<i>A wise first recession step</i>

The recent announcement of stimulus package for the recession-hit economy has expected widespread applause from different quarters. Even those who were not directly benefited by the immediate stimulus found it a wise first step. A country which is usually known for its cash-strapped dilemma, the stimulus was surprising for whatever it is worth.
What was most striking of the stimulus was its flexibility in nature as was evident as Finance Minister AMA Muhith yesterday said textile spinners, who were excluded from the earlier package of benefits, would also get assistance. The modalities are being developed.
The package has rightly identified the sectors -- leather, jute goods and frozen food -- as the beneficiaries as their exports figures had tumbled in the global meltdown. Why the readymade garment sector did not get the benefit was a matter of contention by the industry concerned. But as the finance minister had said, despite its declining growth garment is still going strong and can wait a few more months of observation before a bailout. After all, resources are still scarce for Bangladesh although it had saved a lot in terms of the cut in fuel subsidy and international fertilizer price adjustment.
The question may arise whether Bangladesh has done enough or whether it could do even more. Many may say this question is more relevant in comparison with Indian package. Indian economy is 12 times bigger than Bangladesh's and gave a 44-time bigger stimulus of $22 billion against Bangladesh's about $500 million. And both countries are affected by the global recession and despite the variance in their economic structure they compete on a few items like garments.
There however are many points of contrast and relevance here. Exports account for 20 percent of Indian GDP while it is only about 9 percent for Bangladesh and as such the latter is less prone to external shock. With a bigger exposure to global trade, India will have more at stake to halt the slide. And India's package has more depth than ours. For example, it had launched a Technology Upgradation Fund Scheme for modernisation of the textile industry. This is a key step to bring competitiveness of the industry in the face of cutthroat global competition. Bangladesh could benefit much from such competitiveness schemes as the main problem for the garment industry now is not so much of order but of price.
But the package when boosted with a 20 percent higher annual development programme looks like an intelligent step to create local demand for job creation. Infrastructure development is an intelligent way of job creation and honing in competitiveness for countries like Bangladesh if not so much for the US. However, much will depend on the age-old problem of implementation and project selection.
The government's capping of lending rates to 13 percent is also welcoming but as the inflation figure shows the real interest rate is still way high. Industry has already expressed its discomfort with the depth of the cut. Interest subvention for select industries as offered in India or Vietnam could be a smart and welcoming step.
One thing is for sure, if the Bangladesh package is compared with Asean countries, specially that of Vietnam, a stiff competitor for Bangladesh apparel, it looks quite pale. Vietnam, for example, has offered a much bigger package of over $1 billion along with tax measures. It is understandable that for countries like Bangladesh, tax cuts are hard choices.
Against such backdrops, economists have also welcomed the first step of stimulus and feel more vigorous monitoring is needed for policy adjustments.
Former adviser to a caretaker government M Hafizuddin Khan yesterday said Bangladesh is resource constrained and lacks experience to tackle such global economic meltdown.
Considering this as a primary step the stimulus package announced is a good one. The government can take more steps after more detailed assessment of what sector has been affected and how much.
About not giving cash incentive to the garments sector the government has said the sector has not yet felt the affect of the international economic crisis, Khan said. Supporting the government stand he said giving wholesale cash incentive is not right.
If in future it is found that they have been taking negative impact the government can consider giving them cash incentive.
On proposed agriculture subsidy in the package he said it has not been made clear where and how it would be given, who would be benefited. It should have been made clear.
On the subsidy in power sector, Khan said rather than subsidy availability of power is more important now. People are not getting necessary power. Instead of concentrating on subsidy the government should take steps for more power generation.
Research Director of Bangladesh Institute of Development Studies (BIDS) Zaid Bakht said, as a first step the package is good but it would be better if it was more flexible.
On local yarn, he said either measures would have to be taken to protect local yarn or they should be given government support so that they can survive in the present context.
Regarding garment industry he said if any industry has to retrench workers due to fund shortage, those units should be given cash subsidy. However, before giving any support thorough scrutiny has to be done whether the unit is really affected.
He said agriculture subsidy given to keep the domestic demand vibrant is a good step. To boost rural economy such motivational steps are required, he noted.
On allocation of Tk 600 crore in the power sector, he said it was not clear who would be the beneficiaries.
Executive Director of the Centre for Policy Dialogue (CPD) Mustafizur Rahman said, as a first step the government announced stimulus package is a good initiative. However, he said, things are evolving and continuous monitoring is necessary. He said additional incentive may be required in the affected sectors.
Prof Rahman said support to the agriculture sector is good for boosting domestic demand and creation of jobs. However, in the next budget more allocation to the sector would be required to boost domestic economy.