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Conversation

Economic Planning in Bangladesh Issues and Challenges
*** In order to accommodate this special feature. ■Conversation.' some rogu lor features of this page, such as -Letters to the Editor.' have been dropped for this issue They will appear as usual tomorrow
For •international news,'tdeaso^payesu^ ***
*** Two noted experts. Prof. Rehman Sobhan and M Syeeduzzaman, reflect on and answer questions on the economic challenges facing Bangladesh, especially the country 's newly elected government. They offer retrospective views of the performance of successive regimes, starting with the Awami League government, and suggest how the mistakes — and blunders — of the past can be corrected by the new administration. They talk about the country's relationship with aid agencies and donor nations, with reference to the Paris meeting of the Aid-to-Bangladesh, starting on Wednesday, and make a case for the official delegation from Dhaka adopting a new and a more dignified approach to the consortium meeting, an approach, as Prof Sobhan puts it, based on self-respect and the exercise of the country’s sovereign rights. ***
_ — — HEN The Oafly Star decided to take an In ▼ V depth look at the economic challenges facing the country and assess the prospects and problems which lie ahead of the new elected government of Begum Khaleda Zia. we had no difficulty tn planning the format of the coverage We. the Editor and his senior colleagues, agreed that we would Invite two noted experts of our country to join us In an unstructured freewheeling discussion on the issues we had In mind and to let them speak to our readers In direct narration. Thus, we de elded to have a "Conversation', the second In the series, as encouraged by the success of the first one. with Poet Shanuur Rahman, which was published tn our supplement on Pahela Baiahakh.
We did not have to look very far to identify the two experts for the discussion. Fortunately for us. the two we approached — Prof Rehman Sobhan and M Syeeduzzaman — readily agreed to join us. despite their busy schedules, and endorsed the format — both had liked the piece with Shamsur Rahman — without any reservation.
To discuss the economic challenges facing the country - and its new elected government — it would be hard to find two experts as qualified, knowledgeable and articulate as M. Syeeduzzaman and Rehman Sobhan.
With a distinguished career as a civil servant. Syeeduzzaman has been deeply involved tn the field of finance and planning, at national and International levels, for close to four decades. Soon after liberation. he served as the Executive Director of the World Bank and then returned home to take up several high-level positions. In the eighties, he successively served as the Finance Secretary. Adviser on Finance (with the rank of a cabinet minister) and, finally.
as the Finance Minister, the position from which he resigned. on his own volition, in 1987. Now. a private citizen, based in Dhaka, he takes up occasional consultancies for international organisations and foreign governments. A former professor in the Department of Economics. Dhaka University, and once one of the most articulate advocates of the Awami League's Six Point Programme and then of the liberation of Bangladesh. Rehman Sobhan was a natural choice of the first government of Bangladesh as a Member of the first Planning Commission. However, it was as a Director of the Bangladesh Institute of Development Studies (BIDS), the position he held until recently, that he established his reputation which has spread far and wide as a scholar on economic planning as well as an author of much-acclaimed books on Bangladesh. In his most recent Job in the government, as the Adviser on Planning for the Interim Caretaker administration of the Acting President, Justice Shahabuddln Ahmed. Sobhan was responsible for the setting up and coordination of the Task Force which produced 29 volumes of reports, praised at home and abroad.
The three-hour conversation with Syeeduzzaman and Sobhan produced some significant insights Into the thinking of the two experts. Neither of them took up any partisan line nor followed any particular ideological approach. Thus, both were refreshingly objective and candid, with their opinions revealing a large area of a agreement in their perspectives.
Since both had served several regimes in this country in high positions, we had fondly hoped that they would make some startling disclosures that would make the front page news tn The Dally Star They did not. In fact, their perspectives were only indirectly coloured by the knowledge they had gained by working inside various administrations. And what they had learnt from inside was balanced by what they knew as independent experts. This is precisely what made the conversation stlmu lating, candid and at times provocative
Instead of making any in-troductory remarks on the topics taken up during the discussion, we will let the two experts speak directly to our readers, in their own language
Sayeeduzzaman: It Is bast cally a crisis of resources and management of those resources. in terms of priorities So It Is a question of ordering the priorities, keeping tn view the availability of resources and the managerial capacity of the government in the short, medium and long term.
Rehman Sobhan: The point I am making is that the real crisis may be, that In the short-run the inheritance is such that we do not even have areas of choice left to us. This is largely because the central problem has been the structural and general stagnation of the economy which has really been the main feature of the 1980s.
