Last days of Mujib government— its policy initiatives were perceived to be right by economists at home and also the donors

M. Syeduzzaman | Published: January 31, 2017 20:46:16 | Updated: October 24, 2017 12:23:24

LEWIS: How long did you continue as the Secretary for aid coordination? 
SYEDUZZAMAN: Well, I continued until end of '75, throughout the period of the first government [of Bangladesh].  And in February '76 I was shifted by the new government as Secretary for Finance when Ziaur Rahman became president.  He brought me--much against my wishes--as Secretary, Finance. I was there for two years; then I went to the Bank as Alternate ED [Executive Director]. 
LEWIS: Right.  How long were you there as the Alternate ED? 
SYEDUZZAMAN: I was there five years. 
LEWIS: Five years. 
SYEDUZZAMAN: I came back in October of '82.  I joined the Bank in July '77, came back October '82. 
The other thing that I remember from that period-well, apart from negotiations-in those days we, my office, the External Resources, ERD, External Resources Division, used to be responsible for all aid negotiations, also project by project negotiations with the Bank.  So I had to visit Washington quite frequently, several times a year, in connection with groups and negotiations. 
LEWIS: Were you succeeded by Muhith in that job, A.M.A. Muhith? 
SYEDUZZAMAN: Yes, yes, Muhith--no, I was succeeded by a gentlemen called Mister Mahmood, Kafiluddin Mahmood, for about a year and a half.  And then when I left for Washington, roughly the same time Muhith came and took over the job of External Resources Division. 
Well, the other thing that I remember-well, these negotiations of the program loans, of course, were dealt.  The next thing was, the event was the organization of the Bangladesh aid group.  That was in September '74.  In '74 Bangladesh faced a very serious crisis. We had very bad floods which destroyed part of the summer crop and the jute crop.  We had a severe explosion in our only ongoing urea fertilizer factory, production was suspended. There was a succession of bad crops.  Food stock was very low, and there was acute scarcity of food grains in the northern part in the lean period.  And there was, of course, as you probably know, there were deaths due to starvation.  A number of figures have been mentioned and there has been exaggeration, but it was quite serious. A large number of people died of starvation in the final quarter of 1974 in the northern part of Bangladesh.  But in September '74 when we desperately needed to import food grains, our foreign exchange situation was very, very low.  The budget situation was [inaudible] also, very grim.  And Bangladesh faced the most difficult situation at that time.  
And we in the Planning Commission-Nurul Islam was still there; he was my boss-we had, putting our heads together how to get over this. And obviously the conclusion that we came was that we needed foreign aid, we needed external assistance, external actors.  And the Bank was not in a position to bring out quick disbursing cash money. It was not-we already had the second import program credit under negotiation-well, I think we had already, yeah, we had already signed, and that was being used but that was a small amount again, 50 or 55 million dollars.  Now what we needed was immediate cash for import of food grains, immediate cash for import of raw materials, spare parts for our industries.  And for food, I remember, Soviet Russia, they were very helpful to us at that time.  I remember the Soviet ambassador came to see me, and he told me that he had got instructions from Moscow to divert two shiploads of food, which was going somewhere else, to divert from the middle of the Indian Ocean and to send them to Chittagong.  That was a great help. 
We were negotiating a PL-480 [U.S. Public Law 480] agreement with the U.S government.  I was negotiating with the U.S. government.  They did not yet have an AID [U.S. Agency for International Development] mission here.  They had an office of AID coordinator, a gentlemen called Tony [Anthony M.] Schwarzwalder was in charge of the office here. 
LEWIS: Yes. 
SYEDUZZAMAN: I don't remember the man who came later on. I think it was--the first ambassador was Eugene, I think it was [Davis] Eugene Boster, Eugene Boster or Ed [Edward E.] Masters.  Anyway, I have forgotten. I'm not sure. 
LEWIS: Schwarzwalder was here for some time, I think. 
SYEDUZZAMAN: Yes, but he was in charge of the AID coordination office.  The first U.S. ambassador was, I think it was Ed Masters, who came from Indonesia, I think, or Eugene Boster.  I think it was Ed Masters.  Or maybe there was not yet an ambassador because Tony Schwarzwalder was [inaudible] 
And there we came across this difficulty because we were also negotiating export of jute goods to Cuba. 
LEWIS: Ah, yes. 
SYEDUZZAMAN: And the Americans, they were very particular that those shipments must be out of the port before American food grain ships could come into Chittagong.  Well, these things are fully documented elsewhere.  
LEWIS: Yes, I'm aware of this. 
SYEDUZZAMAN: You'll probably find them in the U.S., including the Foreign Affairs journal and other places.  And that delayed shipment of food under PL-480.  Well, this has been . . 
LEWIS: It was a very costly delay, I think. 
SYEDUZZAMAN: It was a costly delay, though it has been contradicted by the U.S. government that there's nothing like political punishment for Bangladesh, but most people in the country, they perceived that particular event as a reflection of U.S. punishing Bangladesh for so many things.  Henry Kissinger was still there, the Secretary of State and so on; he was not particularly favourably disposed toward Bangladesh and so on. 
