Tax-payers made to pay?
Are we witnessing a deadly concoction of political compulsion and personal intent in the latest government move to prop up the share market?
As the share index kept collapsing despite the finance minister's assurance that it would "stabilise" by last week, the government made some decisions. It doled out another Tk 200 crore to the state-owned Investment Corporation of Bangladesh (ICB) to be active in the market and yank up the index. It also directed state-owned banks to buy shares.
Earlier, when the market was on the slide, the central bank gave a Tk 400 crore fund to ICB for the same purpose. Every one knows if that worked. One source in ICB confided to this correspondent that a third of that Tk 400 crore already vanished in the abyss of the crashing index. Who is sure what would happen to the Tk 300 crore?
And why these banks were not investing? For some simple reasons like it might not be wise to invest now when the market is still volatile. But now they will be walking the gallows. Who can say for sure if they would make gains?
If not, the fundamental question that now arises is what does this action mean? The market was manipulated beyond its limit, everyone knows. While the index went up and up and away, no-one bothered to correct the situation, and many of the policymakers thought it was a sign of "confidence" in the economy. But finally when the inevitable happened, there was a lot of blood-letting and embarrassment political and personal.
So does the latest action mean the government feels a kind of moral obligation to keep the index up, because it did nothing to stop manipulation in the first place? If that is the answer -- then at whose cost? The answer is pure and simple the taxpayers will have to foot the bill, they have to pay for the manipulators who bungled the market.
If the market falls again and the banks lose money, the ultimate losers will be the depositors and the tax payers who always bear the losses of state-owned enterprises. But that fact is being overlooked due to impulsive and immediate political exigency. Banks and ICB cannot make the best decisions under diktats.
And what signal the market got again? You bash up a few cars and buildings, burn up a few tyres, the index will climb. Investors who flocked to the market should have known it was a risk market, and incurring loss could be the ultimate result.
But as it now seems, the stock market turned into a fixed income bond market. There is only one way to go -- north.
Intriguing is also the Securities and Exchange Commission's (SEC) latest decision in an emergency meeting to set up a Bangladesh Fixed Income Fund with Tk 200 crore initial capital, and Tk 500 crore future capital. The goal is to prop up the market. Does anybody not know that a fixed income fund is meant to be invested in bonds and the likes, and not in shares?
We all know that a major market correction is overdue and that process started. It is for no-one's interest to try to stop it. Do we again want an above 8,500 index? Would the "small investors" in front of Dhaka Stock Exchange ever stop even if the index rises again to 8,500? Would they not again march the streets and burn cars if it falls?
Is the government trying a soft-landing through these measures? It does not look so. Rather in the melee of the crash and chaos, such emergency measures are overshadowing many things like the fundamental change and reform of SEC, and going after the culprits who manipulated the market in various methods like book-building, share splitting, and direct listing. Why did SEC give approval for IPO to dubious companies which were rejected by DSE itself? We are hearing grotesque stories about how everything happened. Now someone needs to pick the truths. The newly formed probe body is a hope. But can it finish the task given the enormity of it?
All said and done, did we think about the impact of subsidising the market losers on the macro-economic balance in a year of high inflation? If keeping the budget deficit slim is the key answer to fighting inflation this time, then subsidy decisions have to be prudent.
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