SYEDUZZAMAN: The Pakistan government had also suspended payment of debt because their balance of payments position was also very precarious. And I remember that the Pakistan government had obtained the time from the donors for, I think, a period of moratorium up to 30th of June 1974. And the Bank was desperately trying on behalf of the donors to come to an agreement with the Bangladesh government.
Now, at that stage I was deeply involved in these whole process, and I was the Bangladesh government's official negotiator for rescheduling of, discussion on debts, foreign debts. And that exercise in which I had very close association with the Bank- Mr. Bill Diamond, he had by that time become the country director; there was a division chief called David Dunn; and there was a deputy director of the legal department, I think his name was Douglas, Douglas Fontein, a Dutchman. And I had to discuss with them a number of times.
LEWIS: Just Faaland didn't get involved in that?
SYEDUZZAMAN: Just Faaland was the Res Rep [resident representative] here of the Bank. He was, of course, carrying all these messages between the government and the Bank and through the Bank with the donors.
Now how the thing got resolved, it is very interesting. It's a long process, but I can tell you briefly. At that time Sheikh Mujibur Rahman, he was our prime minister. He was a charismatic leader, the father of the nation, and we were all-at that time, the new country, we were, everybody was looking up to Sheikh Mujibur Rahman, the great leader, called him "Bangabandhu," father of nation. And when these things were getting really a little bitter, one day we had a discussion in the presence of the prime minister. And there was-the Deputy Chairman of the Planning Commission, Nurul Islam, was there, and the Finance Minister, Mr. Tajuddin Ahmed-he's now dead; he was later on killed in the jail-he was there; and some other officers; the Ministry of Foreign Affairs sent someone. And then we explained that, "This is the legal situation. These loans were legally incurred by the Pakistan government. It's true some of these loans were spent in what was then East Pakistan, now Bangladesh but legally we cannot take these responsibilities at all because we don't know how these loans were spent. Many of them are spent by central government agencies; we don't have the accounts," and so on. Now, at the same time it became quite clear that Bangladesh would need to re-establish its relationship with the donors bilaterally. We preferred to deal with the problem bilaterally. Now, I remember-it was a dramatic thing-we were coming down the stairs of the prime minister's house, and as he was smoking his pipe he suddenly asked, "Well, these projects that were built up with these foreign loans, are they still in Bangladesh? Can you show me one or two of them? If they are there, then I will accept the liability. If they're not there, I have nothing to do with them." So we got the policy guideline from that.
And then we built up our case. We went into the details, loan by loan. And then we formulated our position, official position, with the approval of the government: "Bangladesh government will agree to take over the liabilities of those projects which are visibly located in Bangladesh."
LEWIS: No program loans?
SYEDUZZAMAN: No program loans. I'll come to you-with that I had problems, program loans. But my point was-on this I was able to carry the government with me- that program loans were made available to individual importers who had paid in local currency, these were their obligations. The foreign exchange liability remained with the Pakistan government. As far as East Pakistan is concerned, they had absolutely no liabilities left unfulfilled. It was like buying cash foreign exchange from the central bank. They had bought the foreign exchange proceeds of the foreign loans with local currency and they had absolutely no liability. So the question of accepting the liabilities for program loans did not arise at all. And I was able to convince the Bank-first I was able to convince my government and later on the Bank representatives.
Okay, now having accepted that, then we prepared our negotiating position like this: a particular project maybe located, visibly located in Bangladesh; let's say a huge jute mill which was built up with IDA loans or a textile mill. But if during the war of liberation the mill was damaged, then we would have to deduct from the loan the value for the damages. This is number one. And then loan by loan we had to go back, up to which installment the loans were really paid by the projects, though they were not probably repaid by the Pakistan government because the lending was for a smaller period, IDA for fifty years, maybe they would lend to the project, to the province for twenty-five years.
So we had paid, though Bank group said, "No, we have not received those installments."
We said, "We're not concerned with that. The people in East Pakistan, the projects in East Pakistan, they have repaid their obligations." So we were able to negotiate project by project and to reduce our liabilities.
And then I remember one interesting case, an IDA credit which was given to the Agricultural Development Bank of Pakistan. And part of that loan, credit, was reallocated to East Pakistan Agricultural Development Bank. And that loan was used for buying mostly tractors and tillers, equipment which was still-some of the equipment was still in possession of farmers and some tea gardens and sugar cane plantations and so on. So there was a problem regarding that, but I maintained my point that these, the Agricultural Development Bank in East Pakistan, they had used this money as a program loan. The partakers, the users, they had repaid their obligations by paying in local currency. So there's no more obligation left for East Pakistan. Ultimately I was able to convince that also.
So taking the program loans and the project loans separately and then taking credit for damages done during the war of liberation, the-the figure that the donors were originally holding before us was twelve hundred million dollars - that East Pakistan was liable for twelve hundred million dollars out of one loan.
KAPUR: That is in '73 dollars?
SYEDUZZAMAN: That is in '73 dollars, yes. Well, these were actually the amounts mentioned in the loan agreements.
LEWIS: Cumulative, yeah.
SYEDUZZAMAN: Yes. Now, after these negotiations, getting rid of the program loans, getting rid of damaged projects which were not visible, getting rid of partly damaged projects, ultimately we came down to a figure of four hundred million dollars.
LEWIS: You did very well.
SYEDUZZAMAN: From twelve hundred million dollars to-the interesting part is still I have not told you-to four hundred million dollars.