In fact, if you really look at the main macro-economic parameters of the economy, for any developing country they are really disturbing. You had declining rate of investment, you had declining rate of domestic savings which in the
last two years was below one per cent of Gross Domestic Product (GDP), which must be one of the lowest in the developing world.
The structural composition of the economy In terms of the share of the manufactured goods to GDP has remained virtually unchanged in the past decade. And the degree of external dependence of the economy, manifested in the share of aid — both project and commodity — which finances the Annual Development Budget (ADB), has grown to the point where for all practical purposes 100 per cent of the ADB Is likely to be aid-financed. And the dangerous problem at the moment is. that the forecast of resource-mobilisation domestically indicates that for the next two to three years this situation may persist.
Now this has a very severe price. It means that if they are going to finance your development budget, then they are going to exercise a decisive say over your policy choices. Unless the government can then address the problem which Sayeeduzzaman has raised, of bringing about a fundamental transformation in its capability to both generate resources and manage them, this situation may continue.
Daily Star: We will go Into that in some detail when we come to the question of economic planning. This is, generally speaking, your understanding of the crisis we are facing. Now we will go into some specific areas. and one of the areas is of the Task Force (TF). While you were an adviser in the Interim government, Rehman, you presented a very interesting report prepared by the TF that you had set up. We will, of course. ask Sayeeduzzaman to comment on it. but before that we would like to ask you Rehman about your thinking. What were the terms of reference of the TF and how do we Integrate its recommendations into the Fourth Five Year Plan (FFYP).?
RS: Well. I think the first thing is to understand the logic of the setting up of the TF The underlying idea was that most political parties really have not had the time to satisfactorily address the Is sues, and to identify them, and to then develop their own policy alternatives Whatever . the circumstances behind them — that Is a separate matter — the historic fact is that since time immemorial gov ernments have come into office with no perspective of the nature of the problems faced and the options they can exercise.
Now. the resource available was that there was a large number of competent professional people who were motivated by the democratic upsurge and were quite enthusiastic about making some con trlbution. It was undefined as to how they could actually contribute.
So. you have this enormous potential and the crying need to advice the new democratic order about the nature of the problems and priorities they will have to face, and some of the policies that they may in fact review. There was a third factor.
For virtually the last decade — longer than a decade. I would say really — all policy priorities have tended to originate in papers prepared by respective donors. My view was that, with this enormous amount of talent which exists within the country, we would be doing ourselves a great disservice if we should not attempt to recapture the high ground in terms of setting the priorities for an incoming democratic government.
Now. to get a large number of professional people to volunteer their services —- because the government was In no position to commit its resources — and to then deliver a professionally respectable product In a matter of two months was a pretty difficult task. That you would have had 250 people coming into this (29 task forces) and perhaps another 200 wanting to quarrel with me because I did not call them in. was an impressive and moving experience for me personally.
1 have read all the reports, and I must say I am deeply impressed with the quality of most of the reports. There Is obviously considerable variation In quality as well as the amount of work that, actually went In, but no single report exists which does not have really interesting Ideas In defining the problems, and In making suggestions about the feasible alternatives for a new government as well as the issues which the elected parliament can raise In the course of the next few years.
But It is not an alternative to the FFYP. The Plan has framework and expenditure priorities. This was essentially an exercise to look at the possibilities that exist In terms of the resources and capabilities which are within the economy, and not whether you should completely change the direction of your expenditures.
The other terms we gave them were commonplace ones. For the last 20 years everybne has thought about the eradication of poverty. But where have we moved in this direction? Each TF was asked to suppose that the government would take itself seriously and try to eradicate poverty, and also that parliament would make poverty eradication the focus of Its agenda. The TFs were then asked to see what could actually be done to realise this.
Similarly, you have had stagnant growth, up. down, you have remained where you have been. Again, suppose we were to put ourselves in a dynamic upward trajectory. Then the TFs were asked to find what should be done about that
Then of course, the binding constraint was how much of these could be realised through more use of domestic resources and domestic skills.
And finally, particular task forces were asked — where relevant — to bring tn the concern of women into their sector of the agenda. Women are the moat neglected and deprived segment of the community. If we were to genuinely attempt to integrate them into the development process, the TFs were asked, then what should you do about it?
DS: Before we ask Rehman any supplementary question. I would like to ask Sayeeduzza man for his evaluation, if you have any thoi^hts on this. on what the TF has accomplished and how you think its work and report can glue us a help In our future direction
SZ: I think this was an admirable initiative by Rehman, and he has very clearly ex plained the objectives behind It. Putting the Issues on the table gave the government choice, and also allowed attention to be focussed on those issues. And I think it was a matter of great pride for us that 250 professionals volunteered to work on the task forces.
