Need Policies For Domestic Defense Production

Two trainers finally take-off, Leaving behind issue still remains stand-off.

Last week social media and Bangladesh Air Force(BAF) in its annual graduation program confirmed successful development of two basic trainers,named Bangabandhu Basic Trainer (BBT) 1 and 2. BAF in its own facility, known as Bangabandhu Aeronautical Centre(BAC), developed the two models with funding assistance from the government. It is not known how much money was spent and what are the specifications. But pictures surfaced on the social media hint that one is similar to kitplane preferred by amateur pilots in the West. The other one is just a trainer similar to occidental trainer to train air force cadet pilots. Things would be much better if it were done by private companies.

In fact, in Bangladesh, we do not have proper policies and regulations that allow engagement of private sector in defense production. Private sector involvement could significantly reduce cost and ensure efficient use of resources, which is vital for the country facing budget deficit. In addition, accountability and transparency can be established in defense spending. Right now no law obliges defense community to offer explanation to the Parliament and the press about their conduct and spending behaviour. Vital organ of the state stays outside of accountability system, undermining our institutions responsible for ensuring check and balance and strengthening democracy.

To make sure private participation in defense production, proper policy should be introduced. India has Defence Acquisition Procedure(DAP). DAP 2020 set up rules regarding engagement of private companies in defense production and reservation for them in some sectors, liberalization of licensing and test/trial policies, focus on indigenous content in defense article production. It also incorporates a strategic partnership model that allows Indian companies to manufacture hi-tech equipments at home and to partner with global companies to manufacture defense equipments under technology transfer agreement.

In USA, Defense Production Act(DPA) 1950 allows US president to divert resources and engage private companies to produce defense article to comply national security emergency. The DPA also allows president to provide loans, subsidies to private sector so that private companies can expand their production capacity to address the security needs.

In Bangladesh we need similar laws and regulations. It will stop leakage in public spending. Another good thing about engaging private sector is that private companies are subject to audit and stakeholders will keep a close tab on the spending and appropriate measures taken. So issues like misuse of money or cost overrun will be reduced and accountability is ensured.

Similarly, parliamentary committee on defense can convene people from respective institution to attend hearing and offer explanation on issues like cost overrun, corruption or other issues that we are not allowed to discuss now on public domain citing reason of “national security “.Good thing is these things will be documented and this step may stop recurrence of similar issues in the future. Opaque culture in defense policy,procurement and production will be altered completely.

Crucial thing is allowing private sector will enhance research facility in tertiary education institution. At the moment, setting up dedicated labs in various departments of science faculty in universities and engineering universities is untenable due to huge cost and limited prospect of end usage of research outcome. Private sector will divert part of their investment to set up such labs and research facilities that will come up with outcomes ultimately having industrial application too. So government or public spending at the end of the day spurring growth in the domestic private sector, ushering in new possibilities and creating other eco systems elsewhere. Unfortunately, here public money spent seldom lands in domestic private sector. It is particularly true for the defense sector.

I find this BBT-1 and BBT-2 trainer development initiative without proper policies and regulations a kind of cart-before-the-horse thing. Sustainable defense production requires greater transparency ,accountability and unfolding the true potentials of both public and private facilities. Without having that, money spent is just meant to contribute in ongoing leakages in defense spending. In our country, we have confined the meaning of accountability to hold the politicians and political parties accountable. That is not the case across the world! We have to get ourselves out of this narrow definition of accountability and make sure that its perimeter gets wide enough to bring all the institutions inside it.

