Cushioning Fall Of Taka

Allow businesses to transfer money abroad To keep the incentive spending short.

The uncertain situation about Non Performing Loans casts serious doubt about Taka's stability next year. Exchange rate of Taka against US dollar in this week is Tk 122.46/USD ,which was Tk 121.75/USD a month ago. Though this depreciation is within the tolerable limit and the expected range of Bangladesh Bank,a big fall may cause serious trouble. As I have mentioned several times in this space, Bangladesh can afford depreciation of Taka between 5%(Tk127/USD) and 10%(Tk 133.1) in a year. Transitory effect of depreciation will be manageable and less severe given more forex making entry into the country. Otherwise, it will make lives miserable by pushing up the prices of essential goods and services and accelerating capital flight from the country. A macroeconomic nightmare for any govt.

The chance is high that after the election when many restrictions will be relaxed a fresh round of capital flight may be observed. The volatility of local currency in short span of time increases the risk for fund management of the companies as it shrinks their assets if those are denominated in Taka. Unfortunately, Bangladesh Bank has stricter policy to transfer money abroad through official channels. For this reason, many opt for clandestine means to launder money abroad. If these companies have means to invest their money into foreign resources through legal channel , I think incidence of money laundering could be [curbed] to a great extent. One way is to set a ceiling on investment abroad and provide some quota on foreign investment by a Bangladeshi company. Another approach is to allow investment on commodities, foreign bonds through Bangladesh. Soon commodity exchange market will be operational in Bangladesh. If local companies can invest part of the assets in gold,silver,platinum, copper ,then part of the money they launder abroad will stay at home. Similarly, if we allow them to invest in foreign bonds through local stock exchange or by any other means then that will add great value to their investment. At the same time, purchase of foreign real estate should be legalized inside Bangladesh. The central bank can have a clear tab on investment on such property and repatriation of capital gain from resale of such property. At the moment,Bangladesh Bank remains in the dark about [laundered] money caused by political uncertainty and currency volatility. The measures suggested here will give the central bank some idea how much money will go abroad and how much proceed/ return on investment will come back to home. Most importantly, it will hold back to some extent the capital flight.

Nonchalance stance to take money abroad legally puts pressure on government incentives. When these companies will fall into trouble due to currency volatility ,they usually seek public incentives. In most of the cases govt complies to their demand, costing tax payer's money. Allowing businesses to transfer money abroad for investment purposes legally discards the need for such incentives.

The $800 million Chinese investment pledges,which is likely to happen in next 12/24 months in the textile and RMG sector, is mostly influenced by global tariff debate, China's shrinking opportunity to invest in Occidental countries and not by uncertainty about Taka's value. China has excess capital of more than three trillion dollar. They have a controlled money market and problem-stricken property market, denting in their returns. The Chinese does not spare opportunity to invest this money abroad. This is why they aggressively invest in the RMG sector in this country. The volatility of Taka has little impact [on] their business decision because in any such case they will simply convert it into Yuan and repatriate the money back to China. And the Chinese central bank is willing to lend Bangladesh more Yuan when the Chinese investments will be in trouble in Bangladesh. The point is instability of Taka poses serious threat to future FDI and local investment given Chinese investment is an exception.

To protect domestic companies from currency volatility risks, the central bank should allow them to invest abroad. Or let them purchase foreign assets from Bangladesh. The move is aligned to check public spending and keep the private business balance sheet healthy without the need for govt intervention.

Reshaping Global Trading System: What Lies Ahead

Trade restructuring starts with tariff debate, Leading to multiple systems as global trade's fate.

The Trump administration imposed 37% reciprocal tariffs on Bangladeshi exports to the USA. The imposed tariffs are much higher than its rivals to the US market. The disruptive action is not a deliberate but well planned move to reorder the global trading system. In 2024, the USA incurred a budget deficit of $1.83 trillion. In addition, the US gross debt to GDP reached 120%. And that is not all. The Tax Cuts and Jobs Act 2017 allows US citizens to enjoy reduced income tax rates till 2026. The Act also reduced corporate tax rate to 21.2%. Economist Stephen Miran, who is also the current chair of the Council of Economic Advisors, argues in his "A User's Guide To Restructuring The Global Trading System" ( a policy paper published by Hudson Bay Capital in November 2024) to continue tax rebate beyond 2026 the US economy requires $5 trillion every year. Deficits plus the extra money to sustain the policies means the money has to come from somewhere else. And the solution is to tariff the other countries. This,he thinks,is one of the tools to reshape the global trading order.

