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Why the Economy is Not Moving?

WINDOW ON ASIA

Shahed Latif
****There has been no surge in demand for goods and services. A sure sign of rapidly I rising consumption expenditure strongly points out to a growing economy. This has | not happened—even one year after the hartal days are over.I
IN spite of the best of Inten tion of the government, the economy is not moving up the ladder of growth — there is no surge or swell of economic activities, visible in terms of the enhanced level of transactions at the marketplace. It was the expectation, at least of the party In power as well as the non-politlcal segment of the private sector that political stability have at last been established and a spurt in economic growth of a significantly increased magnitude could be expected. Since the party in power is also committed to liberal economic policies with full incentives to direct foreign investment (DFI). the growth expectations were reasonable. However, after 10 months of the new government in power, the economy is yet to move at the desirable rate of growth.
Therefore why the economy is not moving? There has been no surge in demand for goods and services. A sure sign of rapidly rising consumption expenditure strongly points out to a growing economy. This has not happened — even one year after the hartal days are over. Rising domestic demand would Inevitably lead to rising domestic investment.
Given this scenario. DFI cannot be far behind. And. it is
this investment which would make the economy move. "DFI, destination Bangladesh" Is indeed a good slogan. However, it would remain a mere slogan only unless the economy starts moving upward. Incentives, like all the perfumes of Arabia, cannot remove the bad smell left by a stagnant economy.
Why the economy is not moving? An important factor has been falling demand since the major autumn paddy harvest, although resulted in bumper crops, could not be transformed into major gains to millions of producers of paddy. Farm gate prices remained depressed, so much so that for the first time in history. wheat became more expensive than rice.
. Preference for rice is obvious in our country. Yet how the price of atta can be higher1? There is only one explanation: rice prices were so low that the Sireference turned into an indif-erence.
Low price of rice was a welcome development for the majority who are net buyers of rice at the marketplace. The vocal urban minority must have been very happy. However, income generation for the millions of those who produce, process and trade in rice/paddy. remained low which in turn resulted in the following two significant growth reducing influences: 1. fall in rural demand for numerous manufactured goods which have an urban or nonfarm production base; and. 2. a lack of capacity for on-farm investment during the subsequent cropping season where the required cash outlay due to irrigation is considerably higher.
Value of paddy accounts for a substantial part of farm level income. That income level fell. Economic growth cannot be induced under such a situation. Also, the negative impact is not a one-shot affair.
It would be sustained
through reduced farm level investment. It must be noted that agriculture and related services still accounts for the major portion of the GDP. Strangely enough, farm level prices do not constitute a significant factor, according to government's view — since there has been no mention of it or any attempt to initiate a bold and vigorous agriculture price support programme.
On the other hand, the government has drained away Tk. 500 crores as fertiliser subsidy since it did not lend to any growth inducing impact.
Surely enough, it enabled higher levels of fertiliser use and consequent additional production. But fertiliser Is a purchased or cash input and only adequate price of paddy would enable the farmers to realise the necessary returns and recoup the cost of fertiliser. Therefore, the huge fertiliser subsidy resulted in a lost opportunity to invest Tk. 500 crores worth of public revenue in a much more worthwhile growth inducing initiative; while, its impact was whittled away due to depressed farm gate prices of paddy.
Ine notorious stock market debacle had a tremendous negative impact which also explains a great deal of why the economy
is not moving at the desirable speed. It is estimated that around 300,000 savers lost their interest earnings from fixed deposits or postponed other investment decisions, particularly housing construction and invested the funds during the bull-run of tne stock market. Most of them lost heavily. The few who gained did not reinvest either in portfolio investment or directly productive enterprises. A large part of the funds, it is alleged, moved abroad.
Thus the debacle acted not only as a huge leakage from the investment trough, the rising hopes of a fast emerging market and the confidence bestowed on the upswing of prices — all crashed and it was. so the least, a monumental disaster,. The worst still is the edntinued downward retreat of share prices. The key issue is — tiow the confidence can be restored? The economy can move up when investment decisions are based on solid price earning ratios. The postponed investment decisions was a regressive movement for the economy and we are still suffering from it.
The expectation that the business would respond positively to the restoration of a stable, trouble free, democratic order was far-fetched.
The hartal politics was over but who knows when it would come back. Now it is the turn of the other party to come up in full measure. Above all, the business class, particularly those who made it to the top are the products of the last two decades when Awami League had no hand in business promotion. In fact, many of them has serious misgivings since they might have suffered from the early 1970's nationalisation phase.
There were therefore lingering suspicions. The private sector as a whole was not fully
convinced of Awami League's new commitment to liberal free market economy.
Another significant retarding factor has oeen the energy constraint appearing as soon as the new government came to power, although the blame should squarely fall on the past regime. But 10 months should have been sufficient to at least award the BOO or BOT contracts for new gas fired power stations. At least those should have been under construction Sr this time. This would have ven a great confidence to investors (local and foreign alike) that the new government means business — same as what happened In the Philippines of Fidel Ramos.
The growth rate of the economy ought to be pushed up to seven per cent as soon as possible. We should witness still higher growth rates and on a sustainable basis so that an average of above seven per cent growth rate during 1916-2001 would not only sustain a total GDP expansion of around 50 per cent, but the basis will also be well laid to sustain such growth rates well into the future — regardless of who wins the next election.
Indecision is the hallmark of bad economic management. Actions should be decisive and
on time. Issuing warrant of arrest and allowing the accused to secure bail before arrest is the part and parcel of that indecisive and tnerefore bad economic management. Let us great cracking and decide on vital national issues: for example, private sector power plants, deep sea-port, energy exploration contracts, a price sup-port programme for boro rice and wheat, a lute price policy at the farm level, boost up the demand in the stock market by introducing new institutional investors and also enhance supply of shares presently held by the government.
A low-cost housing programme will be politically welcome while creating new jobs and income on a large scale. In . order to. gen^a^e the,.,strong support of th^ private aeptor, privatisation on a large-scale should be started without delay. For this purpose, major industrial units like fertiliser factories and may be wholesale privatisation of Biman or the Shipping Corporation should be contemplated.
Basically, rejuvenation of the economy must start with a
have only heard the whimpers so far.