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25	Pain ,Omelette	Riz gluant,Tête de chèvre dans soupe aux pois blanc	Riz gluant,Tête de chèvre dans soupe aux pois blanc	---
26	Riz,Tête de chèvre dans soupe aux pois blanc	Riz,Papaye verte,Soupe aux lentilles	Riz,Fritures des oignions et lentilles, Soupe aux lentilles, Omelette	---
27	Pain ,Omelette, Chou-fleur	Riz,Radis,Soupe aux lentilles, Ruhi	Riz,Tête de chèvre dans soupe aux pois blanc	Riz,Tête de chèvre dans soupe aux pois blanc	---
28	Pain,Tête de chèvre dans soupe aux pois blanc	Riz,Radis, Tête de chèvre dans soupe aux pois blanc	Pain,Omelette	Lait
29	Pain,Chou-fleur	Riz,Petit poissons, Soupe aux lentilles	Pain,Petit poissons	---
30	Pain,Omelette	Riz,Feuilles de Radis,Pama croaker,Chou-fleur, Soupe aux lentilles	Riz,Chou-fleur, Pama croaker	Lait,Pomme
01	Pain ,Omelette	Riz,chou-fleur, Cerveau de chèvre, Purée de Haricot	Riz,Chou-fleur,Pianju,Purée de haricot	---

Wrong Move And Slow Policy Alignment

50 paisa raise without hike in policy rate A wrong move that may not improve the current state.

Recently, Bangladesh Foreign Exchange Dealers Association and Association of Bangladesh Bankers decided to raise the exchange rate of taka against USD by 50 paisa. Exchange rate of taka has become 110 against the USD from taka 110.50/USD. But this appreciation is not result of interest rate hike rather it is set by some platforms. Meanwhile, local banks unofficially and foreign remittance houses are offering USD at taka 120 or below , slight appreciation from the previous week. It is unclear how the move may help improving the inflationary situation. On the contrary, banks and local exchange houses are likely to gain from such appreciation. This is the right time for another significant raise in policy rate amid dull economic activity. Yet it did not happen. Back in October I penned a piece titled "Slow Alignment Costs Investment", highlighting the costs of slow alignment. Sharing it again:

Recently, the World Bank has downsized Bangladesh growth forecast. It also predicts that inflation in the next fiscal year will be hovering around 8.5%. Earlier IMF in its economic outlook said that it would take at least 2/3 years for Bangladesh to stabilize its economy.

Bangladesh Bank has already said that it has no intention to change its monetary policy before the next general election. This means easing of inflationary pressure may take some time.[However,on October 04,2023,Bangladesh Bank has raised the policy rate/repo rate by 75 basis points.]

Meanwhile, soaring inflation dents in the pockets of lower income group and casts shadow over the investment projects outside the economic zones. If there were several raises in policy rates in one/two quarters( that I argued in a previous piece,see "Could Bangladesh Get The Second Credit Pack?" ), things might have improved one/two quarter later. Now, real interest rate is negative, meaning nominal interest rate is still below the inflation rate. Notion such as this misalignment will be addressed future—interest rate will rise further ---will hold back investors to go ahead with investment projects. Why?

Answer lies on how big investors make their decision. If you look at the discounting criteria then it is not a wise idea to implement a project when interest rate is likely to rise further. Because net present value of cash inflow decreases as interest rate increases. Moreover,cost of capital goes up further,raising the cost of doing business in the country. For FDI project or investors investing in economic zones,this may not be a big issue as they have access to cheap foreign credit/financing. But interest rate could become a factor when their local vendors try to purchase things from local market. Not only the interest rate, the rigid exchange rate may also increase their cost of doing business.

While inflation may continue to dominate interest rate, interest rate may vary in future. In such case, internal rate of return (IRR) based decision becomes untenable as interest rate varies in short period.

Tribal nature of our politics plays a conducive role in mingling business with politics. In such case, investment projects associated with ruling regime with payback period longer than 5 years will go abroad. Investment with higher cash inflows and payback period less than 5 years may see the light. Now guess what businesses will offer you high cash inflows in the face of overwhelming odds! Meanwhile, investment projects associated with opposition creed may go abroad as they may find it difficult to operate here.

Failure of MPS to contain inflation casts shadow over the economy. Interest rate policy chases the inflation at slow pace, sending wrong signal to investors. Political impasse and US Visa restrictions complicated the matter. Amid high inflation we need investment projects to create jobs and generate optimism in the economy. Yet the current policy shelves those projects at a later date or pushes them abroad.