I did not have access to all the reports 1 think 1 got about a dozen, and my perception is that, by and large, the reports were very good. Some were very good, others were good.
and few I couldn't include In either of these categories.
One thing I noticed in these reports was that the approach, in most cases, was highly normative. highly moralistic, saying what should be done in an ideal situation, not necessarily what was practical or could be done.
DS: Would you call It utopian ideas, do they border on ideas that can be termed utopian?
SZ: No. I would call them normative. I don't know what approach the government is going to take to these reports But I think for any ministry — and there I include the minis -ter and secretary of the ministry — who is seriously interested tn their particular sector or sub-sector, should take advantage of these reports. These should be subjected to In-depth study, analysis and evaluation to see what they can do in the short and medium term.
But I must also sound a note of caution. That in policy-making exercises, the rate of obsolescence because of elapse of time is very high. Things which are of very high priority and relevant today may not remain so tn three months time. Its already three months since these reports were submitted. and I don't know how the situation will be In another three months. We have already been over taken by the cy clone, for example. Some of the reports that were relevant before the cyclone may not be so, on an objective basis, today or In two months time.
DS: Have you had any feedback from the government? We get the impression that the media as well ag experts and people outside government have welcomed the reports. Now. do you have any indication, Rehman, as to what the government wants to do with these reports?
RS: Well, I suppose the question should really be addressed to the government. They obviously have their preoccupations. Wc don't really know who. to what extent. Is making use of these reports The prime minister has a full set of these reports, and quite a few ministers have also been given their own copies.
What I think we are looking forward to is that the Bangladesh Economic Association is holding a meeting on the reports, and the PM will in fact be inaugurating the conference. Quite a few people from within the government will be expected to participate in the meeting and make comments. But how far the government has formally ad dressed Itself to the reports Is something I am not in a position to say.
DS: How do you react to Sayeeduzzaman's comment that most of the suggestions were normative?
RS: Well, if you are making recommendations over a two-moth period about what might be done, then you are bound to make a large number of nor matlve suggestions By normative you mean you are talking about things that ought to be done, and merely backing it up with a great deal of supporting empirical evidence
Now. some of the task forces really did put in a great deal of empirical work Take the energy and transport reports. for Instance Each was has about 200 pages with an enormous wealth of factual information and analysis But most of them took the empirical premise of the suggestions they made as given Because all of them have worked tn these areas for the last 10 15 years, many of them provided the empirical basis on which they were making their rec ommendations.
About built irt obsolescence Here again I think 1t will apply to some of the reports, and within reports to some of the recommendations But most of the observations really did derive from long-term problems facing the economy. Most of these problems have been with us for 10-15 years, perhaps longer and they are not going to go away, unless they are effectively corrected And the task forces have at tempted to address problems which In many cases have been addressed but then burled In consultancy reports, or official papers and so forth.
DS: Judging by the successful experience of the reports, do you think our professionals are capable of carrying out large-scale consultancy work? Can you suggest to our gov-
emment to ask the donors to let the consultancy part of projects to be carried out by local professionals?
RS: I would say 100 per cent yes to that. I have come across very, very few expatriate consultants who were more competent than their domestic counterparts. In the social sciences, virtually none: in the hard sciences, obviously there are some highly specialised areas where In fact you can import expertise that you do not possess.
But obviously you have the domestic capability, and virtually 90 per cent of your consultancy needs are redundant and imposed by donors as a transaction cost to getting foreign aid. This substantially devalues your domestic capabilities. It would be one thing to bring in the Amartlya Sens of this world, but you are bringing In the students of their students, who by and large would be manifestly Inferior to your domestic skills. Then what are you getting out of thia enormous USS 120-130 million that you Invest In consultancy? Can you imagine that 50 per cent of project cost goes for providing skills in making cheera to poor rural women for which you have Imported foreign consultants? When you see things like that, you don’t know whether to laugh or get angry
DS: You mentioned in your opening statement our Inability to realise savings as a ma/or reason for the crisis. Or Is U our inability to curb unproducttoe expenditure?
