Internal management key to economic health |
Qazi Kholiquzzaman Ahmad tells The Daily Star
Rejaul Karim Byron
Internal management, not external factors, plays the pre-eminent role in keeping the economy stable and growing, said Qazi Kholiquzzaman Ahmad, president of Bangladesh Economic Association.
"A country always faces external opportunities and challenges. The need is to understand the external processes and developments and make responses to minimise the challenges and maximise the opportunities," Ahmad, who also chairs Bangladesh Unnayan Parishad, told The Daily Star in an interview last week.
So, he argued, if there is internal mismanagement, the internal and external problems will not be addressed properly and their adverse implications may combine to play havoc with the economy. "While external situations often create trouble for a country, it is internal management that in the end plays the decisive role in determining the country's economic situation."
In his opinion, Bangladesh lacks efficiency in economic management to a large extent, and therefore a huge need is there for developing "human capabilities for effective management of the national affairs.
The Daily Star (DS): What are the economic challenges Bangladesh faces at this moment?
Qazi Kholiquzzaman Ahmad (QKA): The challenges are many. The key ones include ever-increasing petroleum prices in the international market, price hike of essential commodities like rice, oil, pulses, sugar, poultry items, fish, meat, onion, vegetables, etc, severe power shortage, persisting foreign currency crisis, low disbursement of foreign aid, ever-increasing economic disparity, and pervasive corruption.
The price hike of essentials has its roots in the serious imbalances between supply -- through domestic production and/or import -- and demand, in the sense of supply shortage. As long as such real economic imbalances are serious and on the rise, monetary and fiscal measures may not be of much avail in arresting the inflationary spiral. The government's contractionary monetary policy has in fact failed to make an impact. Hence, the real economic (supply-demand) imbalances need to be addressed through commensurate public investment programmes and appropriate policy and incentive support to the private sector.
As far as the acute power crisis is concerned, the basic problems have been no addition to the generation capacity, and no balancing and modernisation of the existing plants in the last four or five years. Urgent attention is needed to develop policies and action programmes to ensure energy security in the country.
The ever-increasing economic disparity is another major concern that has to be addressed immediately. For example, the per capita income of the richest 5 per cent of the population was 18 times the per capita income of the poorest 5 per cent in 1991-92, which has risen to 84 times by 2005. This accentuating disparity may spell major social upheaval in the country in future. This constitutes a severe moral derogation. The Moral Law may be defined in terms of Social Will, which in turn may be defined as acting to uphold human rights and prevent human indignity and inequity from affecting any members of the society. Adherence by the State to the Moral Law, as defined, will ensure that no one will enjoy undue privileges and no one will be socially excluded. But, the undue privileges are so entrenched in Bangladesh that the Moral Law is of no force at all, and in fact the State itself upholds the ill-gotten privileges and wealth of the transgressors, many of whom are in fact makers and implementers of national policies. Unless sanity and the Moral Law find effective expressions in practice, Bangladeshi society will remain deeply divided and become increasingly unequal, and the forces unleashed as a result may erupt and overwhelm the body politic in the course of time.
DS: How are fuel prices influencing the economy and how can this problem be addressed?
QKA: Petroleum prices have been increasing for a long time in the international market. The price of crude oil has already reached $75 a barrel and seems set to increase further. This is an external challenge and an extremely difficult one for Bangladesh to address. If domestic prices of petroleum products are increased, there will be adverse implications in relation to economic activities and the plight of the downtrodden. The downtrodden will be particularly affected if the prices of diesel and kerosene are increased. On the other hand, if the prices are maintained at the present level, the public deficits will continue to increase. Even now the Bangladesh Petroleum Corporation (BPC) has an outstanding loan of about Tk 5,500 crore to Sonali Bank alone.
Thus, the situation one faces is that of a classical 'horns of a dilemma'. However, one possible option is to increase the prices of octane and petrol, although these constitute a small portion of the total consumption of petroleum products, and leave the prices of diesel and kerosene unchanged. At the same time, unproductive government expenditures should be controlled and import of luxury products restricted. Obviously, these steps will not solve the problem but will contribute towards that end. A major emphasis needs to be given on energy conservation and energy efficiency as part of an energy security planning. It is always important to find ways of not adversely impacting the production of consumer necessaries and not imposing further hardships on the poor.
In order to address the problem, it is important that a holistic view is taken rather than following a fragmented approach. Therefore, a comprehensive energy policy is called for, which will consider all the possible sources of energy as well as its various usage and different groups of users with a view to ensuring energy security for the nation, for all segments of the society on an equitable basis. In this context, it is important that targets are purposefully set, and strategies formulated and properly implemented.
