CHAPTER V

SUGGESTIVE REMEDIES
5.1 Bangladesh economy and gloal econom!c c"!s!s# Im$l!ca%!ons
o& s%!m'l's $ac(ages o&
o%he" co'n%"!es
Both advanced and emerging economies have initiated various fiscal and
monetary measures
in the form of bailouts and stimulus packages in view of the current economic
meltdown. The
objectives of such initiatives appear to be primarily fivefold: i) to restore
confidence in the
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financial system and revamp and stabilize the financial market; ii) to
stimulate domestic
demand; iii) to create new job opportunities; iv) to support domestic
industries; and v) to
safeguard eport interests. !owever" in today#s globalize contet" initiatives
taken by one
country are epected to have conse$uences for their competitor countries"
through knock%on
impact on consumer confidence and demand for imports" relative change in
eport
competitiveness strength and availability of resources for aid" &'( and )&(.
*n evaluation of these is important from the perspective of designing
Bangladesh#s own
stimulus package" if and when such an initiative is considered * review of
stimulus packages by
countries mentioned above reveals some common policy stands: i) boosting
domestic demand
through additional investment in infrastructure and productive sectors; ii)
fiscal stimuli by way
of reduced duties and taes; iii) aggressive monetary policy through rate cuts
and reduced
interest rates; iv) readiness to go for higher deficits to stimulate the
economy; v) fiscal+financial
incentives in the form of cash compensation schemes" income ta rebates"
credit at reduced
interest rates in support of eport%oriented sectors; vi) competitive
devaluation of the currency
ranging from ,- to ./-.
For Bangladesh, this cross-country evidence has relevance in two ways: first, it provides an
insight into the thinking of
policymakers of neighbouring countries in the area of macroeconomic management against the
backdrop of the ongoing
crisis; second, it provides an idea about how eport-competing sectors of these countries are
being supported, with
conse!uent impacts on Bangladesh"s own relative competitiveness situation in the global market#
$nitiatives of competing countries in the form of currency depreciation, ta rebates and duty
drawbacks, lower interest
rate, cash compensation schemes, availability of additional funds and other fiscal-monetary
incentives are likely to
undermine the competitive strength of Bangladesh"s eports !uite significantly in the global
market# %s noted earlier,
for eample, in the &' and (& apparels markets, )hina, $ndia and *ietnam are some of
Bangladesh"s ma+or
competitors# 'timulus packages of these countries have significantly enhanced their competitive
edge vis-,-vis
Bangladesh# &ntil now, Bangladesh"s performance record has been maintained, thanks mainly to
readiness of eporters
to accept lower cut and make charges and profit margins# -et another eample relates to the
adverse impact on
backward linkage sectors, such as yarn.spinning, which have now lost a large part of their
competitiveness as a
conse!uence of stimulus-induced lower import prices of $ndian yarns# $t may also be recalled in
this connection that, in
the recent past, a number of large-scale buyers, particularly from /apan, have shown interest in
sourcing apparels from
Bangladesh in view of higher prices in )hina# 0he stimulus packages put in place by )hina have
now limited
Bangladesh"s opportunity to avail herself of these new opportunities# $n view of the above, and
against the backdrop of
the warning signs in the country"s eternal sector performance, it is time for Bangladesh"s
policymakers to start to come
up with their own stimulus package in order to support the country"s eport-oriented and also
other sectors that have
come to be affected by the crisis# 'uch a package is also re!uired to help reali1e the emerging
opportunities in the global
market#
5.) Bangladesh economy and gloal econom!c c"!s!s# Pol!cy s%ance*
al%e"na%!+es and
%"adeo&&s
(t is worth noting that BB took a number of energetic steps when the financial
sector crisis first
kicked off in 0ctober 1//2. 3entral bank reserves were safeguarded through
withdrawal from
risky investments and transfer to reliable central bank accounts" and private
sector financial
institutions were immediately advised by the bank to protect their respective
deposits. (t helped
that the capital market was eposed to foreign portfolio investment only to a
limited scale
41..- of market capitalization) and eotic but toic derivatives were not
traded on the
country#s capital market. This enabled Bangladesh to avoid the conse$uences
of the first wave
of the adverse impact. !owever" as the analysis indicates" Bangladesh has
not been immune to
the second wave of impact" when financial crisis hit the real economy. The
adverse impacts
have started to be transmitted through various channels to the domestic
economy.
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The discussion above indicates that" while Bangladesh#s economy has thus
far been able to
avoid the worst adverse conse$uences of the ongoing global crisis" a number
of dis$uieting
developments transmit cautionary signals and should be of concern to
policymakers.
5acroeconomic performance indicators relating to the first seven months of
the current fiscal
year do not appear to be off the recent trends. !owever" when month%on%
month performance is
put under scrutiny" one cannot fail to locate some dis$uieting developments.
6hen these are
considered and analyzed in light of the ongoing global economic crisis" there
is much reason to
be concerned. 7lowdown in eport growth" lower number of workers leaving
for jobs abroad"
declining industrial growth" negative growth of import of capital machineries"
slow growth of
term loans" lower domestic resource mobilization and adverse impact of
policies pursued by
competing countries are dis$uieting developments indeed. *s the analysis
indicates" these can
to a large etent be related to the adverse conse$uences originating from the
global economic
crisis.
%s noted, countries that have been adversely affected by the crisis have been taking an array of
proactive measures in
order to mitigate the negative fallouts and to address the challenges in the area of macroeconomic
management# 0hese
countercyclical policies relate to echange rate management, eport incentives, tariff rates, credit
and interest rates,
domestic demand stimulation through investments in infrastructure development and policies to
promote +ob creation#
(t is reckoned that" as policymakers get on with the task of designing the
budget for &81//9+:/"
they will weigh the policy options at their disposal to best accommodate the
emergent
situation. The work on the budget will begin in earnest in *pril" with the
budget epected to be
announced on :: ;une 1//9. (t is to be mentioned here that the government
has taken an
initiative to bring about three million additional people" including <5=
workers" under the
rationing system 41/kg+month of rice at a subsidized rate). The government
has also declared
epansion of entitlement under safety net programmes. !owever" the
government is attributing
these initiatives not as a conse$uence of the global financial crisis" rather as
part of its
programme of implementation of promises in its election manifesto.
The earlier government set up two task forces made of government officials"
and on 1. 5arch
1//9 the much%awaited >ational Task &orce" comprising 1? members" with
the 5inister of
&inance as convenor" was announced.