RS: Well Its a combination of both. The source of this is the whole, you might say. narcotic dependence on aid. Essentially. you are now going to the donors for meeUng ar eas of expenditure which were traditionally funded from your domestic savings. What you now call the re Imburseable project aid. which really pro vides the taka component of a project, traditional dividing line was that came from do mestic savings and aid pro vlded the foreign currency Now what is happening la that anything upto 90. sometime* 100 per cent a project ■ cost I. IC fact provided by d.mors
I would actually say that in most cases I5O per cent Is Cded by donors That Is use while the effective content of project may be worth say 10 crore taka but because H Is an aid financed project tt is costed at 20 crore taka, with perhaps 10 crore taka of the project being largely redundant
This is the buth tn dwtor tlon which has now come into aid financed projects most of which I find badly chosen, sloppily designed with an tn he re nt waste factor Consider ing that donors have partici paled in the designs of these Crojects then have Invested rge consultancy resources for expatriate consultants I am amazed that they could in fact design projects so sloppily
DS Let's have Sayeeduzza man's views on this You hair written about the Importance of Internal savings — Si this paper as a matter of fact — now would you like to comment on what Rehman said?
SZ: Well. I would like to make a normative comment in the sense that we have talked about our domestic capacity In many of these task force re ports But Judging by our own experience since liberation In 1971 — and also by my own experience as a bureaucrat and a minister — that in the First Five Year Plan period of 1973-78. the Two-Year Plan of 78-H0. Second Five Year Plan of 80 85 and Third Five Year Plan of 85 90 periods, we have exhibited a capability to exaggerate our domestic capacity and our domestic resources
DS: When you said 'we have exhibited', did you mean It was the political leadership, or the civil service, or the regime as a whole, or was it the planners who gave us this misleading impression that domestic capacity was higher than what It actually was?
SZ: 1 should not say It was misleading deliberately But
our own judgement and our own pride in our ability, quite frequently persuaded us to exaggerate our capacity. We have to be realistic about this.
Coming back to the ques tlon of wastage of aid money. I think there Is considerable amount of truth in this. In the very nature of aid relationship, there Is a possibility that you will be ending up paying higher prices than Is internationally Justified. If you want that aid. then you have to accept that as part of the deal
It is a question of the ability of our own managers, people who deal with aid negotiations at the project level, to determine whether a particular pro Ject is over-designed, flow much fat Is there in the pro Ject and so forth.
The other point is that I don't think you should put the blame entirely at the door of aided projects. Can we say that projects that are financed from our own resources are totally free of wastage? My own feeling ts that there Is much greater percentage of wastages In projects financed from our own resources
DS: Do you find any clue tn these task force reports con cernlng the possibility of changing the priority of the FFYP now that a political government has come in?
RS: 1 think because you had 29 task forces, you could not set Inter se priorities Priori UsaUon Is a conscious political decision. Whomsoever Is the elected government has Its own set of priorities and they are to assess the Issues raised here and determine what alee! la more Important
I done that. I'd done what some peopk- have accused me of doing. that is presenting my own set of priorities to the new elected government. Right now the relevant priorities stand with the FFYP.
Now. I think Sayceduzza-man is perfectly correct In terms of over estimation. I'd say all successive five-year plans have tended to over-estimate their capacity to gener ate domestic resources and achieve self-re Hance. Nut there is a problem here. You see our notion of over-estimation becomes a self -hi trilling prophesy. Built into the whole system is a notion that we will do as little as possible to realise our true capabilities which are already inherent. The whole system is now endemic with this constant under-utilisation of our human and material resources. Now either the government is consciously going to raise this level of resource utilisation, or it is basically in default of its responsibilities as a government, a willful default if it cannot do that.
So built-in to each planning exercise ts a normative notion that a government has to do better. If in fact the government is performing at a sub-optimal level, and it is to get itself upto a minimum level of competence, there is an enormous amount of domestic resources that stand to be generated. Now if in fact you are a country with a gross domestic saving of below one per cent, and God alone knows how many countries in Africa and elsewhere are generating higher rates of domestic savings. and you cannot graduate upto that particular point, then you really arc in default as a nation. And successive governments have been delinquent in their obligation towards their countrymen.
In successive plans, the area of dependence and the degree of dependence has gone completely contrary to what foreign aid is all about.
Foreign aid from the days when you first read your first textbooks, was an interim intervention to cover the savings and foreign exchange gap of extremely backward and structurally deformed countries. and as you graduated upwards, as you realised structural change, you cover those gaps. Now if your position approximates to a war-devastated economy, which ts where we began our life with all the dislocation caused by the withdrawal of the Pakistanis, and your position in terms of handling of your own affairs is worse now than it was 20 years ago. then where are you?
DS: Sayeeduzzaman raised the point of priorities for this new government. What In your opinion should be the re-prioritisation of this new government?
SZ: As Rehman rightly said, the hands of the new govern ment are virtually tied in terms of the possibilities of re allocation of available resources. in the short-term, the question of financial stability is very important because we don't want to get into a situation of rapidly rising rate of inflation. Secondly, the government should declare Its commitment or otherwise to a medium-term framework for macro-economic management, which is basically coming back to Rehman's point of how to raise domestic savings and domestic Investment.