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18	Pain tchapati,Chou-fleur	Riz,Radis,Poisson chat à queue jaune	Riz,Radis,Poisson chat à queue jaune	---
19	Pain tchapati,Omelette	Riz,Feuilles de tête d'éléphant amarante, Soupe aux lentilles,Poisson chat à queue jaune,Radis	Pain tchapati,Chou	---
20	Pain,Omelette	Riz,Soupe aux lentilles,Ruhi, Chou-fleur	Riz,Omelette, Ruhi	---
21	Pain,Chou-fleur, Papaye	Riz,Soupe aux lentilles,Feuilles de radis,Ruhi	Riz,Ruhi,Soupe aux lentilles	---
22	Pain,Omelette	Riz,Soupe aux lentilles,Poisson chat à queue jaune	Pain, Omelette	Vermicelles locale
23	Pain,Omelette	Riz,Poisson chat à queue jaune,Soupe aux lentilles,Radis,Chou-fleur	Riz,Poisson chat à queue jaune	---
24	Paratha,Omelette	Riz,Ruhi avec pomme de terre,Radis,Soupe aux lentilles	Riz,Frittures des lentilles et de l'ail,Ruhi avec pomme de terre, Radis	Goyave

Exchange Rate Volatility: Policy Debacle Should Be Blamed

Stockpiling of taka by Foreign exchange houses, A mean to gain more from interest rate rises.

Recently,a news report divulged that many public and specialized banks purchased dollars at higher rate than the exchange rate set by the Bangladesh Bank. Since there is unusual demand for dollars, some banks offered more than the set exchange rate to meet their dollar procurement goal.

The news report citing a public bank official reported that an exchange house based in the Middle East offered the bank to sell USD at taka 123.50/USD,which it denied. But another specialized bank accepted the offer¹. Earlier US based exchange houses and app offered higher rate for dollars.

Now government policies might play a role in deepening the dollar crisis. Earlier central bank bailed out many specialized banks that fell victims of fraudulent activities. Central bank lent them huge sum of money through promissory demand notes. The money is now being used to swell the taka reserve of foreign exchange houses. Central bank is following a contractionary monetary policy,which so far fails to contain inflation. It is likely to raise interest rate further before and after the next Monetary Policy Statement.

Another thing is that Bangladeshi credit/debit card holders can afford buying dollars at Bangladesh Bank determined rate. I think $12,000 may be the limit for individual card holder. Importers also avail the dollar at subsidized rate.Now this subsidized dollar is being spent/laundered abroad!

There is little hope that things might improve after the election and interest rate may rise significantly. If this happens then Bangladeshi taka may appreciate further. Say taka appreciates to taka 100/USD. Then these foreign exchange houses may gain taka 23.50 against 1 USD by purchasing USD with their taka reserve.

Now the things emerged out of all this debacle are:

1. Subsidized (official rate) dollar is going abroad and foreign exchange houses buy it. Some of these houses sell the dollar to local banks at higher rate and increases their taka holdings.

2. Government cash incentives to some extent play a role in foreign exchange houses’ stockpiling of taka. Many Bangladeshis purchased property in the Middle East and many of the Middle Eastern investors have/had stakes in these specialized Bangladeshi banks.

3. Future appreciation of taka as a result of significant interest rate hike may open door for these foreign houses to gain from such stockpiling.

Clearly, government’s own policy causes the trouble here. Unitary exchange rate of taka has not yet been implemented! Wide gap between multiple rates only accelerates profiteering activities. Significant rise in policy rate at frequent interval could improve the situation. Bangladesh itself is an example that higher interest rate does not work as impediment to new initiative. Micro borrowers pay more than 20% interest rate and SMEs in general pay around 20% interest rate! They keep the economy moving forward. In addition, high interest rate screens out any fraudulent initiative that flourishes under low interest rate economy. Investment will take place if return is lucrative and no matter what the interest rate is. In a country where undocumented wealth casts shadow over the mainstream economy, it is absurd to be afraid of recession or loss of employment or low investment. Rather,high interest rate will discipline the business environment by bringing money into trouble-ridden banking system and creating investment-worthy fund! Most important of all, listen to what the standard economics text book says.