We can clearly see here the US runs huge budget deficits, yet USD remains overvalued decades after decades. Because the US dollar is beings used as reserve currency/asset in many other countries. Any devaluation of the US currency would result in loss of reserve asset in other countries.

But to make America great again, to bring back the manufacturing plants from other parts of the world to the USA and to make American goods more competitive ,you need to do something. At the heart of US - China trade dispute during Trump's first presidency is the undervalued Yuan. Appreciation of the Yuan will take away the competitive advantage of many manufacturing items and help relocating their plants in other parts of the world including the USA. Over the years, this perception of undervalued currency extended to currencies of other countries. Added to that the idea of America is forced to overvalue its currency to maintain ongoing order. So Miran came up with some tools in his paper,which he would like to describe as an essay to comprehend their consequences, to fix the issue and thereby help the Trump administration achieving "Make America Great Again". The other tool is the currency, which will be touched a little later.

The tariff drives up the domestic price of the tariffed good,a general perception. Miran argues it will not happen if the tariffed /exporting country depreciates its currency to the full magnitude of the tariff. That means if Bangladesh depreciates its currency by 37% then prices of its exportable items will not rise in the US market. Tariff is not inflationary in this case. And forex reserve will continue to grow for Bangladesh. Bangladesh Bank with its foreign currency will buy treasury assets. And individuals holding foreign currency will buy foreign goods. Think of China that has a closed capital market. The Chinese govt restricts investment abroad. So holders of foreign currency are forced to invest in less productive and risky domestic assets like real estate that accumulated huge bad debt. Miran argues continuing currency devaluation under capital controls will not sustain amid high tariffs. So there will be great capital flight from China. And it will force the Chinese central bank to raise interest rate , leading to appreciation of Chinese currency. The plus side of tariff war is that the US govt will get revenue without incurring the inflation. However, the US may lose revenue if the partner country does not depreciate the currency and an ensuing inflation may be expected.

The currency tool has two approaches: the multilateral approach and the unilateral approach. In the multilateral approach, the US sits with major trading partners and convince them to appreciate/strengthen their currencies and to depreciate/weaken the USD. This starts to happen when they start to sell USD from their forex reserve. The US starts to buy those dollars and issues new treasury security with duration of 100 years. In addition, the US sells those bonds to friendly countries who need security assistance in troubled waters and territories. By the way, the century bonds will replace the short and medium term bonds,easing the burden of the Fed to make huge interest payments and improving the budget deficits. Here the US projects the global security assistance as public good. And buying the century bond ,you are actually paying for that public good. In addition, holders of the century bond will enjoy favorable tariffs in the US market while the hostile partner will face a different kind of tariff. This multilateral currency approach has a precedent. In 1985, the US,France,UK,Germany and Japan met at the Plaza hotel and agreed to devalue the USD.

The unilateral approach reveals the leverages the US has to reshape the global trading system.It emerges when multilateral approach fails(many countries do not give consent to devalue dollar). One of the leverages is the International Emergency Economic Powers Act 1977 that allows the US president to halt and limit transfers of credit, payments or securities internationally. The US could hold part of the interest payments on treasury security in a bid to make USD unattractive for using it as reserve currency. This will lead countries to lower the size of their USD holdings, creating a depreciation pressure on USD.

Another leverage is the reserve accumulation,which means the US will buy other currencies in a bid to increase the demand of other currencies provided that the Fed prints and supplies the much needed USD.

So far the USA employed the tariff tool. The currency tool has not yet been applied yet. Stephen Miran's work is the guiding principle of Trump's fiscal policy. There is some kind of thinking behind this latest policy action.