Now, at that time-well, then we negotiated. Our position was that we'll negotiate bilaterally; we'll not negotiate multilaterally with the Bank. With the Bank we'll negotiate only the IDA credits or IBRD [International Bank for Reconstruction and Development] loans. So we negotiated one by one.
I remember those were very, very hectic days for me. Every day there was some meeting. The Bank organized two discussion meetings; I think one was in Paris, one was in London. I had to--those were specifically for the Bank's credit.
Now, when we came to-well, in the case of Bank also, I think the Bank made a very special dispensation because we agreed that we shall accept these loans only on DSA [debt service agreement] terms, on the softest terms available from any bilateral donor, those are the DSA terms.
Bilaterally the donors agreed to that - that we would repay, we would assume the obligations on DSA terms. But in the case of the Bank, I think there was a small amount of IBRD loan you still find in the documents; those are the IBRD loans. And there the Bank made a special dispensation because Bangladesh was not eligible for IBRD loans in '74. They made a special dispensation so we could take over the liabilities of that.
And at that time Just Faaland made a very interesting suggestion to me one day. He said, "Okay, now you have come to this situation." Well, we had more or less cleared with all the bilateral donors except Italy. Italy, we had not yet agreed…
SYEDUZZAMAN: …Anyway, Just Faaland told me that, "Look,"-he unofficially made this suggestion-"we have now come to this figure, four hundred million dollars, and the DSA terms have an 84 percent grant element, so in effect your debt is sixteen million dollars for every hundred million dollars. Why don't you tell the donors that, 'Give us a consolidated loan of sixty-four million dollars. We'll repay you with that; we'll start from the scratch with a loan of sixty-four million dollars'?" I tried it with a couple of donors. They were not at all willing to take this up. But that was a very interesting suggestion. At that time Bangladesh's balance of payments situation, foreign exchange situation, was very difficult, and it would have made good sense. But it made sense only on the books of economics and accounts, but in real life nobody agreed to touch this, the so-called grant element and so on.
LEWIS: Help me to understand. He suggested that you get a new loan for the grant element of your, that term. . .
SYEDUZZAMAN: Yes, you get a loan from somewhere, sixty-four million dollars . .
LEWIS: And then wipe out the whole thing.
SYEDUZZAMAN: . . then you pay the current, this present value of this four hundred million dollars with 84 per cent grant element, which is sixteen per cent, which is sixty-four.
LEWIS: You should have gotten Norway to do that for you.
SYEDUZZAMAN: I don't think Norway was-were they so rich at that time?
LEWIS: Well, no, they didn't have their oil in at that time.
SYEDUZZAMAN: So it would have been very interesting to be able to do that.
LEWIS: Now, in this-I remember--I reviewed the Bank's history in Pakistan at one time a few years ago, and this was, as you say, also a very troubled issue for them for a long time, the Bank and Pakistan. This was a-you talk about-negotiation between you and the donors. The assumption is that whatever you get out of would be . .
SYEDUZZAMAN: Acceptable to Pakistan. Well, you know the Bank was mediating. They were travelling back and forth between Pakistan and Bangladesh.
And-oh, one more thing. We had agreed that we would take over the liabilities worked out like this as on July 01, 1974. So until June 30, 1973, all liabilities were with the Pakistan government. We did not agree to pick up the tab from the 16th of December '71. We made it quite clear that we will accept it only from the first of July 1974.
Anyway, these were very exciting days. Now as we cleared one after another bilateral negotiations, we were entering into fresh bilateral agreements with the donors. And we also resumed our relationship with IDA. In December '73 IDA agreed to provide the first program loan, program credit, for Bangladesh. I think it was fifty million dollars. I went for negotiating that first credit.
And then, of course, the project lending started, because in the later days, it was the end of the Pakistan period, the Bank had undertaken a nine-volume land and water use study for Bangladesh. Now in that study a number of projects were identified for long-term investment in the agriculture sector, in water and agriculture sector in Bangladesh: flood control, drainage, irrigation, all of these. And we started negotiation with the Bank on the basis of that document. The projects that arrived [inaudible] considered by the Bangladesh Planning Commission was review, and ultimately, I think, the Planning Commission, between the Planning Commission and the IDA, we agreed on eleven major projects--not major projects, eleven projects which were based on a new philosophy, because in Pakistan days, the Bank had gone for big projects: dams, big irrigation projects, large embankment projects, for flood control, drainage and irrigation. Now for the first time there was a change in the perspective and in perception, and the government and the IDA agreed that henceforth lending in the water sector in the agricultural sector should be for small irrigation projects: surface water, pumps, shallow or mid-depth specialty wells, and then deeper wells. No more of those big irrigation projects and dams and embankments, so that was one interesting thing I remember.
Now what happened in the course of all these negotiations-I think the last was with the U.S. because U.S. law, I think, did not permit writing off loan of-oh, this is--now I remember. So what we did with the U.S., we agreed that, "Yes, well, if your law does not permit writing [off], what you'll do, you'll accept the loan figures arrived at on that basis but then you change the maturity of the loan so that in effect we get a grant element [inaudible] purpose."
LEWIS: The U.S.-I think it must have been with the Bank because the U.S. had a grant element of . .
SYEDUZZAMAN: Yeah, I agree, I think, yes, you are right. That's why our loan, the initial loan from the Bank was for a very long period so that the grant element was brought down to the debt terms, to 84 per cent. So that was an unusual measure taken by the Bank at that time.
So that's how we resumed our relationship with the Bank.
LEWIS: Fascinating story. [The Third Part will be published tomorrow]
The interview was taken on November 19, 1991 in