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PRSP: Prophecy versus pragmatism

Local governments should be the focal point before money is placed

SHAMSuL HAQuE
***There is at least one lesson that we can learn and put in our legal framework that in the future directors and officers of companies both in public and private sector will be asked to share losses due to their fault and negligence. There is no argument whatsoever to burden the poor again and again by borrowing under PRSP or any such foreign aids unless we establish institutions of effective local government, law and justice and accountability for those in positions of prominence.***
IN Dec 2004 the Poverty Reduction Strategy Paper (PRSP) was finalised for Bangladesh by a group of economists and bureaucrats. Noticeable euphoria and excitement were shown on TV screens by some of those directly involved in its preparation. On the other side of the globe Jeffrey Sachs, an economist at the Earth Institute at Columbia University in New York, has been arguing for more aid for the poor of the world for long. He has been supporting this IMF led project changing his previous stance on effectiveness of IMF. Sachs was a critic of earlier IMF prescribed Structural Adjustment Programmes as it failed to reduce poverty in most of the participating countries. All these have been going on in the background of the UN sponsored Millennium Development Goal to reduce the number of poor people in the world by half by 2015. Sachs has been joined recently by Gordon Brown, the UK
Chancellor of the Exchequer, calling for a Marshall Plan for developing African nations, the poorest of all. George Marshall, the then US secretary of state, designed the Plan in 1947 that transferred $13.1 billion in financial support to Europe before shutting it down in 1951. Gordon Brown was speaking on the
subject in Cape Town, South Africa, in the background of the report prepared by The Commission on Africa, a policy group set up by Tony Blair, UK prime minister.
Last week a local newspaper reported that the finance minister called the PRSP paper as "bo-
gus" one without mentioning why it was so. Perhaps his comment was prompted from the low aid absorption capacity in the government as he has been experiencing serious difficulties in implementing ADP to support modest growth targets of 5-6 per cent year. Similar to his concern others in Europe also argued that the comparison with Marshall Plan was misplaced. Donald Johnston, secretary general of the Paris based OECD raised the same question of aid absorption capacity seriously. He also
warned of creating "aid dependency" in these countries as has been argued strongly by Rehman Sobhan in Bangladesh for a long time. In a recent interview Johnston told the Financial Times of London (Jan 18, 2005): "Any amount of aid by itself is not going to solve this problem. It will create dependencies". He said he examined the operation of the Marshall Plan documents and found little money was there in 1947 when the plan was launched. The US had spent $13 billion between 1945 and 1948 without any visible results. The purpose of the Plan was to give management to the countries and "the success was in building all the institutions". Responsible local governments
and institutions were best placed to spend money wisely, he said.
Lack of institutions has been nakedly exposed in all aspects of governance in Bangladesh. Most important of them are the law and order and local governments. It is widely known how many good intentioned government projects such as FFE, FFW, HPSP(donor supported) and some infrastructure projects under LGRD either failed or produced little benefits to the poor due to lack of effective and accountable local governments. The highly centralised
apparatus negates potential benefits in many ways, mostly through what is known as rent seeking... A few months back the finance ministry, perhaps out of desperation, approved Tk.90 crore for financing small projects by Union Parishads for the first time in the history of the country. This is certainly a good beginning to build up capacity to spend money for development projects at the local levels. Although there is scope for corruption and misuse this is one action by the present government that will increase its presence in the rural areas. Divided over 460 Unions it amounts to less than Tk. 2 lakh only per Union. The government should look into the use of this
fund through sample surveys and if found satisfactory the allocation be raised for selected Unions to Tk. 5 lakh and more. Capacity building requires gaining experience through actual works. This project should be treated as such even if not much is achieved in terms of targets.
The government perhaps is also contemplating to hold Upazila Parishad election this year. That would be another step in the right direction as it would create another layer of local government to deliver govern-
ment services. We have 130 million people and only some 330 MPs cannot truly represent them. Let the elected Upazila members establish closer contacts with the people who will elect them. The argument for local government's greater ability to solve local problems is simple. The local people know more about than as they suffer from them; they have a desire to solve them as they will continue to live there for generations. PRSP or not the lesson is clear. Give the people money and power back to them and just monitor the results and take appropriate actions to make the process better as time goes on.
"More money is very important" Johnston said ... "but there
is a lot more to solving these problems than pouring money into them". Let us learn from those who have experience of doing things in practice, rather than from those who simply think about doing it by others. Jeffrey Sachs as an advisor to UN on the MDG programmes and those who prepared PRSP paper in Bangladesh belong to the latter group of intellectuals. Gordon Brown's outpouring of concern may have been due to the guilt riding when he related with Harold Macmillan, another British Prime
minister's hope expressed 50 years back about " a wind of change in Africa". He was prompted from " the heat of a climate of injustice burning deep in our souls".
Recent report in the press indicates that the IMF stopped release of $70 million under PRSP due to failure of the government to meet two conditions. One, restructuring/sale of Rupali Bank and, two, to enlarge the cell for large tax payers in the MOF. Estimated cost for Rupali Bank reforms came out at Tk.3000 crore and the GOB could not afford such a bail out in the current budget. These are practical and related problems. Not only that taxes are not paid and col-
lected from the richer class in the society, those who siphoned off huge amounts from banks such as Rupali over the years are not liable in any way for any of the losses and defaulting loans that are causing failure of the bank. Saifur Rahman, the finance minister of Bangladesh, knows these practicalities and he at many times spoke about them but failed to make progress.
In the trial of Enron and WorldCom collapse in the USA directors and officers of those companies have been coughing out millions of dollars out of their personal saving besides payments from insurance companies to meet court established claims. Intellectuals in Bangladesh should speak and write about getting public money back from those who plundered it in the past. Similar to Jeffery Sach's support for IMF led PRSP shall economists in Bangladesh join hands with IMF and GOB to recover half the money needed for the bail out of Rupali Bank from its directors, officers and borrowers? There is at least one lesson that we can learn and put in our legal framework that in the future directors and officers of companies both in public and private sector will be asked to share losses due to their fault and negligence. There is no argument whatsoever to burden the poor again and again by borrowing under PRSP or any such foreign aids unless we establish institutions of effective local government, law and justice and accountability for those in positions of prominence.
Shamsul Haque is a professor of finance, IBA DU.