Here are my observations:

1. The tariff tool tends to worsen the inflationary pressure in the partner country. The pass through effect(37%) of depreciation may become unmanageable. I hope the US and Bangladesh starts negotiating tariff terms soon and bring about a solution.
2. What about the European countries? They have a common currency. Yet they face different tariffs. How do they depreciate the Euro? Will the members agree and allow the European central bank to depreciate the Euro?
3. The formula used to calculate the tariffs does not take into account tariffs paid by the member countries. The formula ,which is criticized right and left ,is:

   Change in tariffs= (US exports to partner - US imports from partner) ÷ (Price elasticities of import demand × Import price elasticities with respect to tariffs × US imports from partner)

   According to Pew research center, Bangladesh paid 15.2% tariffs on its exports to the US in 2024, much higher than what the other countries in the South and South-East Asia paid(see "Bangladeshi Exporters Pay Highest Tariff In US Market", Textile Today,April 23,2018). It has been doing so more than a decade. This means Bangladesh pays more money to US govt than its rivals in exports. Yet this acknowledgment is not reflected in reciprocal tariffs. If the trade deficit is adjusted for the revenue paid by the partner country, the reciprocal tariffs become much lower. In 2024, Bangladesh exported $8 billion to the USA and imported $2 billion worth of goods and paid $1.216 billion as tariffs(15.2% of $8 billion export). Taking into account the tariffs already paid, the adjusted trade deficit becomes $4.784 billion and and the resulting reciprocal tariff is around 29%.
4. The reciprocal tariff formula used, it appears,tries to capture overvaluation/undervaluation of a partner currency through the trade surplus/ deficit. If partner country's currency is undervalued ,the trade deficit will be larger,so will be the reciprocal tariff. So a political consideration is being played out in this formulation of tariff. It is all about to redesign the trade rules,keeping certain countries out of the global trading system.
5. If currency tools come into effect, then Bangladesh may incur loss in forex reserve. To mitigate the loss, Bangladesh should immediately convert part of its forex reserve into gold. Say USD depreciates by 20% ,then we should buy gold with the 20% of forex reserve.
6. Following the Plaza Accord, the Yen appreciated and the Japan went into recession. If the Euro zone and the Japan go into recession again, our export will dip and we will face serious macroeconomic instability.
7. Threat perceptions and security concerns are different for different countries. Territorial encroachment appears to be bigger threat. In that light,former foe may become ally to defend my territory. This is particularly true for Europe. China has vast frontiers with the Russia. In case of any aggression to Europe, it can mobilize troops along the Russian border and defuse tensions between Russia and Europe. In that light the Chinese security assistance is more plausible for the Europe than the one provided by the USA. Intertwining trade and security concerns does not address the issue.
8. If trade and security concerns are intertwined, there will be many new trading systems, not just one. These regional blocs then draft rules to do trade among the blocs,abolishing the WTO or reinventing its roles in the world of multiple providers of global security.

Stephen Miran's work lays out the blueprint for the new trading system and subsequent action of Trump tells that the recent move is a political one. Trump administration wants renegotiation of trading terms among the partner countries. He wants to weaken the dollar, keep the tax rate low for the Americans, relocation of manufacturing plants of high-end products like semiconductor, automobiles in the USA , so that the US narrow down the trade deficits and remain a formidable power. I hope this tariff war will not last long, because impoverished world is not the result we want to see here. Bangladesh should brace itself for a world with multiple trading systems. For the moment, Bangladesh should also prepare itself for worst case scenario: the reciprocal tariffs stay for indefinite period. Many try to argue that our rivals will take advantage from the heightened tariffs. Harmonized system code for our export items will get us find our true rivals.Cambodia, Vietnam ,China and Pakistan appear to be our rivals in exports. Even if India manages some advantages from the ensuing tariffs,Bangladesh can offset the advantage by depreciating its currency. A 10% depreciation of Taka( difference between the tariffs faced by Bangladesh and India in the US) will bring the trade favor on our side. Our economy can sustain the effect of 10% depreciation of Taka at this moment or near future. One thing emerges clear as the sun is that Taka has to be depreciated in future.

Need Prudent Decision

Prudent macroeconomic management Helps to weather the bad event.

