Saifur Rahman's legacy
BETWEEN 1972 and 1990, real (that is, inflation adjusted) per capita income in Bangladesh grew by an annual average of 1.1%. Since 1990, per capita income has grown by 3.4% a year. As a result, the proportion of people living below the poverty line -- defined as daily calorie intake of 2122K -- fell from 47.5% in 1992 to 40.4% in 2005. Over the same time, the proportion of undernourished people fell from 36% to 27%. In 1990, 26% of Bangladeshis had access to improved sanitation facilities, and only 4% of households had a television set; the proportions rose to 36% and 48% respectively by 2006.
It is clear that something happened in Bangladesh in the early 1990s, and we are better off for it. It is not an exaggeration to say that Saifur Rahman was at the centre of what happened. When one abstracts from the day-to-day politics of sound bites, 24-hour news cycles, and arguments about specific policies, it becomes clear that Saifur Rahman got some big things right that made the statistics cited above possible.
The most important thing he got right was about the supremacy of the market mechanism in allocating resources. It is difficult to imagine today, but three decades ago few people trusted the market mechanism. This was well over a decade before the Singh-Rao reforms in India. The Washington Consensus of liberalisation, deregulation, and privatisation was still years away from being articulated. China was still recovering from the Cultural Revolution. Western powers at that time happily supported generals, regardless of their economic policies, as long as they locked up dangerous communists.
In the 1970s, the natural option for a cunning populist general would have been to embrace some form of "socialism." And whatever the theoretical merits of socialism, no country in the past six decades has made sustained improvement in living standards relying on socialism as practiced in Bangladesh in the early 1970s. It is our good fortune that Ziaur Rahman listened to a pragmatist accountant's empirically based arguments.
While economic reform started in the early 1980s, it wasn't until another decade that the economy accelerated. This was because in the 1980s, under another general and different finance ministers, reforms were piecemeal and haphazard, monetary and fiscal policies were pursued without any coherent framework, and loans were issued on political calculations, not sound finance, leading to debt defaults.
Economic growth picked up only in the early 1990s, when Saifur Rahman again got two important things right. He emphasised macroeconomic stability -- steady growth, low inflation, sustainable external deficits. More importantly, he understood the importance of opening the economy to the external world. He undertook a comprehensive liberalisation of the economy in the early 1990s.
As a result, exports and imports both rose sharply relative to GDP. Exporters have been competing in the global market, while importers have been exposing the domestic economy to competition from abroad. Increased openness should have improved efficiency at the microeconomic level, which should have translated into faster economic growth at the macroeconomic level.
And that is exactly what happened in Bangladesh. In the 1970s and the 1980s, multi-factor productivity -- the efficiency with which capital and labour were employed in the economy -- stagnated or even diminished over time. This changed in the 1990s, with a turnaround in the MFP growth underscoring the statistics cited in the first paragraph.
Saifur Rahman also understood that in order to invest in human capital, government revenue needed to rise. His solution was to rationalise the tax code, lowering the rate, and broadening the base. The Value Added Tax, introduced in 1991, was a major milestone on this front. However, the task of simplifying the tax code and increasing the tax take remains unfinished and, 18 years later, Bangladesh continues to have the lowest revenue-to-GDP ratio in the region.
Also unfinished -- indeed, one might say, not even started -- is the task of reducing the bureaucratic burden on private agents, business and consumer alike, that pervades every aspect of life in Bangladesh. It takes eight months to register a property, and nearly four years to enforce a contract in Bangladesh.
Over the past few years, we have heard endlessly about corruption. While the lock-them-up approach to anti-corruption has proved to be a costly failure, it is surprising that no serious effort has been made by any government to cut the red tape.
Did Saifur Rahman not get this? Or did he simply run out of time?
He definitely did not get the importance of rising inflation under his watch. In the middle of this decade, the US dollar depreciated heavily against other floating currencies, including the Indian rupee. Pegged against the dollar, the taka also depreciated against the rupee, setting off a rise in food prices. As the chief macroeconomic manager, Saifur Rahman did not see the link -- arguably his biggest failure.
On balance, Saifur Rahman made a difference for the better. His political counterparts -- late S.A.M.S. Kibria, Dr. M.K. Alamgir, and the current finance minister -- have a broad philosophical consensus on the direction of our development trajectory. In a country beset with polarised politics, this is a great positive.