Mamun Rashid

The other day an esteemed client and a leading businessman asked me -- how far will the dollar go against the taka? For him, the import cost is going up. Added to this is dollar liquidity shortfall in the market, thereby impacting timely settlement of import liabilities.

Primarily, a large increase in import payments and a slowdown in wage earners' remittance growth have deepened the dollar crisis in the country. Reduced foreign aid or delayed disbursement of foreign aid also contributed further to this. In the face of the crisis, the central bank has been releasing dollars to meet import expenses, especially for the essential imports in the public sector, which is creating pressure on the country's foreign currency reserve.

When the US dollar is weakening against other currencies around the world, it is getting stronger against the taka due to the demand-supply gaps for dollars. For obvious reason, many of our economists and bankers are raising their eyebrows. I have read a former central bank governor saying, "Even in Japan, which is struggling with tsunami and nuclear radiation, the dollar is not getting as strong against the yen as against the Bangladesh currency. If this continues, it will increase inflation." He also said the situation would increase business costs and reduce investment and ultimately lead to an increased rate of inflation.

The current exchange rate of the dollar ranges between Tk 72 and Tk 73, which was around Tk 69 a couple of months back. Taka lost 1.93 percent of its value in December 2010 from that in July 2010 and lost a further 2.50 percent of its value in January from that in December. The total foreign aid, including loans and grants, in the first eight months of the current fiscal year amounted to $400.60 million compared to $1.430 billion in the same period in FY 2010.

The export earnings of the country in the same period stood at $14 billion, posting a 40 percent rise from that in the same period of FY2009-10, and the import costs in the period amounted to $22 billion, marking a 41 percent rise from that in the July-February period of the last fiscal year. The amount of inward remittance in the period was $7.5 billion. At the same time, the country's foreign currency reserve depleted from $11.16 billion in February to $10.63 billion on March 22.

As mentioned above, banks are facing a severe dollar crisis along with a liquidity crisis faced by some banks, compelling them to express inability to open letters of credit for imports. What is worse is that it has become really difficult to get dollars even at that high price.

Some economists also felt, money was smuggled out of the country after being converted into dollar, which ultimately led to the present dollar crunch. The ongoing unrest in the Middle East was anticipated to worsen the problem. They also felt, making investment in productive sectors for employment generation, discouraging imports of consumer and luxury goods and investment in unproductive sectors would alleviate the problem.

Obviously it is well said than done. Bangladesh is an emerging economy. The policymakers have decided to err with even inflation than growth. The nature and composition of our import bills have warranted this on them. Our import bill says most of this is coming from capital machinery imports for readymade garments, textiles, pharmaceuticals and food processing industry or industrial raw materials or power plant equipment. Dollar price is rising. However, growth dynamics in the economy, along with fabulous increase in exports and good harvest seem to have provided a safety net. Serious interest in the external world for 'made in Bangladesh' goods as well as a significant rise in demand for consumer items in the domestic market is encouraging our business community to go for massive investment in the production lines. They don't mind paying 2-3 percent extra for a greenback, while the return on investment is very attractive in Bangladesh. I think there is sufficient space to absorb higher exchange rate as well as higher interest rate cost. This is a basic symptom of an economy, which is going to see some accelerated growth rate in the coming years. While I worry with the slowing down of remittances, I think the situation would get better. May be 20 percent growth is unrealistic, but it should settle around 5-10 percent. With oil price remaining high, job opportunities in Middle East would improve with more construction projects undertaken to pacify the people there. There may be a bit of time lag though. A recent calculation showed that even fuel price remaining at $150 for the rest of the year would only make the current account neutral from current surplus and even if the higher cost cannot be passed through, the budget deficit would increase from current 5 percent to 6 percent. Not really a desperate situation.

However, the regulators possibly need to work on the supply economics with an integrated approach. They need to maintain a healthy balance and at the same time ensure that the remitters and development partners are given enough incentives through their ardent commitment to continuous reforms. Delay in committing budgetary support, disbursement of balance of payment support or release of millennium challenge fund does not make us happy at all. If the development partners cannot be pacified, Bangladesh may explore commercial borrowing from external sources, in view of the better sovereign rating. While we are ready to settle with bit of extra price spiral, provided investment in growth driving sector continues with employment generation, we do not appreciate any supply side constraint or management debacles. While our exporters are facing a rise in import finance rate, they should be okay with dollar rate hike. However, regulators need to draw a balance between dollar price rise and price spiral, since most of our inflation is 'imported inflation' and our popularly elected governments are committed to save common people from the onslaught of excessive price spiral.

The writer is an economic analyst, and can be reached at:mamun1960@gmail.com. 