DS: Does that fit in with government thinking of cutting expenditure by cutting the upazila administration, district administration, and other areas. which are political decisions?
SZ: ’Ihere are so many areas where you could reduce of trim expenditure. You have mentioned two areas, but there are other areas.
DS: Could you kindly mention which other areas they could he?
SZ: Well, then you have tc go back to where the expenditure has gone up in the past 1( yea,rs. Foremost ts the public sector wages which have gone up very fast; secondly, this question of debt servicing, which has also gone up fast; thirdly, you have these transfer payments for non-productive purposes like grants U educaltonal institutions which have been given on political considerations without realising any effective returns and finally the security-related ar eas. across the board, differen Svernment instruments, ese are the areas where there is considerable scope for rationalising expenditure
DS: Would you also agree that there Is wastage in the private sector tn the form of bad debts which are now coming out in the papers, the long list? Would that be also a wastage of national resources?
SZ: Certainly that is a wastage of national resources, but not necessarily of public resources, since large part of the debt comes from private savers and depositors and so on.
RS: You see a large part of what constitutes private investment is in fact public in vestment, in the sense that it is financed from public lending institutions. The notion that public enterprises should be accountable for the use of these resources, but people who have borrowed these resources from DFls should not. is obviously not acceptable because these are resources which have largely been given by donors. And they have a high opportunity cost in the sense that you could have used these same resources for lending to small industries, or for developing local infrastructure or for poverty alleviation. So they have a cost. So now if I have invested public resources. I must account for them. 1 must find out how each and every enterprise created by such an investment is coming along. Is it generating significant output, is it repaying its loans so that other borrowers can come in, Is it generating re investable surpluses, or is it operating at below one-third of its capacity and all its loans are In default?
The worst danger is that the government does not know what ts happening to the resources it has invested in these enterprises, it does not know what Is happening_to its dtsinvested enterprises.
DS: Were these willful lapses or managerial problems?
RS: I would say it is just the way it has evolved. I’d say that 70 per cent of time and energy ts spent in negotiating to bring aided projects to fruition: twenty per cent of time is spent on implementation of these projects: and 10 per cent is spent in actually managing the projects. , What is happening there is not that the government is not giving attention, but it is giving attention to all the wrong areas. Ukc. persuading corporations to employ people that are not needed; denying them the freedom to adjust their prices to cost; and then imposing wage policies without consulting the management, or considering the ability of a particular enterprise.
Before we go into the Paris Aid Club topic, another thing about the issue of prioritisation. Actually 1 don't know What prioritisation is going to mean, because priorities for the next Annual Development Budget (ADB) is already determined. They are determined by the splll-oveer projects. and by the number of projects which donors have evaluated, and have either negotiated or actually signed. Within the current resource envelope, which has been identified for the forthcoming ADB. I'd reckon that priorities are zero. Unless the government can make significant effort — and I'm not quite sure what effort they are going to make — to generate a whole shelf of new resources, either by cancelling large number of spill-over projects, or by extraction fat from existing carry-over projects, or by generating new resources through revenue, there are no priorities. Priorities are 100 per cent donor-determined.
DS: What can the government of this country extract from the Paris meeting? Has the perspective of the Parts meeting completely changed ?
SZ: I should not say that the perspective has changed, certainty there is an additional dimension in the deliberations of the meeting because of this cyclone disaster. Naturally the government will ask the meet Ing for additional support to overcome the damage done, including rehabilitation assistance. As far as the donors are concerned, they will be looking for commitment from the new government to the policy reforms which have been agreed to by the previous government over the past several years. They will look for commitment to pursue those reforms as the basic determinant of the regular flow of external capital and aid for the rest of the FFYP. The areas are well known, like macro-economic reforms, structural reforms. tax reforms financial sector reforms, tariff reforms, budget and expenditure control. public enterprises reforms.
RS: The problem with the Paris aid meeting is that the government has nothing to do with it. It has never had anything to do with the consortium meeting. The agenda for the meeting Is set by the donors, and the working document is the Country Economic Memorandum prepared by the World Bank. The government's own statement that goes there ts basically a document designed to show how they are attempting to honour their obligations to the donors as spelt out in the CEM. Now if * the government ts to demonstrate its credibility, the only framework in which to do that, is by its willingness to carry out the policy agenda which has intact been laid out by the donors. And what I'd
have liked to have seen an elected government do is to expose this CEM to a very rigorous evaluation. The first time an elected government is going to Paris, it should review the whole policy format which has been spelt out by the donors. An internal evaluation, and drawing upon all the professional resources that are available within the country. I find there are quite a number of policy prescriptions which are exceedingly uncomfortable, and these need to be veiy carefully assessed and analysed. The government should then determine. In relation to Its own priorities and managerial capabilities: what in fact should be the policy framework. The ideal framework for going to the consortium meeting should be that there should be only one document on the label. And it should be the priorities and policies of the government of Bangladesh. And donors should then be invited to come forward and to comment on this and critique it, and to have a dialogue.'
