Mixed job in economic management
The empty OMS shops do not tell the story in whole. But the announcements -- 'Rice for Tk 18' -- posted on the walls of kitchen market shops help you understand it. Grain prices have come down to such a level that subsidised government sales have become irrelevant. And this is where the new government's success lies in its first 100 days.
There are two ways of looking at a government's economic management -- specially if it is only 100 days old -- what it has done, and what messages it has sent out to the economic players. Looking at the current state of the economic affairs, the best comment that could be made is that the Awami League (AL)-led government has done a mixed job. It has been able to perform some outstanding feats, of course helped by the international environment, and it has attempted some tasks that may leave much to be desired. But if one considers the turmoil of the BDR carnage which virtually cast a huge uncertainty over everything, the AL-led government deserves credit for its economic management in the trying times of a global meltdown.
The new government can tout as its biggest success, the magical taming of the market from the wild horse that it had become. To empty its silos, the government even scaled down its OMS (open market sale) rice prices by Tk 2 and yet it finds no taker. A part of the de-escalation of food prices could be attributed to the continuous global food price slump since September last year -- because in a globalised world Bangladesh alone could not keep its prices low while the rest of the world consumed pricey rice. But the story has also substances beyond that -- it is that of conscious policy decisions of the present government, and that of the caretaker one. In its last days, the caretaker government had been able to replenish its depleted stock and the AL government maintained it. In addition, the AL government has promised to keep importing rice in future. These gave the right signal to the private sector and plugged speculative behaviour. The private sector started offloading their stocks as they also sensed a good boro harvest. The new government's commitment to feed the people cheap food, also gave a positive signal to the market.
Next comes the boro story. The country is now poised for a bumper boro production, and the government's -- especially Agriculture Minister Matia Chowdhury and Food Minister Dr Razzaque's -- energetic and committed involvement in market monitoring, making inputs reach the farmers, and strengthening of the distribution channel -- is the key to this food success. The decision to rationalise fertilizer prices according to the international market that saw a reduction in key fertilizer prices by a half, helped farmers use a balanced nutrient. As Dr Debapriya Bhattacharya puts it, "The confluence of global situation, policy initiatives, institutional engagement, and personal involvement of the two ministers made the food story for Bangladesh today."
The AL government can today score high because it has ensured a comfortable food security for the country, as reports predict food will be a real concern for the world soon, despite the present boom.
Beyond the food sector, the government faced the reality of the ongoing global recession in its first 100 days, and is likely to see the same global atmosphere for another year. The country's export growth has slowed, remittance from workers working abroad slimmed, and domestic demand shrunk. The worst sufferer is likely to be the service sector.
It is a difficult time for the world economy, even the heavy weights are groaning and moaning under the pain of unemployment and astounding sag. The new government however seemed a bit slow to understand the reality, despite the businesses' repeated calls for attention. Finally it has formed a taskforce to chalk out measures to counter the recession impact. A bailout package is likely to be announced in a week or so. Meantime, the government has capped the lending rates of the banks at 13 percent and allowed rescheduling of loans by the export sector without down payments. But as the inflation keeps falling, this 13 percent still shows an increase in real interest rate, and a real concern here is that the market forces are not acting as they should have been.
But by any standard, these could be dubbed as slow responses. And inadequate too. While the rest of the world chalked out its stimulus package much earlier, the AL-led government just faced the problem at home with some reluctance, basking in the theory that Bangladesh's economy would remain unscathed by some miracle (one assumption is that its economy is narrowly dependent on exports while the East Asian economy, barring Malaysia's, is highly export focused.). Indications are there that no subsidy will be made available to the industry or export sectors. Rather 'non-subsidy' packages will be offered. It is not much understandable, as the fiscal space that the government has does not allow it to provide tax incentives (already the tax-GDP ratio has declined over the last year). Other kinds of competitiveness enhancing initiatives like improvement in power situation, port and infrastructure development, and speeding up the bureaucracy are unlikely to be achieved soon. So in absence of any comprehensive short-term action, sustainable competitiveness development initiatives are also not on the horizon. The result could be perilous.
However, the recent decision to have a bigger annual development programme goes in line with the stimulus package followed by the US and many other countries that want higher expenditure on maintenance and infrastructure development. The major challenge will however be in targeting and implementation. There is no reason to believe that the government's implementation capacity has developed overnight. The domestic demand that is to be created through enhanced spending has to be properly served by a domestic industry (this does not go against the free trade theory, and supports Barak Obama's made-in-USA policy as there are a few imports that could meet the grassroots demands). But any new policy decision to support small and medium enterprises is yet to come.
However, the government, specially the finance minister, AMA Muhith, deserves some special thanks for his handling of the IMF help offer. IMF does not offer easy cash to anybody, and its stringent policies have actually caused woes for many countries rather than bringing benefits. Despite its recent easing of lending terms for emergency actions, any offer by the international financial institute deserves a thorough study. A comfortable foreign exchange reserve and a still surplus current account balance probably strengthened Mr Muhith's hands in showing a general reluctance to subscribe to IMF loans.
As said in the beginning, a 100-day period, messed up by a carnage, is not much time to set the ball rolling for the economy. But the next 100 days definitely should be a turning point.
(This article was written before yesterday's development regarding announcement of bailout package for the recession-hit exporters)