DS: There appears to be a number of bad indicators in the economy. Why does the economy take such a bad shape in the end year of every government?
QKA: Yes, indeed. Some of them I have just discussed. But, it is not necessary that the final year of every government should take a bad shape. It is, however, possible that in its last year a government may refrain from taking unpopular decisions and may seek to promote interests that would support the electoral causes of the party/parties in power. But, the situation we are now in is not because it is the last year of the present government. The reasons have been its failure over the past several years to correct the imbalances (supply shortages) in the real economy, control corruption, dismantle violence, and successfully address fundamental issues like electricity supply and price hikes.
DS: What economic challenges the coming caretaker government may face?
QKA: Most of the challenges I have discussed earlier are likely to remain as such, and some of them may even become more serious by the time the next caretaker government is expected to take office. All these entrenched problems in managing the affairs and state of the economy cannot be solved in a few months. However, the caretaker government may bring back morality and rule of law in the way the State is managed, particularly in relation to the electoral processes for the forthcoming parliamentary elections, which will be its mandate to oversee, to ensure the holding of free and fair elections.
DS: You are aware of the fact that Bangladesh economy is run following the IMF prescriptions. How far do you think the IMF-prescribed policies have yielded result?
QKA: Home-grown policies and programmes based on proper assessment of the prevailing realities are always better than diktats from outside, including such monolithic organisations as the IMF. The IMF has standard policy prescriptions for every country to respond to particular problems. Its prescriptions often relate to the outer covering of the economy, not to the core of reality. Of course, loans available from the IMF may help the government from time to time to address balance of payments problems. But, the price can be too high, given that the policy prescriptions coming with the loans may not only be unhelpful but in fact be damaging to the longer-run prospects of the country. According to the Nobel laureate economist Stiglitz, the key reason for the East Asian economic crisis in 1997 was the policy prescriptions of the IMF.
As I said earlier, the grants and loans that Bangladesh receives from the international community (both multilateral and bilateral) are rather meagre. Therefore, perhaps, it makes sense on the part of the government functionaries to waste less time on dealing with the IMF and other international funding agencies and more on finding solutions to the problems faced. It makes perfect sense to exchange views with them and to obtain their opinions on the problems that are within their competence to advise on. But, these dialogues need not necessarily be related to negotiations for funds. As a matter of fact, PRSPs and MDGs were supposed to be the conduits for large-scale transfer of funds from the rich world to the poor. But, what has so far been provided is way short of what is required, and the future prospects do not look to be any the brighter. And, in Bangladesh's case, the disbursements have in fact become tardier in the current fiscal year.
However, whether there is outside advice or not, good governance, democratic values and good practices have to be established in the country, if there is to be any chance of achieving the national goals of poverty eradication, sustained economic growth, and social development through equitable political, economic, and social processes.
DS: Are the prevailing economic problems result of external situations like high oil prices or more of internal mismanagement?
KQA: Of course, a country always faces external opportunities and challenges. The need is to understand the external processes and developments and make responses to minimise the challenges and maximise the opportunities. The external environment is now particularly relevant because of globalisation. The oil price hike is certainly causing reverberations in the Bangladesh economy, as its spread effect can be wide even if the government absorbs additional costs of oil imports. The other important external issues to be understood and addressed relate to, for example, market access, terms of trade, and intellectual property rights.
But, ultimately it is the internal management of the economy that has the pre-eminent role. Hence, if there is internal mismanagement, the internal and external problems will not be addressed properly and their adverse implications may combine to play havoc with the economy. It is therefore essential that the national management of the economy be sufficiently improved. It means ensuring collection and availability of reliable and up-to-date data and information on all relevant internal and external matters, analyses and understanding of the nature of both internal dynamics and external opportunities and challenges, and then making necessary policy approaches and adjustments to make the best of the prevailing circumstances. To do so efficiently would require capable functionaries, which Bangladesh lacks to a large extent. There is, therefore, a huge need for developing human capabilities for effective management of the national affairs.
DS: You are aware of the terrible power situation in the country. The lending rate of bank is also rising. How do you see these factors affecting the country's industrial growth?
QKA: Both power shortage and rising interest rate are negative in the context of industrial growth, indeed for every economic sector. Power shortage in fact is a crippling factor, which leads to reduced productivity and production, and increased cost of production, thereby limiting the prospects of the industries concerned. The use of own generators as an alternative is costlier than grid electricity. The importance of adequate supply of power to accelerate the industrial wheel cannot be overemphasised.
Interest rates should be realistic, given the prevailing industrial environment. What is particularly important though is timely availability of credit to industries, as required in a policy environment that is stable and predictable.