Bangladesh Bureau of Statistics (BBS) is about to publish the inflation rate for October. September inflation rate declined to 9.92%. Despite the ongoing contractionary monetary policy, market has yet to reflect the official inflation data. Govt lifted all duties and taxes on rice import following the heavy loss of Aman paddy cultivation due to unusual precipitation in August-September. This is happening at a time when the govt embarked on bringing the corrupts to the book. During this anti-corruption drive many groups are reluctant to open L/C. On the other hand,high interest rate and lack of instructions from the central bank bar new entrants to go for rice import. Govt has to play crucial role to encourage grain import in this troubling time.

Yesterday(November 06), I read a Reuters report that depicts pessimism about economy following Trump's victory. The report says a fresh round of trade war would accelerate inflation as consumers will pay higher prices for consumer goods¹.

I do not think so. Previous round of trade war under Trump presidency shrank global growth by 0.30%,according to the IMF. This time too, both the IMF and the World Bank projections hint slow down of major economies except the USA for next year. When growth shrinks,demand for output falls and it brings down the price levels. Trump's plan to impose 10% tariff on all foreign goods and 50% tariff on Chinese goods are likely to protect the car industry, particularly the electric vehicle industry. Apart from that it will bring pace to import substitution industry in the US along with the new tax rebate policies for the US businesses. This is heading towards more jobs,more income and more consumption. Trump is likely to recuperate loss from tax rebate by cutting govt spending abroad ( less military spending abroad, less foreign assistance, less fund for climate change etc). This Trumpian resource mobilization will boost consumer activity, a good news for Bangladeshi apparel export. I also disagree with Reuter's fear that it will delay Fed's plan for lowering the policy rate. Fed has already lowered the policy rate. Fall of demand for goods will bring down the price levels. Moreover, Saudis are planning to cut the prices for oil for Asia in December². Prices of fuel, which influence the price levels, registers a decline. So lowering trend of inflation along with boost of American export due to increasing military spending across the globe will force the Fed to lower the policy rate. Back in June 15 this year, I highlighted in my piece titled "Macroeconomy Amid Trade War V", how fall in prices of soya and soya meals may help Bangladesh in the fight against inflation³.

Most importantly, high tariffs on Chinese goods will help relocating manufacturing units to other countries. More FDIs are expected under Trump presidency. In general for Bangladesh, non-food inflation will come down in the first two quarters of next year if any disaster does not disrupt the global supply chain.

Many social media channel claimed China refused to provide fresh credit to Bangladesh. They equated the decision with the regime change. I think it is economic reason rather than political one. Prior to former Prime Minister's visit to China,a Politburo member of Chinese communist party came to Bangladesh in an official visit along with EXIM bank of China and other ministry officials. They held talks with the central bank about the macroeconomy. JICA officials also held talks with the central bank about economy at this time to know first the real economic situation here. According to a report by Reuters⁴, Chinese public debt tripled its GDP due to the crisis in its housing market. So it slows down the economy and the party directing fresh credit to the manufacturing sector at home while the Belt and Road project gets less priority. I think for this reason China is not committing new loan to Bangladesh.

Last week, another decision, it appears, may hurt govt's revenue collection target for the next year. Government decided to revise 30% tax on capital gain from the stock market. The new rate is 15%. It will evidently hamper govt's revenue collection target of Tk 4.8/5.1 trillion next year. No ordinary or common people come to invest in share market, where opaque capital enjoys safe sanctuary. Earlier govt slashed tariff on edible oil and sugar. There are too many fiscal relaxations when the fiscal policy is supposed to align with the monetary policy. I think except the handful few kitchen items , which are consumed by all income groups, there should be no relaxation on taxes.

Government has to reconsider its decision on soft tax policy when normalcy in daily life and kitchen market has yet to return [and it has to meet a colossal revenue target]. Economic activities are not in full swing. Though external situation is in favor of a quick recovery, weathering the bad spell requires prudent economic management.

P.S.: BBS published the inflation for September when I am preparing the piece. General inflation increased to 10.87% and food inflation increased to 12.66%.