News: Daily Star/Bangladesh/ Mar-31-2011

Bank Asia declared 40 percent stock dividend for the year 2010 at the 12th annual general meeting held at Officers’ Club in the city yesterday.
In the 7th extra ordinary general meeting (EGM) the bank proposed to issue 25 percent right shares, which will later be approved subject to the consent of the regulatory authority, a press release said.
A Rouf Chowdhury, chairman of the bank presided over the meetings.
With 40 percent stock dividend, the paid-up capital of the bank would increase to Tk 4.204 billion and total capital to Tk 8.157 billion.
Vice chairmen Mohd Safwan Choudhury and Mohammed Lakiotullah, directors AM Nurul Islam, M Irfan Syed, Rumee A Hossain, Mashiur Rahman, Faisal Samad, Sohana Rouf Chowdhury, Nafees Khundker, Shah Md Nurul Alam and President and Managing Director Erfanuddin Ahmed were present on the occasion.

News: Daily Sun/Bangladesh/ Mar-31-2011

The Islami Bank Limited yesterday celebrated its 28th founding anniversary with elaborate programmes at its branches across the country. To mark the day, a function was organised at Mohammad Younus Auditorium of Islami Bank Tower in the city.

Presided over by Mohammad Abdul Mannan, managing director of the bank, the program was also addressed by Mohd Shamsul Haque, Md Habibur Rahman, Md Setaur Rahman and Md. Nurul Islam, bank’s deputy managing directors, Eng Muhammad Abul Bashar and Asheque Ahmed Jebal, executive vice presidents of the bank, Md Mosharraf Hossain, senior vice president and president of Islami Bank Officers’ Welfare Association, Dilshad Parvin, senior principal officer, Rafiqul Islam, president of Islami Bank Employees Welfare Union and Abdul Baten, assistant officer of the bank.

News: Daily Sun/Bangladesh/ Mar-31-2011

A number of international microfinance organisations and civil society groups in Italy, Peru, Philippines and Pakistan have issued statements expressing support in solidarity with Prof Muhammad Yunus and Grameen Bank. Mario Baccini MP, President of the Italian Committee for Microcredit, Prof Luisa Brunori of Bologna University, Sam Daley-Harris and European Member of Parliament Sylvia Cost said Prof Yunus and Grameen Bank have made an important contribution to social development in Bangladesh through microfinance. They said Prof Yunus and Grameen Bank are leading actors in the fight against poverty.
“This is why we express deep solidarity with Professor Yunus, with the wish that there can be a solution to the situation,” they said.
A statement of the Global Center for Development and Democracy (CGDD) and on behalf of President Alejando Toledo of Peru said “our organization, which cares about international development, has been following very closely the happenings, and is very much concerned about the progress which could be lost if the country’s leaders fail to appreciate what makes the Grameen Bank work.”
“Inspired in your visit to Perú, and the important lessons you left to us, president Toledo, who is again running for president of Perú, has included among his government proposals, the launching of ‘The Bank of Hope’,” the statement signed by GGDD’s executive director Ana Maria said.
It said “If he (Toledo) becomes our next president, we expect to extend microloans to the poorest in our country in order to lift all Peruvians who are living below poverty conditions, out of it.”
Another letter to Prof Yunus from CARD MRI Family of Philippine said “our more than 1.5 million members and clients would like to assure you of our unwavering support to you as the Managing Director of Grameen Bank.”
The letter said: “We have witnessed your strong commitment for poverty eradication. We have witnessed how you have inspired many individuals of various professions, different institutions, donor agencies, cooperatives, all sorts of banks including commercial and international, to adopt and implement microfinance as an effective and strong tool for poverty eradication worldwide. You have inspired all of us at CARD MRI and that inspiration will continue and will become even more stronger no matter what your critics say about you.”
It continued: “As we firmly believe in your selfless mission for the poor and the poorest, we stand firm in our support for you and your capacity to manage and carry this mission and to keep this alive in the hearts and minds of all the Grameen people all over the world.”
An open letter from Kashf Foundation of Pakistan said Dr Yunus and Grameen Bank are today global icons and torch-bearers for the mission to eradicate poverty, as well as to provide sustainable choices to poor households across the world.
It said the work of Grameen Bank has been replicated across 100 countries and has benefited over 170 million poor women globally.
“We are opposed to the current campaign to maliciously malign the reputation of Dr Yunus and the government’s attempt to remove him from office,” it said and urged the Bangladesh government to resolve the issue and allow Dr Yunus and the Grameen Bank to continue their work in the field of dignity building.

News: the independent/ Bangladesh/ Mar-29-2011

Bangladesh Bank Governor Dr Atiur Rahman has called upon the government to allocate more funds in the national budget for making the local government more functional.
The BB governor said the formation and implementation of ‘Democratic Decentralisation Policy’ is essential to establish a self-administered local government.
tiur was addressing a discussion on the ensuing budget and the local government at National Press Club in the city yesterday.
Governance Advocacy Forum organised the discussion meeting.
Atiur said the local government must be consolidated for decentralization of power. He urged the lawmakers to serve the interests of people at grass root levels.
“Local government institutes are the main tools for development. Moreover, people’s scopes of participation in these institutes are relatively higher,” he said.
The process for creating leadership at the grass root level for building a democratic society will also be strengthened through the process. So, the equity of the local government in the national budget is very important, the governor said.
He also proposed to hold district council elections like Upazilla Councils to make them more functional.

News: Daily Sun/ Bangladesh/ Mar-29-2011