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ON THE RECORD

Bangladesh Economy: A Crisis of Confidence

by Shah AMS Kibria
Iwu Intrigued to see a startling advertisement In a local daily on 25 August in which ten leading banka of the country Invited entrepreneurs to contact them lor loans to finance new as well as sick Industries The ad ver tlsement la unusual because the banks are urging the much-maligned Industrialists to come forward to take loans Normally It Is the loan seekers who approach the financial Institutions but In Bangladesh the situation has been rever sed. Something must have gone wrong in the management of the economy to create this unusual situation
I talked to a few businessmen and economists about the reasons for this odd phenomenon and came up with the following explanation. In the situation prevailing In the country today genuine entrepreneurs are reluctant to take Industrial loans from the banks The climate for invest ment Is just not there. The law and order situation Is so bad that no one In his right mind would risk his fortune in any Investment requiring a few years to give returns. The sit uation In the labour front is another source of unease. Once a labour union transfers its loyalties to the ruling party no one can control Its violent and extortionist activities. Apart from these well known reasons for economic stagnation, there is another, equally Important reason for the reluctance of entrepreneurs to come forward to Invest In new ventures.
Thanks to the Finance Ministers now-famous list of loan defaulters and the press cam palgn against these elements, the ordinary men and women of Bangladesh have come to as sociate all those who borrowed from banks for setting up Industries as public enemies. Following the official line many newspapers joined the leftist elements in denouncing the private sector as a whole. In-
dustrlalists whether genuine or phoney - were all characterized as economic parasites who fatten themselves on public funds for private gains The list has certainly created a pu bic perception of Industrialists as cheats out to defraud the government banks In llie name of setting up Industries
Numerous pronouncements by the Finance Minister de nouncing the loan defaulters has also confirmed the nega ttve Image of the businessmen as a class. I should hasten to add that he had. most proba bly. nothing but the best inter est of the country In mind when he launched his cam palgn against the defaulters of loans taken from government banks. Unfortunately he did not realize that the campaign would create a negative bias against the whole class of en trepreneurs Today all loan ap plicants are suspect in the public eye. In a market driven system it Is the Initiative and creativity of entrepreneurs which acts as the cutting cige of the economy However In stead of dealing with the dishonest defaulters firmly but quietly. In accordance with banking procedures and the relevant laws of the country, the Minister started a crusade against them In the news me dia. As a result, businessmen as a class lost face and even the honest ones have been demor allzcd It seems, however, that the Finance Minister's alm tn publishing the -list was de signed more to Impress every body about his own seriousness of purpose than for practical results. Little thought was given to the possible negative repercussions of such a media blitz. How many defaulters have paid up as a result of the Finance Minister s campaign and why has a list not been published? One would expect such a list as a logical follow up of his earlier list. If there Is no such list, then are we not justified In concluding that the policy has failed? He should be honest enough to acknowledge that the method chosen by him to recover loans was pot a sound one. In fact, he betrayed a lack of understanding about the way In which the economy functions.
Confidence is basic to all economic decisions but is particularly important for investment. He has caused serious hard to business confidence by lumping all kinds of borrowers
Into one basket Small wonder that his lectures and exhortations to businessmen to revive the economy do not create even a small ripple The complexity of the situation was ignored by him. For example, a grxxi number of defaulters are able to Ignore the legal liability to repay because of their political connections Why lump the others with this class of political opportunists? There is a lurking suspicion that supporters of the ruling party can escape the long arm of the law Why was some distinction not made between phoney bust nessmen Irrespective of party affiliation and the genuine ones unable to repay their loans In time due to reasons beyond their control? It is common knowledge that some delay may be accepted by a bank If the client enjoys IM confidence and If the reason for the delay Is considered Justifiable In such cases the banks, as a routine banking practice, reschedule the loans Instead of helping such persons the government exposed them to public humiliation. Would it not have been better for the government to go after those who are clearly fraudulent and arc known to have no Interest In legitimate business? In such cases, the law should have been allowed to take its course. If the authorities claim that every one on the list is dishonest then publishing the list was not the answer. All of them — without exception — should have been prosecuted tn accordance with the lau».
The public would have lauded the government if a number of such defaulters landed In jail
If the law needed to be revised to effectively deal with these defaulters, why was it not done? The government is not shy In promulgating ordinances and In this case there would have been a national consensus If the government moved forcefully. However until now we have only seen speculations 1n the press. The Parliament met many times but no bill was presented for Its consideration. We do not know the reason for this parol ysls but perhaps one can guess Most knowledgeable people believe that It is the defaulters who are now dictating the terms and calling the shots and all the sound and fury anti drum-beating was really a cosmetic exercise. Regrettably however the damage done to business confidence and the climate of investment is very real In fact this is the expla nation for the phenomenon ' mentioned at the beginning of thia article In Bangladesh today banka have to run after businessmen to take loans and not the other way round. Our Finance Minister is undoubt edly entitled to the credit for this most curious phenomenon!
It seems that these days It is not very fashionable to talk about the 11st of defaulters. In stead of putting some of these characters behind the bars the Finance Minister has redirected his ire towards the banking community. The bankers, we are told, are the root of all evil. The Finance Minister has found new villains for his little drama. He has Cblicly accused the nation s nkers as corrupt and at trfbuted the lack of dynamism of the economy to their tneffi clency in processing loan ap plications. Sweeping general ization is his favourite manner of making a point and perhaps one can ignore it as a manner Ism rather than a product of serious analysis. Is there some truth in what the Finance Minister is saying? Of course , there must be some truth — perhaps even a lot of truth In his remarks.
However, the performance of the bankers cannot be the main reason for the stagnation of the economy. Any student of economics would know that corruption In the banks is pari of th« overall climate of graft and venality pervading our society. I would not like to con done the corrupt bankers any more than the civil servants, engineers, policy officers and others in key positions. But to single out bankers as the main culprit Is patently wrong. The
Finance Minister should stop the search for scape goats lor his government's failures. If the government means bust ness It will move firmly and even ruthlessly against law lessness They may find that a lot of those Involved are members or financial supporters of the ruling party The government can resolutely move, with the full backing of the entire nation, against thugs, hooligans and others engaged In criminal activities It should be understood that the government can take firm action against criminal elements claiming to belong to the op position parties only when it takes equally firm action against thetr own. but no less serious problem of white collar crime -- will not only increase the respect and stature of the government in the public eye but even help establish democracy on a more secure foundation. Under such circumstances the management of the economy can be based on sound economic policies designed to promote national interests
Unlike the economics of our neighbours in South East Asia and even In South Asia, the Bangladesh economy re mains stagnant. The anU-tn-vestment public opinion combined with the country's slide into lawlessness has become a serious Impediment to our growth process. The Finance Minister got some applause and the World Bank-IMF advisers were satisfied but the performance of the economy does not appear to warrant any smugness on the part of pol ley-makers. There are many manifestations of mismanagement of the economy but the loss of business confidence is one of the most serious. The Finance Minister can begin by looking at his own performance in terms of the results achieved so far by the policies Initiated by him Instead of a search for scape-goats.