Beneath the Surface
Not Far from the Fire
THE recent financial turmoils in East Asia - allegedly, sinking it further into economic quicksand - tends to unveil the myth of the miracle. It all started with Thailand when the Baht dipped deeper in terms of losing its value to US dollar. With Japan rearing a recession, Thailand, Indonesia and South Korea are looking for a bailout from the International Monetary Fund (IMF). Shaken by the surrogate of financial crisis in Asia, many forecasters who recently predicted a GDP growth rate of 6 per cent for South Korea and South East Asian countries for next year are suddenly projecting a zero or negative growth rate. The new conventional wisdom that sweeps tremendously the international financial arena is that the miracle so long espoused in the case of the 'Tigers' or "Emerging Tigers" are myth. The reality is that these econo-mies are poorly managed and gravely sick. Analy-sts reckon that "irrational exuberance" by foreign and domestic investors in East Asia, sparred by years of massive rate of economic growth, resulted in the implemen-tation of unwor-thy projects, most of them being in stock markets and real state businesses.
It is an admitted fact that in today's global economic network, no country can keep itself isolated from the "boom" or "depression" taking place in some other countries, no matter at what distance the 'heavans' or the 'hells' are located. Financial market turbulence in one country triggers reactions in others and the ripples thereof tend to haunt everyone. Taking this premise for granted, one can easily imagine that the most damaging impacts of what happened in East Asian countries are scaring foreign investors to pull their money away from the places of the fire. We in Bangladesh, could perhaps feel less of the pains since not much of foreign financial assets have even been pouring into Bangladesh to flee during the exit spree. Speculative manipulations with respect to Taka is also not apprehensive as there is no credible foreign exchange market. However, Bangladesh's ability to attract foreign investment is likely to be adversely hit, from countries such as South Korea, Taiwan etc.
Are we then far from the fire that broke out in the financial markets in East Asia and thus immune from any foreseeable adversities? It would be a naive juxtaposition to assume that we carry a clean slate in our case when dirts are growing in other parts of the world. Economists posit that the current crisis in some of the Asian countries could affect our economy in two ways. First, the projected slowdown in world growth rate might hamper our exports. Forecasters have already started to revise world growth rate downwards which means we should also project low export earnings. Second, the massive devaluations of currencies in the crisis-ridden economies could turn them more competitive to thwart any competitive edge by Bangladeshi export products. This means that Bangladesh is seemingly poised to face a relatively stiff competition from these economies than it hitherto been. More so, foreign companies which vied to relocate companies through joint ventures in Bangladesh might find it worthwhile to give a second thought to such relocations in the wake of their devalued currencies and hence regaining competitive edge.
We are also not far from the fire given a very weak base of our financial sector. The banking sector in Bangladesh - nationalised or private - has not produced a level of efficiency and strength which can be considered friendly to modernday business transactions. Historically speaking, rampant corruption, political highhandedness and "default culture" in the sector have broken the backbone of our financial sector. We hear a lot about banking reforms but not much seem to be on the table in terms of output. Given a fragile banking sector as it is now in Bangladesh, a doomsday might visit us sooner or later. The bitter experiences that some of our neighbouring Asian countries have provided us with very recently, drive home one important conclusion: the speed and scope of financial sector reform sh-ould not be underestimated.
It is nice to note that the present government took a number of positive steps to deal with bed debts and fraudulent activities in the realm of financial transactions. But recent reports on loan defaults and fraudulent activities by a particular business house and similar allegations against a number of "state sponsored entrepreneurs" do not seem to cause any concern among policy makers. Rather, general notion is that those misdoers are very much close to the power structure to feed and to be fed. It is in the interest of the economy that the government should proceed with legal actions fast against those playing foul with people's money.
Attention of readers can be drawn to another aspect. Bangladesh is expected to get large volume of investments in the energy sector. We should remember that inflow of foreign capital into this sector might worsen the balance of payments since most of the development of this sector is heavily dependent on imported materials - this could exert pressure on the overall balance of payments and actuate current account balance situation is the near future. One needs to guard against any adverse outcome from this sector.
Finally, one of the allegations against the "Tiger" economies is that while economic fundamentals went more or less right, the political fundamentals went outright wrong implying that inappropriate political fundamentals could jeopardise economic fundamentals at any time. As it seems to us, the macro economic fundamentals that Bangladesh experienced so far hinge on very weak political fundamentals. Unless political reforms accompany economic reforms, the house of the finely built macro fundamentals could be set on fire any time. Thus, we are not far from fire, in fact, sitting very close to it. Let pragmatic economic policies and politics help us to escape any turmoil.
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