& çâÌæÚUæð´ ·¤è ¥ôÚU Îð¹Ùæ ÁæÚUè ÚU¹ð´ ¥ÍæüÌ ¥ÂÙð ÜÿØ ÂÚU ŠØæÙ ÚU¹ð´Ð ãæÚU Ù ×æÙð´, €UØô´ç·¤ ·¤æ× ·¤ÚUÙð âð ¥æÂ·¤ô ©gðàØ ·¤è Âýæç# ãôÌè ãñ ¥õÚU ÁèßÙ ·¤æ ¹æÜèÂÙ ÎêÚU ãôÌæ ãñÐ ÖÜð ãè ÁèßÙ ×ð´ ç·¤ÌÙè Öè ·¤çÆÙæ§ü €UØô´ Ù ¥æ°, çÁ™ææâæ ¥õÚU ©ˆâæã ÕÙæ° ÚU¹ð´Ð ŠØæÙ ÚU¹ð´, ÜÿØ ã×ðàææ ¥æÂ·Ô¤ Âæâ ãôÌð ãñ´ çÁ‹ãð´ ÂæÙð ·Ô¤ çÜ° ÂýØæâ ¥æÂ ·¤Öè Öè àæéM¤ ·¤ÚU â·¤Ìð ãñ´Ð

Task force on global financial crisis: An introspective note

Debapriya Bhattacharya
IT was October 2008. The world was witnessing an apparent liquidity problem in an obscure corner of a highly leveraged and apparently risk-free financial market in the largest economy of the world. But this was increasingly turning mto a global solvency and confidence problem beyond any pessimistic prognosis.
At that time, basically two strands of thoughts were discernible in Dhaka policy-quarters. One group projected gloom and doom and was getting ready with its wish list to the government. Conversely, another group exuded a sense of complacency. Cautious voices took the golden mean and said that we might get hit by the global crisis, but we should not raise panic.
I was on one of my visits to Dhaka. The chief executive of CPD Prof. Mustafizur Rahman kindly invited me to make a presentation on the on-going global financial meltdown and lessons for Bangladesh. I complied. One can access the presentation at cpd-bangladesh.org
It was at this CPD dialogue, chaired by Prof. Rehman Sobhan in the presence of the governor of the Bangladesh Bank Dr. Salehuddin Ahmed. Mr. AMA Muhit (in his previous incarnation) categorically agreed with my suggestion that a high powered task force needed to be set up to monitor the emerging global economic crisis and articulate policy adjustments for Bangladesh.
Indeed, he emphatically stated that if voted to power, his government would
establish such a committee. Later this position found wide resonance in the election manifestos of most of the parties. The finance minister, thus, needs to be sincerely congratulated for giving effect to a pre-election commitment on economic affairs. I only wish that it had come sooner.
Composition and modality
The newly constituted task force (TF) can now inherit all the good work done by two committees at the central bank and finance ministry which were set up by the immediate past caretaker government. It is only appropriate that the finance minister himself will be leading the TF which has brought together a extremely competent and relevant group, including concerned cabinet ministers and policy-makers, researchers and analysts, and trade body leaders. We arc also encouraged by the induction of Mr. MKAnwar in theTF, representing the largest parliamentary opposition group.
However, I would guess that the TF will have to reorganise itself in the line of technical empirical works as against wider policy discussions and choices. It might have to design specific working group invoking concerned institutions and experts on specific issues. This will obviously enhance the TF's operational efficiency and analytical efficacy.
The TF is supposed to analyse the results quarterly. Given the fast changing global economic environment and emerging policy initiatives, I find the reporting frequency to be inadequate. A monthly stock-taking appears to be more appropriate.
In this connection, one has to be mindful about empirical trends on economic performance. Globally, identification of the "inflection point" of the crisis turned out to be challenging. Moreover, establishing the "base month" for understanding behaviour of different key indicators will have great policy implications.
Scopeof work
It seems that the terms of reference of the task force are pretty comprehensive. One of its major tasks would be to identify the transmission channels of the impact of the global economic crisis on Bangladesh. We are by now aware that the potential areas of adverse impact would include export revenue, remittance income, foreign direct and portfolio investment, and overseas development assistance.
