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Austerity measures key to offsetting high oil prices

The Daily Star has started running a series of interviews with the country's leading entrepreneurs, bankers and economists about the state of economy in the face of soaring oil prices in the international market. The series starts with Managing Director of Pubali Bank Limited Khondkar Ibrahim Khaled, whose banking career spans over 30 years. Khaled is widely respected for his expertise in banking, foreign exchange and foreign trade. Following is the excerpt:

Jasim Uddin Khan
DS: The government is receiving mixed reaction regarding the recent domestic fuel price hike following the increase in fuel prices internationally. What impact do you think this hike is going to have on Bangladesh economy, which is seemingly sensitive to oil price movement? What measures do you think Bangladesh should adopt to mitigate any negative impact on the economy?
IK: Ameliorating measures include two aspects 1) curtailing consumption of petrol and 2) increasing fuel price to offset rise in price in the international market. Consumption of petrol may be reduced by 1) observing 2-day weekly holiday, 2) converting all the vehicles of govt /semi govt organisations to CNG-run ones. 3) closing city markets/shops after 8pm and lastly 4) encouraging private vehicles for conversion into CNG-run ones. In the second part, increase in fuel prices may be kept at a minimum level by cross-subsidising with compressed natural gas price.
DS: The government's recent contractionary monetary policy is being driven by the intent to increase the lending rate in the financial market. How do you think this is going to impact the invest-
ment scenario of the country?
IK: Contractionary monetary policy is intended to cut down the banks' lending portfolio, consequently reducing investment. In my opinion, contractionary measures should be modest so that productive investment is not visibly discouraged.
DS: There are widespread apprehensions regarding the recent domestic political developments and FDI scenario. Do you think the unrest is going to have any serious impact on the FDI inflowin the country?
IK: Near-simultaneous bomb blast in 63 districts indeed is a bad signal. It has created psychological panic and a sense of uncertainty. Much will depend on the success of
the government efforts to punish the masterminds behind it. Any delay, confusion and failure will jeopardise the FDI scenario.
DS: The recent drastic devaluation of taka against US dollar has been a major concern and has also spurred a lot of debate. As a senior banker please express your views on this.
IK: Taka lost its face value long back. The government tried to holdback the value of taka by forcing dollar conversion rate at a low level at the NCB counters. Such artificial measures only prolonged the conversion pain. Finally, Bangladesh Foreign Exchange Dealers Association tried to stabilise the value of taka, which ultimately failed. This was a dangerous move. 'Motivated bankers group' spokesman said on a TV interview, "We are the dollar seller banks- we are united. Where will the purchaser banks go, if they do not come to our terms?" How outrageous such group is. I hope, authorities as well as banks will have vision for far-reaching consequence. Finally, taka/dollar conversion rate has been steady for the last one month. Then, why such mockery is done with market economy norms.