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No immediate plan to allow capital account convertibility

BB governor tells BIBM seminar

STAR BUSINESS REPORT
No immediate plan to allow capital account convertibility BB governor tells BIBM seminar
The central bank governor yesterday ruled out any possibility of allowing capital account convertibility in the country in near future.
"We are not at all thinking to move towards capital account convertibility," Fakhruddin Ahmed said when the issue was raised at a seminar yesterday.
Bangladesh Institute of Bank Management (BIBM) organised the seminar on 'Implications of Financial Globalisation for Bangladesh' at its auditorium in Dhaka.
Other discussants at the seminar also opposed capital account convertibility and warned of its possible adverse impact on economy.
Capital account convertibility permits people to transfer funds outside the country by selling their houses or other fixed assets.
The Bangladesh Bank (BB) governor said engaging a manage-
ment team to improve the efficiency of Agrani Bank will be finalised within a couple of weeks.
"There are problems with the nationalised commercial banks (NCBs) but engaging management team and appointing advisors will help improve their efficiency."
The BB governor said the government is trying to keep the fiscal issues under control, although there are structural problems in the financial sector.
Khondkar Ibrahim Khaled, managing director of Pubali Bank, Ziaul Hassan Siddiqui, executive director of the Bangladesh Bank, and Mahmood Osman Imam, professor of Finance and Banking at Dhaka University, also spoke at the seminar.
Ibrahim Khaled said the flow of foreign direct investment into the country is not at the expected level due to corruption and weak governance. "These issues should be addressed seriously," he suggested.
The market share of the NCBs is on decline and at the same time their operational expenditure is on rise, he observed. "This is creating pressures on the NCBs."
About capital account convertibility, Ibrahim Khaled said Bangladesh has not yet reached the level that it can allow the convertibility.
Ziaul Hassan Siddiqui said portfolio investment is not essential for the country's very small capital market. "Rather, we need foreign direct investment," he observed.
Mohd Ruhul Amin, director general of BIBM, said the country's financial institutions will have to augment their skill levels.
The keynote paper presented at the seminar was jointly prepared by Shah Md Ahsan Habib and Khondaker G Moazzem.
"Progress towards capital account convertibility with the existing weaknesses of the economy may not bring expected results
or even may results in adverse developments," said Habib while presenting the keynote.
"Bangladesh's tiny stock market and government bond market need a big push for effective monetary policy operation."
Habib said Bangladesh needs the type of FDI that will have significant impact on incremental exports in order to offset rising payment liabilities over time and to pull up foreign exchange reserves.
High proportion of portfolio capital in the total capital inflows may be dangerous in the context of an economy having underdeveloped securities market, he added.
The keynote writers suggested some forms of control on portfolio capital and on short-term foreign currency debt at least at the earlier stage of capital account convertibility.