Notes And References

1. “Dollar Er Dam Nie Osthirota Cholchhey(Volatility Prevails In Dollar Rate)”,Daily Prothom Alo,P-11,November 14,2023.

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11	Pain tchapati,Chou-fleur	Riz,Poisson chat à queue jaune,Chou-fleur, Pomme de terre	Riz,Pury ,Pain tchapati,Chou	Singara
12	Pain tchapati,Riz,Soupe aux lentilles,Œuf dur,Chou	Riz,Soupe aux lentilles,Tête de Poisson chat à queue jaune	---	Pakora(Pomme de terre,Oignon,Ail)
13	Pain tchapati,Omelette	Riz,Feuilles de tête d'éléphant amarante, Radis,Poisson chat avec queue jaune,Soupe aux lentilles	Fritture de pomme de terre	---
14	Pain tchapati,Omelette	Riz,Poisson chat avec queue jaune,Soupe aux lentilles	Riz,Chou-fleur, Fritures des oignons	---
15	Pain tchapati,Chou-fleur	Riz,Poulet	Riz,Poulet,Fritures de l'oignon et l'ail	---
16	Pain tchapati,Poulet	Riz,Soupe aux lentilles, Chou-fleur	Pain tchapati,Chou-fleur	---
17	Pain tchapati,Omelette	Riz,Soupe aux lentilles, Épinard malabar	Riz,Chou-fleur	---

Inflation And Exchange Rate Worsen Further

Fall of taka continues unabated, Frequent interest hike is what we needed.

Bureau of Statistics own estimation reveals that food inflation rose to 12.56% in October. General inflation also increased to 9.93% during this time.Purchasing power of the mass people takes a nosedive while prices of kitchen items skyrocket. Earlier Bangladesh Bank raised the repo rate by 75 basis points to tackle the inflation. More frequent raises are needed.

Meanwhile, taka continues to lose its value against USD. Foreign remittance houses charge taka 123 for 1 USD.Official exchange rate is taka 111/USD. In an earlier post, I wrote how USD was being traded on the streets in Motijheel like cinema ticket.

Government however decided to fix the exchange rate instead of market mechanism of fixing the rate and announced taka 5 incentives for remitters. In October, Bangladeshis working abroad sent $1.97 billion , a record in the last 4 months. Government boasts it as a success for its ongoing policy.

If we take a look at the top 10 countries for the remittances, then we will see UAE,UK,USA top the list. These countries are the places where many of our opaque capital found sanctuary. The cash incentive is only propelling the profiteering activities. One businessman in a TV interview disclosed that many apartments in posh areas of Dhaka are being bought and sold in these countries. Transaction of this kind hinges on dollars purchased from migrant Bangladeshi workers. In addition, interest rate was also hiked in these countries, prompting some quarters to invest in dollar deposits / interest bearing assets in these countries. Apart from that, organized criminal groups also procure dollar earned by migrant workers through various channels. Recently ,I have come across a news report that says Russian/Chinese billionaires want to hold and swell their dollars¹*. These factors along with others could come into play for high exchange rate for taka in foreign remittance houses.

Bangladesh Bank has to focus on its monetary policy to address the challenges of inflation and falling taka against USD. As I advocated earlier, frequent small increase in interest rate could at least check the inflation. As inflation is higher ,taka continues to depreciate against USD. Until real interest rate becomes positive, things are not going to improve much. Moreover,the incentives, subsidized exchange rate may risk in falling wrong hands. This money may later be used for profiteering activities. In Bangladesh,we witness how commodities which are not supposed to register high prices see unusual hike. Online gambling and ponzi scheme invade the society. Earlier I hinted how trouble ridden banks could easily exploit the cash incentives for the remitters. Similarly, individuals with short selling knowledge and prior information about decision making in the power corridor may exploit the situation to make a fortune. To prevent a Black Wednesday like situation, credible interest rate hike in future is a must. Promising inflow of remittances ushers hope Bangladesh may get second part of IMF credit by meeting reserve target of $18 billion by December. Further increase in rates and abolishing incentives could further aid the policy of economic recovery.

