditure. The wholesale nationalisations of different industries in 1972 also enhanced fiscal and monetary burden of the government. Moreover, the use of foreign aid required matching domestic funds.
The growth of the money supply in the next three years, however, dropped significantly. It was 41.50 per cent, 23.0 per cent and 5.80 per cent at the end of FY1973, FY1974 and FY1975, respectively. A lag effect of the reduction of the money supply was observed in later years. The inflation rate was recorded at 41 per cent in FY1974 which increased to 70.20 per cent in FY1975. It later came down to 23.80 per cent in FY1976 and decreased further to 3.30 per cent in FY1977. It showed that the causal connection between money supply and inflation was not always positive, and other factors may also fuel inflation. Bangladesh went through a famine in the first half of FY1975 (or the July-December period of 1974), which pushed up inflation.
M A Taslim, a former professor of economics at the Dhaka University, in a comment paper in 1998, argued: "The volatility of the international economic environment of the early 1970s was also conducive to rapid monetary growth. Both developing and developed countries went through a rapid monetary expansion in the wake of the first oil crisis. There was significant monetary growth in numerous countries, including Japan, New Zealand, Spain, India, Malaysia and Thailand. Except in 1972, monetary growth in Bangladesh compares favourably with that of an average of all developing countries and with that of the developing Asian countries. Indeed, the monetary growth rate in Bangladesh during the last year of the Mujib regime was actually much lower than the average monetary growth in even the industrialized countries of the world."
Again, there was scarcity in the world's grain market in the early 1970s that pushed the food prices up and caused famines in several countries of Asia and Africa. The commercial grain trade was expanded at the expense of food aid and that left a severe impact on Bangladesh. So, a serious food problem was created in late 1973 and 1974 when food imports dropped sharply due to a lack of necessary foreign currency. Food aid also declined, and the United States halted its committed food aid as Bangladesh had exported some jute bags to Cuba. These were the external shocks. On the domestic front, a flash flood in 1974 caused severe damage to food crops. Thus, internal production and supply of food were disrupted heavily. Already there was further escalation in food prices due to stockpiling and various other unethical practices by the traders. The combination of external and internal shocks resulted in a catastrophic famine. The government also failed to arrest the mass starvation due to administrative mismanagement, inefficiency and corruption.
Sir Austin Robinson, Emeritus Professor of Economics at the University of Cambridge, prepared a paper titled Economic Prospects of Bangladesh in 1973 for the London-based Overseas Development Institute (ODI). In this connection, he visited Bangladesh on four occasions in 1972 and 1973. In the paper he observed: "In total, the war-damage, though considerable in value, does not represent more than can be made good with a year or two's normal capital formation. The transport bottlenecks and the need to create new trade channels may restrict production for a longer period. But in more general terms, once the difficulties (grave as they are) of the next year have been overcome, Bangladesh should be in a position to tackle the acute and immensely difficult problems."
It is interesting to note that in 1973, he or anyone else didn't predict that Bangladesh would be severely affected by a famine in the last half of 1974. The famine hampered the government's other development activities and compelled it to divert its limited resources to meet the emergency of supplying food to the people. The effort was chaotic and suffered due to poor governance and corruption. Nevertheless, within less than a year, domestic food production resumed modestly and imports also increased. Inflation also came down, as mentioned earlier.
Bangabandhu was, however, not alive to see the rebounding of the economy and push his efforts to advance his economic agenda further. On August 15 in 1975, a small group of military personnel brutally killed him along with his family members. His two daughters, Sheikh Hasina and Sheikh Rehana, survived the assassination as they were in Belgium at that time.
The subsequent regime took advantage of economic recovery, which resulted from external positive factors and improvement on the domestic front. However, one may find it surprising to learn how a war-torn economy absorbed a series of external and internal shocks and finally survived at an enormous cost. The economic shocks that the Bangabandhu's regime had to go through are still a subject of discussion, debate, research and lesson.