SZ: Rehman is right that the net output of the Paris meeting in many occasions remains questionable. The. people who attend the meetings on behalf of the donors do not come from policy-making levels.They come mostly from aid agencies, so there is nothing new they can say at these meetings except convey the views of the donor governments which have already been conveyed earlier to the government in Dhaka. So what they basically look for is what kind of response the government is giving to the views of the donors.
Secondly, the sum total of the pledges that come out in the meeting is not different from what you would achieve on the basis of bilateral negotiations. That is in the nature of things, because the head of a donor delegation in Paris would not make pledges or commitments which are at variance with budgets his authorities have already prepared in advance.
Thirdly. the process through which the World Bank Ereduces its document is quite
•ng. It's a process that takes about six to seven months. They come here in September-October. and give the government a first draft; then they come again and give the government a second draft; finally. they have widespread interaction with government ministries. Including a final wrap-up meeting with the Planning Commission and the External Relations Division before they finalise their grey cover document. So the gov-ernment has considerable amount of opportunity and time to react to those documents and to tell the World Bank economic mission what they feel. Unfortunately we have not always made the best use these six or seven months.
DS: One question to you Rehman Sobhan, what are the uncomfortable prescriptions given by the World Bank and the donors?
RS : Well, at a very fundamental level. I do not agree with their policy for the wholesale import liberalisation of the economy. 1 think there Is a considerable body of professional opinion in the country, not to mention internationally. which would take The view that imposing this degree of import liberalisation on a country where only 10 per cent of its GDP comes from manufacture has no historical precedence and was probably responsible for the structural stagnation of the economy. If you want to move towards liberalisation you only do so when you have built a substantial industrial base.
I think the real problem which the World Bank and the . International Monetary Fund * (IMF) have not answered is that if they have a ranking list of a country which has conformed to policy prescriptions as they have spelt out In their structural adjustment and EFAS programme. Bangladesh would probably be in the First Division. How come then we have lived through a decade of stagnation in the economy? Someone has to answer this.
I don't say my critique of import liberalisation may be the answer, but what I would say is that the model itself needs a very rigorous scrutiny, because it is a failed model.
Now whether It is a failure of conception, or implementation. should be determined by both theoretical as well as em plrical debate. This debate hasn't gone on. The agenda is simply being regurgitated before us in a totally uncritical way. The government of Bangladesh is being expected to conform to this agenda and we are moving on to the '90s with the agenda of the '80s with the record of failure of the '80s.
DS: If 1 am not wrong. Sayeeduzzaman, import liberalisation began during your time as finance minister.
SZ: We have to look at Import liberalisation from two levels. One is that you reduce and eliminate the number of items that are banned. In theory nothing should be banned from import into the country The other part is appropriate tariff, and what that tariff should be. that is a subject of facts, of analysis of data, of intellectual debate based on the economic realities of Bangladesh.
Secondly, you must match this with other policies inside the country. such as an appropriate exchange rate policy. If you liberalise with an overvalued currency, then you will face the situation we faced in 1989 and 90.
Thirdly, it has to go with an appropriate monetary policy Then again, when you liberalise Imports, you haw to determine the sequence, the time-frame and also cx rdlna-tion with your neighbouring countries. When you have long, porous boundaries with another country, you have to keep 1n mind what kind of policies or Import regimes your neighbouring countries are following. Unless there is close coordination between the two. there may be distortion In the the whole struc ture. or your Imports may not be used for production and consumption within your own borders.
DS: But what is the case for not having a list of banned items?
SZ: What Is case for having a banned list ? Let me put the question back to you.
DS: To give protection to local industry...
SZ: Yes. you permit the import but put a high tariff and dien you give protection.
DS: But if you put a high tariff. your export prices will be higher...
SZ: Export price will get all the drawback facilities. If you import something for producing an exportable item, you get back all the duties you have paid for the import.
RS: If I make a point over here. Take a look at the sue cessful industrialising countries like Brazil. India and South Korea. The World Bank has built a mythology around Korea which bears no relation to Korean history, that the Koreans were per excellence import liberalisers and that is how they grew. Nothing of the sort! In fact the Koreans ran one of the most restricted,
protected regimes for their domestic capacity. What they did was they were exceedingly liberal in promoting exports. So they were much ahead of other countries in export promotion.