References:

1. "Trump Victory To Reverberate Through Global Economy ",Balazs Koranyi,Reuters,November 06,2024. Link: https://www.reuters.com/markets/us/trump-victory-reverberate-through-global-economy-2024-11-06/
2. "Aramco Cuts Oil Prices To Asia",Yahoo Finance,November ,06,2024. Link:https://finance.yahoo.com/news/aramco-cuts-oil-prices-asia-185011180.html
3. "Macroeconomy Amid Trade War V",Rezaul Hoque,June 15,2024.https://hoquestake.blogspot.com. Link:https://hoquestake.blogspot.com/2024/06/macroeconomy-amid-trade-war-v.html?m=1
4. " Why Trump Tariffs Pose A Bigger Threat To China's Economy This Time",Marius Zaharia,November 06,2024. Link: https://www.reuters.com/world/china/why-chinas-economy-is-more-vulnerable-trump-tariffs-this-time-2024-11-06/

Address Political Uncertainty

Consensus to address political uncertainty May send a signal of greater clarity.

Central bank once again raised the policy rate by 50 basis points, making it 10% in a desperate measure to curb inflation. Governor earlier in an interview hinted to raise it even one more time in the coming weeks. Meanwhile, IMF downgrades Bangladesh's growth projection to 4% and anticipates that inflation will be around 10% next year. Earlier, the World Bank had downgraded the growth rate. Since inflation shows no sign of coming down, contractionary monetary policy will be prolonged.

The political protest,sit-in continue unabated. If the political crisis prolongs, it will create new problem as well as cast shadow over the economy. Unlike Sri Lanka where political parties formed the interim govt (which had support of even the outgoing regime) in a consensus, here the former ruling regime is nearly decimated,its student wing is facing ban and other parties are in no mood to have a dialogue with the former ruling regime before its trial. Some key groups associated with former regime signal to wind up their businesses. In addition, govt freezes bank accounts of many groups and owners who have been accused of corruption and money laundering activities. In the absence of greater political reconciliation, budget deficit may continue in the future. Many are demanding an election date. A specific date of the next election will clear away half of the uncertainty. Investors, businessmen and in general the economy will get a signal when the stalemate will be over. Maybe by mid November or by the end of November the draft reform policies and the white paper on corruption will be made public. This will further dispel the ambiguities on the objective of this govt. If this political uncertainty persists or lack of confidence on govt exists ,it will create new problems along with the ongoing economic woes.

Incumbent govt has a new responsibility in addition to fix the economy and start some reform programs. It is to clear political uncertainty arising from this regime change.

If it announces a date,even if it is 5/7 years later, or go for people's mandate for duration of the govt,which I propagated earlier in one of my pieces, it will give tremendous confidence to the economy and people. Because both will know where the country is heading and when it will be over.

When we are in the middle of an economic crisis, all the stakeholders (people,administration,parties) of this country have to think again whether our troubled economy and innocent people can bear the cost of frequent political misadventures.

Lack of reconciliation, rule of law and people's participation almost jeopardize bipartisan political structure, which somehow gives a kind of stability in many countries,in our country. Former ruling regime tried to do the "unnayan" (development) for people without taking their consent. By the same token, we see that "songsker" (reform) is being pursued for people bypassing their mandate. Trapping into the narrative of "biplobi sarker"(revolutionary govt) may cost the incumbent govt. Boasting such argument may invite another unsettling event that we should all try to avoid. People's mandate may throw cold water into all kinds of debate surrounding this govt. And it will be good for the economy. At the end of the day both " unnayan" and " songsker" will be done for the people. So they should be at the center stage of everything. Otherwise, I apprehend, vested quarters may exploit the situation as they did during the tenure of previous regime and during the caretaker govt. Our economy and taxpayers may not bear the cost of wrong policy decisions.

China recently lowers its policy rate. Earlier it had appreciated its currency. Low Chinese policy rate paves the path for cheap Chinese credit for the private sector. While foreign currency keeps coming, a large trade deficit in the bilateral trade calls for taking Chinese credit for the private sector to pay the bills for doing business with China. Previous regime did manage to get 1 billion yuan. If it necessitates, govt may go for another package when we need more credit to give our private sector to rejuvenate the economy.

Govt took some right steps to address inflation woes. Now it needs to unveil reform plans and address political uncertainty before it gets worse.