Anyway, now, well, that was for a short period, short-term thing, but looking at the medium term we still felt that unless there was an inflow of foreign capital it would be very difficult for us to continue the economic activities at the level we wanted to.  We could probably-we could probably carry on economic activity at a much lower level, and that was, that was a very critical time.  So the question was should we request the donors to come to our aid? If so, what should be the mechanism?  And the mechanism that we agreed within the government was that we should go according to the format which India and Pakistan were following, which is the aid consortium meeting.  
LEWIS: Chaired by the Bank, huh? 
SYEDUZZAMAN: Chaired by the Bank, yes.  And somehow-I remember within the government when we were debating this we were allergic to the term "consortium" because it smacked of the Pakistan consortium, it smacked of the colonial period arrangements for some countries.  So we decided-at my suggestion-we agreed to call it "Bangladesh aid group" not the "Bangladesh consortium." 
And at that time we had sent an aide memoire to the bilateral donors and also to the--we sent a message to the Bank, saying that we would-well, we sent an aide memoire to the Bank also, saying that we worked out a medium-term scenario of our balance of payments situation, and we gave it to the Bank.  And the Bank response was that, "Well, the Bank's mechanism does not permit any short-term, quick disbursing funds to be made available to the government." The Bank was willing to organize a meeting for the aid donors, and then the Bank would have to prepare some documentation, and they asked the Bangladesh government also to place our requirements in the standard format of balance of payments analyses, the scenario for the next eighteen months and so on.  
We did all these.  And the first aid group meeting was in October 1974, held in Paris, chaired by the Bank.  And we got-I think we got pledges, I don't remember now what was the figure; 800 million dollars or something--pledges for food aid, commodity aid, [inaudible] program aid, and also project aid.  
And then by the end of '74, the beginning of '75-this was October '74-end of '74, beginning of '75, things were turning up for the better.  The winter crop was good; the government had handled the post-crisis situation in the northern part of the country quite well; the winter crop was coming out quite well; there was a downward trend in the price level.  And we agreed with the Fund at that time to enter into a standby arrangement because the exchange rate had become unrealistic.  We started parallel with the Indian rupee, 7.5 taka per dollar.  And that was obviously unsustainable because we had very high levels of inflation.  In '72-'73 I think it was-in '72 I think it was 35 per cent, in '73 it was 40 per cent, in '74 something like 80 per cent.  
So then we had--in early May '75 we went for a de-monitization exercise, we brought down the circulation and then price level, effect on the price level.  And there was restraint on credit to the government from the banking system because government had nationalized a large part of the organized industrial sector, they were dependent on the commercial banks, which were also nationalized.  And government itself, because the revenue collection had not yet been properly organized, government also had to borrow from the central bank.  All this combined, and the structural difficulties, transportation difficulties, international inflation, price of oil, price of food grain, price of cotton, iron and steel, fertilizer, everything [inaudible]  To correct for that we had to enter the standby agreement with the Fund.  The major element was the depreciation of the taka by 58 per cent, from 7.5 taka to the dollar we went to 12.5 taka to the dollar.  The Bank joined in because in the scenario that we had projected for our balance of payment for the coming year at the Paris aid group meeting in which we [inaudible] certain [inaudible] resources from the Fund and the Bank agreed to give us a third program credit for one hundred million dollars.  
So I also negotiated that credit, and surprisingly that negotiation took place in Dhaka, across a table like this without an exchange of papers, because the basic understanding was already there.  The main thing which the Bank wanted to see - IDA wanted to see - was adjustment of the exchange rate and this bringing down the money supply and so on as suggested by the Fund.  So Bank was really looking up to the Fund for working out the arrangements under the standby, and Bank agreed to provide a hundred million dollar third program credit.  So that negotiation was in Dhaka, and across the board without any lawyers, without formal meetings between the two sides.  I remember David Dunn and I, in the course of our discussions, agreed that the IDA credit would be taken to the Board and it was done in due course.  We got that money. 
LEWIS: That was '74? 
SYEDUZZAMAN: That was '75. 
LEWIS:  '75, right, right. 
SYEDUZZAMAN: Now in May '75 we did this devaluation.  
LEWIS:  Yes, yes, okay. 
SYEDUZZAMAN: And then the prime minister, he had made an announcement, national policy of government, amidst a Cabinet division, designating population as the number one problem of Bangladesh.  So we had several, you know, favourable factors.  One was the crop turned out to be good; the money supply had slowed down; the price level was moving downwards.  The government's-the policy initiatives were perceived to be right by the economists at home and also the donors, particularly emphasis on population planning and agriculture sector.  
And we had the second aid group meeting within the financial year.  That was May of '75-one was October '74, the other was May '75--so two aid group meetings within one year.  That was also an exception.  And we had the one-the meeting was an overall success.  I think we got pledge of close to 150 million dollars, Paris aid group meeting.  So that was the second meeting. 
Then-yeah, then August '75 we had the change of the government. 
LEWIS: He [Sheikh Mujibur Rahman] was assassinated.
[The Last Part will be published tomorrow]
The interview was taken on November 19, 1991 in Dhaka, Bangladesh.

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