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The Financial Express

How I see the year 2023

| Updated: January 20, 2023 21:18:53


How I see the year 2023

Twenty Twenty Three (2023) demands that we end our culture of primitive political confrontation once and for all. I believe the people of this land are not interested in a battle that offers little hope of desperately needed change. Indeed, I dare say we are all quite fed up. Therefore, anyone able to generate a semblance of hope will win popular favour in the next elections. Thus, those in politics and those that wish to rule need to show how hope can be rekindled. And that is the key challenge that confronts our politicians. In other words, do not just tell us what you will do, SHOW us. For example, those in power can begin the changes, the reforms that have long been ignored. Those not in power, can begin the process of reforming their parties and on-boarding newer, younger, more educated and more credible candidates. If all you folks only show the same old faces, the same business style, the same 'rules of the game', the people will once again abandon you with contempt.

However, this is not what I wanted to write about. My intention was to write about Bangladesh's economic prospects in 2023 and beyond. These prospects will be defined by our economic policies and more importantly by our political-economy outcomes. Let's talk briefly about the first.

It would appear that policy makers became complacent and assumed that macro-economic stability would continue for ever on autopilot - i.e. nothing in particular needed to be done to sustain macro stability. In a way, this was not incorrect - basic macro policies were sound although these could be further fine-tuned. However, instead of fine-tuning the policies, the policy makers decided to reverse policies that had worked so well over nearly two decades. They began meddling with interest rates and allowed exchange rate policies that were described as a 'dirty float' to begin with, to get muddier and muddier. It is on the back of these developments that we first encountered Covid and subsequently the war in Ukraine, and the sanctions against Russia that destabilised global food and oil markets.

Drastic changes in the exchange rate became unavoidable dramatically pushing up the taka cost of imports and fuelling inflation - a cruel burden on a population already reeling from Covid. However, this has at least, forced the government to align exchange rates with the market which ultimately will help us to regain stability in the foreign exchange market.

The other key constituent of macro policy is the interest rate - and here, economic prudence continues to be trumped by political economy considerations or crony interests if you like. The interest rate imbalance has created liquidity problems (who in their right mind will continue to save at negative real interest rates?) and billowing demand for cheap credit that seems to be going to extremely dubious entities. The argument was that cheap credit would result in investment - an old argument that has never worked in countries like ours where the interest rate is one factor, and perhaps not the most important factor amongst many, that constrains investment. At any rate, if investment in fact has increased as a result of the cheap credit policy, can someone kindly point us to the data?

In other words, if we seriously wish to regain macro stability, we will have to align interest rates with market-based rates. There is nothing further to be said about this. We cannot continue to claim role-model status without such key policy reforms.

However, as far as the financial sector is concerned, a more important concern is crony capital that now threatens the entire financial system. The danger is two-fold: (a) the greater the resources that flow into crony pockets, the greater the market distortion and lower the chances for non-crony capital to access resources for genuine investment - thus stifling growth; (b) Crony capital depends on non-economic competitive power/monopoly power and does not depend on genuine competitiveness to grow and thrive. Crony capital is singularly incapable of ever becoming globally competitive and will always have to depend on tadbir and patronage thus introducing fundamental structural weaknesses in the economy.

In other words, given the uneven fight between crony and independent capital in Bangladesh, our economic prospects appear deeply troubling to this observer in terms of potential economic consequences in both the short and longer term.

Our economic prospects are also going to be profoundly shaped by international geo-political developments in ways that are difficult to predict. Certain tectonic shifts are underway, and it is unclear how these are going to play out. Our economic interests are firmly aligned with 'Western' markets while China and India are key suppliers of raw materials and intermediate goods. Our national interests require us to have an even balance across these regions and countries while at the same time, we see fault-lines emerging, indeed crisscrossing through these regions. Bangladesh is trying hard to chalk out an independent path. This will be difficult. We need to retain a balance between Indian and Chinese influence - and indeed, given our history and the Indian tendency to 'look down' on Bangladesh (I find it difficult to understand this) - I would prefer to keep India at arm's length. At the same time, we will have to learn to say NO to Western demands that go against our interests. Much depends on what ultimate shape the geo-political architecture takes - and in the meantime, Bangladesh needs to bide for time.

Western pressure always takes the form of 'human rights' or democracy - these have been fine-tuned and weaponised over the years. There is enough evidence by now that the West is no champion of human rights or democracy but this has not stopped it from using such false flags to try and bring about regime change in different countries. Would the West try to do the same here in Bangladesh? The possibility cannot be ruled out - and unfortunately, there may not be any shortage of vested interest groups within the country who would embrace such a change. It is in this context that India may have some countervailing power whether actual or imagined. Unfortunately, Indian assurances allegedly obtained that its countervailing power would be used to help Bangladesh resist Western pressures, forces us to ask another question? At what cost? This question should give us pause.

Given the extant challenges and those forthcoming in the near and further term, let me come back to the point that I started out with-- the need to restore political stability. After 50 years, the old political cards have worn thin. In the greater interest of the country, we need political stability, and we need to restore basic democratic rights. If we can resolve the political quagmire that we have inherited from fifty years of trouble and turmoil, Bangladesh will be well placed to brave the impending storms headed our way.

The moment of reckoning draws nigh! Our leaders must now rise to the challenge.

 

Dr KAS Murshid is former director general of Bangladesh Institute of Development Studies (BIDS). [email protected]

 

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