Macroeconomy Amid Trade War II

Clashes of the titans in trade May prolong the struggling state.

In the previous piece ,I depicted a rough sketch on the macroeconomic situation amid a trade war between the US and China. Let's add few other factors to make the sketch a bit clearer. Here I start with adding the crude oil price. The previous piece is based on the assumption that crude oil price is $70/barrel. Now let's see what the scenarios will look like when the crude oil price is more than $70/barrel and when it is less than $70/barrel.

Crude oil price: More than $70/barrel

Fed funds rate:5.33%
Chinese policy rate: 3.45%

It will put pressure on existing import. It has the potential to worsen inflationary pressure. Continuation of policy rate hike for a long period. But tax revenue from oil import will rise. Depreciation is needed to make contend exporters. But depreciation of taka will also raise the revenue. Remittances from the Middle Eastern countries may rise.

Fed funds rate: More than 5.33%
Chinese policy rate: Less than 3.45%
It will worsen the strain of import expenditure. As foreign credits will be hard to get, financing existing import expenditure will see an uphill task. Exporters' cost of manufacturing goods will also rise. More depreciation is needed than the previous case. Inflationary pressure will be higher than the previous scenario. Interest rate hike will be higher and continuation of this policy will be longer than the previous scenario. Revenue earnings from depreciation will be higher but import bill of oil and food grain and other necessary items will cast shadow over it. Remittances may be lower than the previous scenario. Part of the oil revenue may be invested abroad and the the rest will be invested in local domestic infrastructure project. Chinese credit/FDI bound to US may enter Middle East amid trade war. China financed infrastructure project in the Middle East may see less participation of South Asian work force.

Fed funds rate: Less than 5.33%
Chinese policy rate: Less than 3.45%
Less stress on import spending. No depreciation is needed. It will put pressure on revenue earning if NBR fails to meet its target. Remittances will rise. Most of the oil revenue from high oil prices will be invested back in the Middle East. More Bangladeshi workers may find jobs in these countries. Part of the money may be invested in Bangladesh, giving a sigh of relief to Bangladeshi private sector that heavily depends on Dubai and Singapore based banks for foreign credit.

Crude oil price: Less than $70/barrel

Fed funds rate:5.33%
Chinese policy rate: 3.45%
Less pressure on import spending on oil. It will help easing the inflationary pressure. Economic recovery will be early. However, less Bangladeshi workers may find jobs in the Middle East. No bigger depreciation is needed. Chinese investment in Bangladesh may rise.

Fed funds rate: More than 5.33%
Chinese policy rate: Less than 3.45%
Depreciation is needed but less than the default scenario ($70/barrel). Inflationary situation will be better than the default scenario. China will be in a much more comfortable position to grab large share of EU market with weakened Yuan and low oil price. More Chinese credit and FDI for the Middle Eastern infrastructure projects may shrink the opportunity of Bangladesh workers. Less remittance flow than other scenarios. Money supplying measures by Bangladesh Bank will be less than the $70/barrel scenario. Chinese investment in Bangladesh will rise.

Fed funds rate: Less than 5.33%
Chinese policy rate: Less than 3.45%
More foreign credit and FDI will come to Bangladesh. Inflationary situation will be better than all scenarios described so far.Ongoing contractionary monetary policy will not last long. Economic recovery will be earlier than any other scenarios.

Abuse,Free Court,More Trade Should Be On The Table

Free court, concerns over abuse of right, Flexibility towards foreign businesses Not only make the future bright, Also dispel doubts and differences.

In short span of time, two high officials of two powerful countries will visit Bangladesh. First Chinese Foreign Minister will make an unprecedented official trip to Bangladesh to galvanize strategic relations¹. Immediately after him a high official of US government will come to visit Bangladesh all the way from Delhi.

