Altering Policy To Rejuvenate The Economy

A shift in policy can bring lasting change, Rejuvenating the economy,being the best hedge.

Govt has decided to float a new specialized bank, merging 5 troubled banks. In this endeavor, it intends to provide Tk 200 billion ($1.65 billion)to the new bank. When the new bank will become profitable, it will sell its share to private investors.

Though $1.65 billion into economy within the limit of annual extra resources Bangladesh every year produce,it still has the risk of falling into bad hands. Moreover, it will send a wrong signal to the economy: if you get away with bank's money ,govt is there to rescue it.

I think best thing would be to float shares of the new bank in the stock exchange and see how the investors respond to it. Response from the stock market will be its initial capital. Govt will make it profitable and then will sell it to the private sector is indeed a bad idea.

The bigger danger is if this $1.65 billion of public money becomes bad then it will add to the $34.71 billion NPL.

This $1.65 billion could have been used in in productive manner instead of giving to the troubled banks. Govt can add this money to its credit program for the SMEs to mitigate the loss stemming from exchange rate volatility and policy rate hikes.

Apart from that money could be used to give soft credit to RMG subcontractors who are in expansion mood and the return will come back within 24 months if they are not politically motivated entrepreneurs.

Govt does not have to provide liquidity support to the private sector. It can do so by changing policy. A good part of public spending goes to defense. If it allows private sector to get part of this public spending through introduction of special ordinance, then it will rejuvenate the economy by allowing fresh orders for private companies, which are/should be enlisted into stock exchange. Two good things will happen----part of public spending will go to the private sector and there will be transparency to spending as private companies will compete and disclose information about them in public domain. There is no need for govt purchasing boots, uniforms, ammunition ,training munitions ,patrol boats and crafts for the Armed Forces. Former military technicians, engineers, workers will be absorbed into these companies and some of them will owners of these companies. Now most of them engage in sectors where their skills go into ashtray and where polarized politics turned them into rogue personnel. This initiative will make good use of their skills and post-military career, making safe both politics and security establishment.

In Malaysia, a small private company makes training munisions, rockets for their fighter planes.They save money and keep part of the spending at home through domestic private companies. Every year the Armed Forces need training munitions, bullets. Private sector could easily take charge of supplying them through investment in production facilities. This can be done in 1 or 2-year. Technical people are available. Even Sri Lanka makes its own APC and missiles for its Armed Forces in spite of having much smaller budget compared to Bangladesh.

Since this is an Army-backed govt, it can easily introduce reform programs here. No one will be bothered or question its legitimacy.There are RPO and other laws for politicians and political parties to ensure their transparency. The only organ of the country that stays above of any transparency is the Armed Forces. Two distinct ordinances---one for ensuring accountability to the Parliament and the press and another for allowing private sector in defense article production--- could do a great service to the nation and make meaningful tenure of this govt. In one of my pieces, I highlighted appropriate laws in neighboring country and in the USA (See "Joint Defense Production: Some Points To Note", published here on February 23,2024). As a democracy ,we have to make sure that our taxpayer's money does not fall into coffer of state institutions that do not respect the Parliament and not accountable to the people. In this time of austerity, this simple initiative could bring the much needed rejuvenation to the economy discarding the policy of liquidity support and manipulating economic data.