Notes And References

1. "China's Economy Is So Uncertain That The Wealthy Are Turning To Underground Network To Secretly Move Cash Out Of The Country", Phil Rosen,October 10,2023.Market Insider.Here is the link: https://markets.businessinsider.com/news/currencies/china-economy-wealthy-investors-markets-rich-cash-banks-secret-transfer-2023-10

[*Update: This piece has been updated by me on November 12,2023 at 11:03 AM.Update includes references.]

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(04 novembre --- 10 novembre)

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04	Pain tchapati,Pois chiches avec pomme de terre	Riz,Feuilles de tête de amarante éléphant, Auberge, Poulet avec pomme de terre	Pain tchapati,Poulet	---
05	Pain tchapati,Poulet	Riz,Haricot vert,Ruhi avec Pomme de terre	Riz,Ruhi avec pomme de terre,Soupe aux lentilles	Lait
06	Lait	Riz,Ruhi,Papaye-Chou-fleur	Pain tchapati,Poulet,Haricot vert,Papaye	---
07	Pain tchapati,Poulet,Lait	Riz,Soupe aux lentilles,Ruhi,Pomme de terre,Haricot vert	Pain tchapati,Papaye-Carotte-Haricot vert,Purée de pomme de terre	----
08	Pain tchapati,Papaye-Carotte-Haricot vert,Lait	Riz,Feuilles d'éléphant amarante, Radis,Soupe aux lentilles	Pain tchapati,Radis	---
09	Pain tchapati,Radis	Riz,Soupe aux lentilles, Feuilles de radis	Riz,Poulet,Feuilles de radis,Pakora(friture de l'ail)	Lait
10	Pain tchapati,Chou-fleur, Pois blanc avec poulet,Lait	Riz,Petit poisson, Gourde calebasse	Riz,Soupe aux lentilles, Pianju(friture d'oignons)	Lait

Another Transition Period Begins

Transition period sees violence wanton, Pass laws to make it feature bygone.

Bangladesh has entered another transition period ,which stretches from three months before election to three months after election. If election is scheduled to be held early January or mid January, then transition period will end at the end of March or mid April next year.

Back in April ,2019,I wrote about then transition period titled "End of Another Transition Period"¹. Highlighting some parts of it:

…It is only comparable with the twilight or dawn when the nature tries to adapt itself to the changes.

In Bangladesh, this transition period bears a negative connotation as it is marked with violent political events and regime changes. The administration during this period behaves more freely than under any other regime, people believe. But rival political parties here have inveterate tendency not to walk along the path of reconciliation. So any proposal that involves cooperation with the rivals is often faced intransigence from feuding parties. The result is violent clashes.

…Though ruling party has an overarching influence over the transition administration, transition administration could boast the figure as its success. Casualties from intra party clash left a blot on that claim.

As per the annual stat of Odhikar, there have been 281 incidents of factional clash in Awami League and 14 incidents of infighting within BNP. Intra party clashes resulted in 53 deaths and 3225 injuries for Awami League and 3 deaths and 115 injuries for BNP. My personal observation is that the figures would go up if we have taken into account undocumented incidents and extrajudicial killings. Clearly it is a proof that the transitory administration failed to reign in intra party violence.

Another striking thing I noticed in the last half of the transition period is the rising number of workers' unrest and fire incidents. While the former managed to raise the basic salary significantly, the latter caused deaths of innocent civilians and triggered suspicion among general population. Government should immediately form a judicial investigation committee to probe on the fire incidents to dispel any suspicion. Fatalities from road mishaps have also gone up in the above period. These incidents call into question smooth functioning of transitory administration.