Many here see the visit of Chinese Foreign Minister as a mean to gather support for the ongoing tensions in the Taiwan straits. But Bangladesh already stressed “One China” policy,as a marginalized nation this is the alternative it has to adopt, and Ministry of Foreign Affairs has recently reiterated that in a communiqué. Anticipations are high on the air that the visit will boost trade and investment and strategic partnership. Govt has already made it clear that it will not take any new loans following the turmoil in Sri Lanka and the ensuing controversy about Chinese projects. Strategic partnership is already there,signed during the tenure of General Belal as chief of Army staff and bypassing the Parliament. It witnessed a stagnant spell when the Rohingya crisis arrived on our shore and Chinese support for the Myanmar in international arena. Strengthening the military capability of Bangladesh is at the heart of this strategic partnership, conceived in the context of necessity to position soldiers along the borders of Bangladesh’s neighbors in the time heightened tensions. This local arms race in Bay of Bengal is drawing it closer to both Bangladesh and Myanmar. But this growing strategic partnership has a cost. With rising military strategic partnership, authoritarian quarter in Bangladesh is also gaining power. Chinese Communist Party is indeed a brilliant organization when it comes to develop human resources at home,to ensure rights and dignity of vulnerable groups of the society and to deliver justice in China. But when it comes to talk about the human rights situation, decay of governance in the countries under its sphere of influence it prefers to take a back seat. There is no concept of human rights report or governance report or freedom of speech report on other countries in China. If the Chinese Communist Party could initiate this, it will be an enormous help to the democracies in distress.

Bilateral trade is still in sorry state. In 2019-20,Bangladesh imported $11.49 billion worth of goods from China. In 2020-21,the import rose to $12.95 billion. In 2018-19,our export to China was $590 million, in 2019-20 it declined to 499 million and in 2020-21 export improved slightly to $566 million,but never reached the 2018-19 figure². So trade deficit keeps rising. Not only that China is investing heavily in RMG automation so that lower end RMG factories could not move to the lower wage countries. This is hurting countries like Bangladesh that benefitted tremendously in the past from the footloose nature of RMG industries, factories relocated in the lower wage countries when the wage rose significantly. Not only that its “zero dollar tourism” policy,every penny spent by Chinese tourist went to the pocket of Chinese tour operators, often hurt local industries as it happened in the Myanmar. In Bangladesh, we have witnessed with great pain that many big infrastructure projects have negligible Bangladeshi presence. More Bangladeshi engineers ,companies could have been taken on board to improve their portfolios. China could easily lift Sri Lanka out of this dismal state by ordering PLAN to do paint job of its vessels in the dollar-strapped country or by directing a portion of Chinese tourists in the country. That did not happen. Ignoring the strategic partnership it deals with Sri Lanka like a creditor and borrower.

And we do not see any formidable presence of Bangladeshi companies in bilateral trade. We would like to see more and more Bangladeshi manufacturers export their goods to China,bring the money back to the country and Bangladeshi companies' access to critical industrial technologies get serious attention. Unfortunately when it comes to dispute settlement ,Chinese legal system has yet to display its independence and its ability to act independently. As an ordinary Bangladeshi,I would like to know whether Chinese legal system could take stand against the state if the cause is just. For trade and commerce related dispute settlement this independent court is quintessential to deliver justice. For instance,in the past we witnessed many Bangladeshis and Bangladeshi companies got the verdict on their side in foreign courts. In USA,we see many individuals sued the federal govt and won. In India,many Bangladeshi victims got court ruling in favor of them securing compensation from the perpetrators. Is Chinese legal system ready to take such just stance? Chinese Communist Party is an ingenuous organization and can think ahead of times. As an ordinary Bangladeshi I hope China will raise its voices on protecting human rights and strethenting democracies,will distance itself from authoritarian regimes,will allow foreign businesses to play more role in bilateral trade and will have an independent judiciary that can even go against it instead of confining itself into the narrow concept of military strategic partnership that does little help to ordinary people.

Notes And References:

1. “China Pororashtromontri'r Alochona'r Table E Ki Thakche(What Is On The Discussion Table Of Chinese Foreign Minister?)? “,Masum Billah,bdnews24.com,August 05,2022. For more read at https://bangla.bdnews24.com/bangladesh/30z6a5umsb
2. Bangladesh Bank

What Does Wild Fall Of Taka Portend?

Wild fall of Taka causing worries,
Most blame goes to deferred LCs.
Before and after election year,
Gathers abroad illicit capital sheer.