Now the World Bank model would not only have you remove quantitative restrictions. It actually wants you to reduce tariffs. In fact they have permitted us to bring our average rate of tariffs down to about 75 per cent.
Now why do you think faced that crisis last year when there was a sudden upsurge of imports? It was there because the last budget had gone through a significant Import liberalisation episode and. Im port liberalisation means that within the tariff framework you have, you import whatever you want to import So you Import what you want to tn termq of where the margins actually exist. The notion that a country at as backward a state as we are. should carry out a liberalising episode without creating an industrial base is unthtnk able.
DS: Will you sum up in this way that donors' policy aims al keeping us perennially dependent on foreign aid ?
RS: Well. I wouldn't say that Is the donors' fault I No good blaming the donors. If you are incompetent and malfeasant in your governance. I mean if in fact you can neither generate resources nor you can develop your policy agenda, nor you can manage your economy, and al the same time you will go and prostrate yourself at the feet of donors in order to bail you out of both your short and long term problems, naturally they are going to come and say this ; that you are a bunch of tn competent thieves and liars who make promises which you cannot fulfil, so I am going to catch you and put a ring round your nose, and I'm going to tie a rope to it and you will go where I take you because you arc too backward and incompetent to do actually anything yourself. That Is what we haw been reduced to. This is our failure.
SZ: Point about import lib eralisation. in the last budget and the budget before that. Now a very careful analysis has shown that the increase in the Imports that really took place late in 1990. were not In the areas which were liberalised. This were items which were being imported earlier, and they were imported in larger quantum. Nothing to do with liberalisation or lifting of bans from items.
Another point is that, if we liave tiie experts In the country. they should be able to ar gue with the staff members of the World Bank and the IMF as to why average tariff rates should be 100 or 120 per cent, and not 75 per cent.
RS: Before you come to that point, you have to do one thing. You have to first decide that you are willing to disagree with the donors and to face the consequences of disagreeing with them. Once you do that, then you see wliether you have the professional expertise to argue your case. Now I can vouch for the fact that we not only have the professional expertise. It is as good if not bet ter. than what the donors are going to put around the table before you. I've known of one episode in which expertise was used to seek advices as to whether fertiliser subsidy should be lifted as sharply as they should. And 1 think a highly professional case was made by your domestic exper Use to show that should not be done. But while the exercise was being carried out. the World Bank had already compelled the government of Bangladesh to in-fact go ahead with a rapid de-subsidisation of fertiliser. So obviously, the, government was not willing to be guided by independent. Indigenous professional opinion which was at variance with the position taken by the World Bank.
DS: We are going into our concept of planning in Bangladesh, and the changes or lack of changes we might have seen from regime one of regime four.
RS: 1 was present at the foundation, when we were really setting up the planning structure, and I came back again very recently just for three months, and obviously the situation in these two intervals was very different, and the intervening situation is something that is not known to me.
Whert It was set up. we were uniquely in a position to bring in a large number of some of the best professionals In the country And you were really laying out the foundation of the planning process, be cause you did not have a cen tral planning facility at the time You were operating In a resource—constrained situa fion. where it was important to be able to both prioritise for resource needs and also to spell out the framework for the future development of the economy because these were the immediate goals In two years I think we did something of that, and by and large the planning commission as It existed then enjoyed a high de-i gree of professionalism I
Now what I saw here when I went back was that planning had become a highly devalued Institution. that there was a general loss of faith in the planning process Partly this seems io owe to the global devaluation of planning as an in stttuUon; partly I think it owes to whatever Internal reasons which Sayeeduzzaman may be more familiar with. But as of now. I find that the planning agency within the government has very little to do beyond actually preparing the ADB. and doing some amount of ^project approval.
Buf even at a time when planning Is devalued the order of the day is efficient macro economic management, which ts really looking at the short term functioning of the econ omy relating policies one to the other Now there is no agency in the government which is responsible for macro-economic management, that is the objective fact There is no agency which can even coordinate the economic deci sion-making process, or can really address the problems as they emerge and can identify solutions to them by giving some overview of the system Now whether this responstbil Ity should be vested within the planning commission or whether the commission should simply become a budget preparing exercise which could as well be done by the ministry of finance. I don't know.
SZ ; I think there has been a lot of partisan discussion of the planning process, and the success or failures of the first plan, second plan, third plan, and now the fourth plan. I think there is considerable room for objective discussion about what went right and what went wrong with these plans.
