BANGLADESH’S WAY OUT OF THE GLOBAL MELTDOWN

(ARTICLE FOR PUBLICATION ON 16^TH NONEMBER 2008)

By Kazi Anwarul Masud( former Secretary and ambassador)

The contagion of global meltdown that started in the US has caught up with the others, the contagion caused by the sub-prime lending in the housing sector and US annual $700-$800 billion dollars trade deficit that is paid for by borrowing from other countries. US are believed to have more than $10 trillion in external debt. It is estimated that sub prime crisis alone may cause a contraction of the US banks’ ability to lend $ 2 trillion thus deepening the crisis. Now that the consumerism is down in the US the exporting countries would have less to export to the US with consequential reduced foreign exchange reserve to finance imports.  It is amazing that the largest economy in the world is also the largest debtor simply because an average American citizen is reported to possess five/six credit cards to buy things he/she would take fancy of. It would be unfair and incorrect to label the entire American nation of profligacy as the rich-poor divide is both sharp and wide and the battle cry of the Obama-McCain verbal duel concentrated on increasing the buoyancy of the middle class. Rightly the state of the economy outclassed war on terror as the number one election issue. Europe also being hit by economic difficulties has got together to salvage their own and other Western economies from a repeat of 30s depression. Already US have been assigned the recession status. China as other emerging economies-India, Brazil and Russia-- has revised their growth projections for the coming year, and perhaps, beyond.  What then the least developed countries like Bangladesh should do? Ever since the Asian recession of 1997-98 the US has been described as “the buyer of last resort” taking in imports that could not profitably be absorbed in the Asian markets.  Our export basket consists of few items involving low technology, and now with buyers’ conservatism the price of our exportable is bound to come down further. The other foreign exchange earner—remittance—of our workers abroad also faces uncertainty as no one knows what shape the construction sector will take in the coming months and years. Remittance, a quarter coming from the developed countries, will shrink. It is impossible to put figures to these variables as these will depend on the evolving condition of the global economy. The rate of interest being reduced by the central banks throughout the world is to encourage investment. But in countries like Bangladesh interest rate cut to reduce the cost of money will mean reduced rate for different types of deposits putting the depositors in greater financial difficulty resulting from reduced income from deposits—a class of people who have already been pushed into poverty from middle income bracket, and those living from relative poverty due to price hike into the group of abject poverty. Besides devaluation of our currency would make sense had demand elasticity of our exportable been price responsive. It would also make our imports dearer.  Since external factors appear to be unfavorable in the short term Bangladesh has to develop its agriculture that accounts for 30% of our GDP at present. Monetary policy should be conservative. Tax net should be extended and tax payers must pay their dues. Corruption that eats away about 3% of our growth has to be brought under control.

Despite former Federal Reserve Chairman Alan Greenspan’s claim that the long standing debate between the virtues of economies of free markets and those governed by the rules of centrally planned socialism had essentially come to an end; It has now become debatable whether unbridled capitalism coupled with the lapse of the Praetorian guards tasked with looking after the regulations to keep the “greed” of the capitalists in check of  Reaganomic/Thatcherisitic variety of  capitalism( Alfred Marshall being too ancient) itself has failed. Some would be inclined to advocate Clement Attlee’s transformative democratic socialism i.e. a strong welfare state, fiscal redistribution, and some nationalization be taken as a way out of the present muddle. But Bangladesh does not have Germany’s Angela Merkel’s $ 670 billion dollars or Gordon Brown- Alistair Darling’s billions of pounds to inject into the economy to shore up our own.

  One of Barak Obama’s top advisors Dr. Susan Rice is deeply concerned that today more than half of the global population lives on less than $2 dollars a day and almost 1.1 billion people live in extreme poverty defined as less than $1 dollar a day thus dramatically increasing the risk of civil conflict. She adds that 53 countries have an average per capita GDP of less than $2 dollar a day making these countries vulnerable to become sanctuaries for transnational terrorism. As country level poverty prevents the government of the day to provide essential human services, Susan Rice mentions Bangladesh (along with Indonesia and the Sahel),  international Islamic charities are filling the welfare gap. Gareth Evans, in one of his speeches, said that the genocide in Darfur was as much a result of drought as it was political. It would, therefore, be incumbent upon the developed economies to mitigate the sufferings of the least developed countries resultant of the current economic meltdown through instruments of World Bank/IMF/ADB. In the cases of Taiwan, Botswana, Uganda and Mozambique foreign aid helped build the foundation of development. OECD estimates that by 2010 ODA flows to developing countries will increase by $ 50 billion.

The developing countries could consider adopting Professor Joseph Schumpeter’s “creative destruction” meaning replacing old ways with new innovative measures that would increase wealth of nations. But since capitalism both influences and is influenced by political and sociological factors and since market’s due to externalities or imperfections do not reach perfect equilibrium based on demand and supply state interventions in both regulatory and enforceable forms would be necessary for countries like ours. No longer can we leave the lives of millions of people to be guided by the profit making motive of some people. It is not suggested that we resurrect centrally planned socialism dismissed by Alan Greenspan, among others, as inefficient and unable to create wealth and raise living standard of the people but to have in place an amalgam of social equity and efficiency of the market that some would call market socialism. In the ultimate analysis, we should opt for the prescription of Joseph Stiglitz of “moral growth—growth that is sustainable, that increases living standard not just today but for future generations as well, and that leads to a more tolerant, open society”. Without dispersal of economic benefits to all sections of society any election leading to democracy would not succeed in the long run.