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COLUMN

With strings attached...

SYED NASIM MANZUR
**Ironically as Bangladesh has such a good credit rating, it is not eligible for the debt write offs that have benefited nations with less praiseworthy credit histories ail**
Whilst engaging in the national pastime of talking shop and talking politics, I am always deeply impressed by the passion and strength of conviction of those who engage in discourse about the pros and cons of accepting foreign debt from donors. When the target is our favourite bugbear of the World Bank then one is guaranteed rhetoric and vitriol worthy of any Paltan Maidan speech.
I have always wondered if we could approach the issue of donor driven policies more dispassionately and in line with a cost/benefit analysis from the point of view of Bangladesh business and economy.
Bangladesh has Tk 1800 crore of foreign debt but also enjoys some of the highest credit ratings among developing countries. Annually, we pay out Tk 800 crore for debt service and receive Tk 600 crore as new debt. So, in one sense Bangladesh today is a net exporter of foreign currency. Ironically as Bangladesh has such a good credit rating it is not eligible for the debt write offs that have benefited nations with less praiseworthy credit histories.
When we compare this model with the so called "default culture” that had taken
root in Bangladesh, one is tempted to find a rude analogy. Amongst the nationalised commercial banks (NCBs) and some private banks, some of the biggest willful defaulters were courted and wooed with funds, whilst new or genuine borrowers with good debt servicing histories were made to jump through hoops to get even their loans renewed. To add salt to the wound, interest rates are high because these * banks have high levels of non
performing loans (NPA) or bad loans, and these have to be paid for. Simply put, the good borrowers have to pay more, because the bad borrowers don't pay, period.
So how were we advised to get out of this mess by donor appointed, highly qualified consultants. As part of a donor plan to rehabilitate the ailing nationalised commercial banks, they all signed MOUs with the central bank capping single borrower expo-
sure limit of 50% of total capital for these banks. In addition, no additional facility in a year (Funded / Non funded) was to exceed more than 5% of the bank's paid up capital.
What this means in plain English, is that the NCBs are set limits on how much exposure they can take on a single client in order to avoid being drained out by some big bad businessman. By the same logic, NCBs are also limited in how much new money they
can give to an existing client. The rationale behind this move was that the banks were being bled dry by large groups and corporations and this would help prevent good money being thrown after bad clients, which was quite sound.
Now let's see how all these best intentions translated into ground reality. Let us imagine that in a particular branch of a particular bank there was a business that was experiencing good growth and servicing all its debts. Unfortunately, if in 2007 its business grew to such an extent that it needed to increase its bank facilities by more than the magic number set by the wizards of consultancy of Tk 129.50 million, it could not.
Why: because the bank wanted to stop the hemorrhaging from the NPAs ?
But this client is not a NPA, it actually wants to borrow more , to do more business, and to repay the bank. It is only by being able to retain and service such clients that this bank can recover from the financial morass it is In now. Instead profitable business disappears and the downward spiral continues. From where did such self-defeating strategy emerge? Well it was all part of the donors plan to save the bank.
And don't start a conversation with a Bangladeshi on the donor driven plans to 'save' the jute industry and expect to get home before nightfall. Of how the jute industry' has received some Tk 1500 crore from a donor agency supposedly with different conditions, including that the government jute mills be shut down. In the same period 14 new jute mills have opened in neighbouring India, using Bangladesh raw jute as its raw material! A classic example of confusing privatization with private sector development.
Bangladesh's total remit- < tance income in 2006-2007 was about Tk 4200 crore. Let's imagine for a minute that the government is able to encourage and incentivize our hard working countrymen abroad to increase that remittance to Bangladesh by 14% in 2007-2008, we can easily replace the Tk 600 crore of new debt we receive every year. And this time no strings attached. So now we can select the priori-ties and policies for Bangladesh we need, in conjunction with our development partners. And we can find something else to rant about.
Syed Nasim Manzur is an. economist turned shoe maker and entrepreneur