In the past we saw that bloody tragedies struck in this period taking full advantage of the lethargic state of transitory period. The main task of this kind of administration is to pass the baton from one elected government to another. In doing so, breaking down of public order often destabilizes homeostasis of the state.

This transition period is no exception. It begins with the fire incident at a commercial building that housed largest servers of Google and Facebook in Bangladesh. It also served as hub of local broadband internet companies. The incident claimed lives of two people. Authorities claimed the fire incident slowed down the internet across the country. Later a cargo train ignoring instructions of stationmaster hit a passenger train ,killing 18 people and snapping rail links between Dhaka and Chattogram for more than six hours. The incidents occurred few days before grand assembly of the main opposition party in Dhaka.

The assembly was marred in widespread violence, killing one policeman in the line of duty and injuring scores of others. Interestingly ruling regime also called on gathering in Dhaka on that day. Dozens of cars were set on fire and police hospital and judges’ residential complex were also attacked. What is interesting this all happened at the stretch of an area where a circle with a 1-km-long radius includes important police installation like detective branch training school,NSI headquarter, several police stations, Secretariat building, installation of President Guard’s regiments and other key public installations. Killing and mayhem without resistance is unthinkable in such a security-tight area. Later opposition called a one-day strike and series of blockade across the country. These programs also witnessed loss of lives(4 opposition activists killed including a journalist) and vandalism. Senior opposition leaders and thousands of opposition activists were detained. Like the previous transition period, this period also witnessed widespread garments workers' protest for wage hike, resulted in factory attacks and killing of two workers. In some parts, protest continued in spite of hike assurance. Shut down of 200 factories ensued. What I do not understand is that how on earth garments factories continue operation in the busiest parts of Dhaka when govt earlier prohibited their activity in Dhaka Metropolitan area. Who are the owners of these factories? Where do the workers of these factories reside in?

On March 26,2021, hundredth independence day anniversary of Bangladesh was marred in violence in Brahmanbaria. Google search on Bangladesh on that day trended the stories and images of those violence instead of stories of independence day celebration. This time too the stories of political violence in Bangladesh is trending across international media.

Govt is inaugurating key infrastructures which many thought impossible in this country even a decade ago. Riding on these success stories,it is confident that it is going to win the next election. There is speculation that this violence and widespread detention could be a mean to coerce the opposition. While economy is in a dwindling situation, a packet of biriyani or a meager-amount of money may induce one deranged person to engage in subversive activities, chanting slogans of political parties . In this situation, it is invidious to blame squarely the opposition for the violence at the time of transition period. BNP ,which draws its support from the middle and lower-middle class, has never been well versed with street agitation. It landed itself into such a position by throwing such a street movement, which has all the chances of being hijacked by agent provocateurs. All this consolidates the narrative of depoliticization. It is the economy that faces the gravest risk of uncertainties emerging from the political impasse. Longer the stalemate, wider the budget deficit and bigger the fall of taka. Internal and external Investment will be shelved for a favorable climate, making harder the economic recovery.

To make the transition period trouble free and violence free,we have to make all the government agencies accountable to the Parliament and the press. In USA,Federal Tort Claims Act² allows victim American citizens to sue US government or agencies for compensation. In India, then RAW chief RN Kao once appeared before the Parliament to offer his explanation on the role of his agency during the emergency rule,which was marked by gross violation of human rights. I think we should pass laws in the Parliament to make these agencies accountable and restrain them from doing unwarranted acts.Reconciliation and judicial probe could make the transition period as well as the future peaceful.

Notes And References

1. " End of Another Transition Period ",Rezaul Hoque,April 10,2019.. https://hoquestake.blogspot.com.Here is the link:https://hoquestake.blogspot.com/2019/04/end-of-another-transition-period.html?m=1
2. Federal Tort Claims Act.Here is the link:https://en.m.wikipedia.org/wiki/Federal_Tort_Claims_Act