If you look at the first plan of 1973-78. many people forget that the plan was formulated at a time when the international environment was completely hostile. As a new war-devastated country. Bangladesh was grappling with problems of nation-building, building of institutions And at the same time, it had to face the same problems which industrial countries were finding difficult to cope with. The first plan was not free from what I said earlier about exaggeration • of domestic capacity. So we had a plan whose targets we could not reach in terms of financial resources. Obviously the expenditure was much lower, physical achievements were lower than the targets and we had to re orient the plan towards the second part of the plan.
Again the second five year plan of 1980-85 was ambitious in terms of resources. The second plan had some baste policy changes from the first plan. The government's policy was to encourage the private sector, raising the limits of private investment, giving more authority to financial institutions. to finance private Investment. The growth rate of the second plan was comparatively better because the infrastructure was by and large restored, financial services were put on an even keel. In the later half of the second plan the government got stuck up with certain policy reforms. When Bangladesh Petroleum Corporation found itself 280 crore taka tn debt due to after -effc ts of the second oil crisis, of 79-80 . the government entered into an extended fund facility (EFF) agreement with the IMF which envisaged certain policy changes, fiscal policy. monetary policy, industrial policy. The government could not implement those policies, so the EFF was terminated. This Inability to continue with policy reforms characterised the termination of the second plan.
The third five year plan of 1985-90 coincided with a " global recession Domestically It coincided with major policy changes Hke disinvestment of publicly owned Industries, and continuing with policies spelt out In the second plan to give private sector the opportunity to set up commercial banks and Insurance companies But then certain micro economic decisions like disinvestment were not followed up with log leal macro economic decisions and the governments commitment to those decisions. That la why you find many dis torttons in the actual implementation of the pohetes of the third plan
What the government did was to give cheap credtl and there was very high temptation to divert and misuse And thirdly, if you took at the gov ernment s wages policy and labour pottoy that really played havoc with the private sector The other problem was that the government was giving raises In public servants compensation system, and then, imposing those wage increaxeal on the^private sector 1
Ann lastly, the extent of corruption had spread tn the economy If you wanted Io set up an Industry, there were obstacles at every stage and you had to grease people's palms In order to keep them
RS: The First Five Year Plan was prepared in 10 months In fact the decision to prepare the First Plan was taken sometime In August. 1972 The first draft was prepared by July. 1973 although It was not formally approved until November of that year And this Plan was prepared by whatever professional expertise we had. This was an Indigenously prepared Plan, and there were many steak nesses and Inadequacies as there would be since we did not know what a planning institution was until the beginning of 1972 It has to be judged within those particular constraints.
Now what you have to recognise is that resources are still constant, and If you want a system tn which you can use your resources efficiently, then you must get your priorities right and you have to considerably improve your macro-eco nomic management of the economy.
If this is going Io need some centralised planning al a policy-making agency within the government, then the main thing is that the Planning Commission ts the most suitable entity to perform the Job. But If it has to do II. then its status must be Improved and its profcsslonalisation will be greatly enhanced.
DS: Suppose you are back as a minister, or suppose you are back as a member of the Planning Commission, what guidelines would you like to implement?
RS: What we need Is to Introduce a degree of objectivity and transparency into the de cision-making process and demonstrate that you take decisions which are derived from assessments of problems rather than as part of someone's private agenda. This is absolutely critical.
What has happened In society now is that every decision lias become a unique decision, unique to the person or situation within which II is made. No system of administration, let alone an economic man agement one. can function under these circumstances. What you still have are paper exercises, but a state functional anarchy really guiding the functioning of management of the economy
The points about the need to generate resources Indigenously. and about recapturing the high ground by setting your own priorities and policies. have already been made earlier. They are crucial, because a huge congealed development capability lies embalmed within the public sector. not to mention the private sector. And beyond that you have to find Imaginative, efficient and productive ways to generate revenues
If you can't do that, then you will be faced with the same set of crises that you have faced In the 80s and 1990. The problem is systemic, and unless you can arrest the systemic nature of the problem, you are going to end up tn the 2 I si century having precisely the same discussion
SZI would say the government should constitute reforms which are linked with medium-term policy ' programmes for domestic savings and raising public investment
I would like to see lax reforms. tariff reforms, budget reforms These entail hard ship, hostility and discipline. You should exhibit better discipline. better sacrifice and belter management
The conversation, the second tn the series oj The Daily Star, was con ducted by S. M. All who mas assisted by Moazzetn Hossain. Shahiduzzaman Khan. Sabir Mustafa. Wahtdul Huq. Reazuddin Ahmed and Matifiu Anam. The conversation took place last Monday.