The global quest for vulnerability indicators has established a certain pattern among the low income countries facing the crisis. The most affected countries include those that are highly dependent on the following six areas: export of primary commodities, export of manufactures, export of services (including manpower), foreign capital flow (particularly in the equity market), income from tourism and foreign aid.
All these vulnerability indicators have varying (and often conflicting) relevance for our country. Take the issue of commodity prices — we benefit as food and fuel prices go down, but suffer from decline of frozen fish and raw jute prices. We also need to locate opportunities within these transmission mechanisms, as the case may be for foreign private capita) flows.
There is now an emerging consensus globally that most of the affected countries have to undertake counter-cyclical measures to boost domestic demand by way of compensating for the fall in external demand. In this regard, my presentation at the earlier mentioned CPD dialogue catalogued the following seven major points for promoting domestic demand and improving overall competitiveness of the economy.
(a) Intensive review of public expendi-
ture portfolios to release resources to accelerate implementation of infrastructureprojects (eg. gas, electricity, highways, and bridges),
(b) Enhanced credit flow to rural areas to build productive capacities in agriculture, non-farm activities, and small and medium enterprises.
(c) Considering lowering of interest rate, particularly in line with the falling inflation. Interest rate spread needs to be also kept under vigilance.
(d) Active management of exchange rate so that it does not fall victim to creeping competitive devaluation.
(e) Intensification of export market exploration in emerging economies where economic slowdown will be less pronounced.
(f) Consolidation of labour markets in the non-OECD countries, particularly in the Middle East and South-East Asia.
(g) Broadening and deepening of the social safety net (in both rural and urban areas) to protect tire entitlement of the most disadvantaged.
We are pleased to note that almost all these issues have been included in the scope of work of the TF. In the CPD dialogue mentioned earlier, we had a mild debate when Mr. Muhit, from point of allocative efficiency of public expenditures, put more emphasis on promoting agriculture in comparison to infrastructure projects. I did agree with the policy emphasis of Mr. Muhit, but pointed out it is very important that implementation of the projects under Annual Development Program (ADP) needs to be expedited to channel money in the domestic economy as well as to build competitiveness of the economy. This also alluded to the need of proper sequencing of the policy measures.
The big ticket "salvage package" which we are witnessing lately, hopefully will be scrutinised by the TF. It will be sad if public resources are spent to underwrite private risks taken for profit.
While the international development community is converging on the elements of a crisis response package, there exist
How will the recession affect the very poor?
wide differences on their financing modalities. Countries with better fiscal situation and current account surplus arc considered to be better placed to undertake expansionary fiscal, monetary, and credit policies. However, concern about unsustainable public debt and apprehension of inflationary kick-back are often voiced in this regard. Ensuring disbursement of committed foreign aid is considered to be a flanking measure. Bangladesh has to see that its external weaknesses do not affect further its fiscal balance.
Although theToR particularly does not mention, I hope that TF will take note of the generous stimulus and bailout packages which are being delivered in various countries. These packages do have serious negative spill-over implications for our economy, including creating various types of market access barriers. The TF will need to keep tabs on various international initiatives now under way to benefit from them.
The other set of issues which has not been mentioned in the ToR of the TF
relates to strengthening the oversight functions in the financial sector. I guess this work is being done by the Bangladesh Bank. Given the state of our financial sector, it is possibly the opportune moment to take a fresh look at, inter alia, the credit rating agencies, sophisticated financial products (e.g. derivative instruments and swaps), credit deterioration linked to securitisation, transparency of corporate governance, off-balance sheet operations, etc.
I am quite confident that the task force will come up, in phases, with sets of valuable recommendations. But if history is any guide, the main challenge had always been the full and faithful implementation of such recommendations. Given the gravity of the problem we are confronted with, one would like to believe that this time there will be enough political will and administrative capacity to do justice to the upcoming outputs of the task force.
Debapriya Bhattacharya is an eminent economist