The rapid fall of Taka against major currencies has become headlines recently.Central Bank is selling dollar at Tk 86.70.However, at the exchange market US dollar is selling at TK 93. This rapid depreciation of Taka has been reported to be caused by rising commodity prices,settlement of deferred Letter of Credits, lack of foreign tourists, and rising trade deficit¹.

Government even issued notice banning unnecessary travel of the bureaucrats. But I think bureaucrats’ visit abroad and lack of tourists are poor reasons attributed to wild fall of Taka.The two represent a miniscule part of demand for dollar. The ban came at a time when a minister and her relatives’ visit to another country drew lot of flak in the press. Later, minister claimed that she paid her own expenses and never relied on public money for meeting the expenses. So govt's ban is a diversion to pass the blame to others.

Unease of the govt is compounded by falling remittances, which earlier offset trade deficit and made a current account surplus. In addition, medium and long term debt commitment has also increased, but as percentage of export earnings it is still below 25%(as per my calculation).Along with Occidental multilateral institutions, which are more generous towards Bangladesh, Russian and Chinese credit repayments do not pose serious problem for the moment. Loan repayments of Russian credit line would start from 2023 and some social media put the annual payment somewhere between $565 million. The Ban on Russia and Russian decision to repay the credit in local currency would not cause pressure on US dollar demand. However, such ban could increase dollar demand if US dollar payment could take place in disguise of legitimate international trade via other friendly countries. It is hard to trace such trade payment, so it is better not to embark on such speculation.

So the single reason stands out among others is the deferred LC payment. Most of the LCs opened for importing capital machinery, raw-materials,cooking oil and grains².Rising commodity prices also raised the import expenditure and it is causing the depreciation of Taka. Now here comes another point that we are missing. 2022 is the year before the election scheduled to be held in 2023. Years before and after the election generally witness illicit financial outflow through trade misinvoice. Bout of skirmishes and deteriorating law and order sow panic and lack of trust on domestic system among some quarters. Panic mongers work as sales executive of places where illicit capital finds safe sanctuary.

In an embarrassing report in 2017,Global Financial Integrity (GFI) revealed worrying accounts of illicit financial flow from Bangladesh between 2009 and 2015 with an average flow of $ 8.8 billion. The mismatches between declared value of goods on the invoices and true value of goods were reported to be $5.2 billion in 2008, $6.9 billion in 2010,$8.8 billion in 2011,$7.65 billion in 2012,$9.35 billion in 2013 and $11.92 billion in 2015 ³.As US places sanctions on some personnel of law enforcement agencies for violating human rights, many are under spell of panic. In addition, retribution in politics looms large. Political situation in neighboring countries makes that threat more credible. So exists there a perfect ground for clandestine capital flight through trade anomalies.

However, Canada postponed its residency permit through purchase of flat for two years. But our RMG items are being regularly exported to Canada. And recently one Canadian minister expressed desire to export cooking oil to Bangladesh. So ample means are there to channel out the money.Moreover, Turkey recently opened 2nd-home program like Malaysia. UAE is also running similar campaign.

Two or three quarters later a picture may emerge about the volume of illicit flow. As it happened in the past, this speculation---illegal money transfer through trade data anomalies---may have some roots and may be a reason for depreciation of Taka that is widely ignored.

This depreciation of Taka will work as instrument to curb further import as import is going to be costly. Meanwhile, govt is going to receive another $250 million of ADB’s budget support pretty soon,as reported by the press. Hopefully, Taka will be hovering over some fixed figure for sometimes after that.

Notes And References:

1 “ Dollarer Bazar Osthir,Oshosti(Volatile Dollar Market, Causing Unease)”,Sanaullah Sakib,Daily Prothom Alo(page-1),May 12,2022.

2 “Bank O Khola Bazar E Dollarer Damer Parthokya 8 Taka Chhariyechhey( Difference Between Dollar Exchange Rate At Bank And That Prevails In Market Crosses Taka 8)”,Sanaullah Sakib, Daily Prothom Alo(page-01),May 13,2022.

3 “Bangladesh Lost $50 Billion To Trade Related Illicit Financial Flows In Six Years: Report”,bdnews24.com,December 17, 2021.