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COLUMN

$10 b forex reserve: A standing ovation

MAMUN RASHID
Our foreign exchange reserve crossed the US$10 billion mark for the first time on Wednesday .Due to the inherent nature of our negative trade balance, the FX reserve has traditionally been ailing until 2002; it fell to an alarming level of nearlySl billionin October 2001.
Credit goes to NRBs' remittances, RMG exports; reduced imports due to price reduction of most of the commodities and renewed interest from the development partners to help and assist Bangladesh achieve its economic goals for reaching this milestone. Despite continuous hurdles, RMG has proven to be a resilient sector while the continuous reforms in the banking sector moved NRBs away from the informal channels of money transfer with higher number of Bangladeshi workers abroad providingadditional boost.
We do not see many reasons to rejoice while assessing our performance compared to similar countries like us. However, some key persons deserve a pat on the back for the achievement of maintaining the strong upward trend of FX reserve amidst soaring commodity prices in the international markets until recently while at the same time taking courageous decision of adopting floating exchange rate.
We should also remember the crusade declared against the informal remittance channels or Hundi'.
While the world's highest FX reserve is held by the mighty China surpassing the trillion-dollar mark, our 10 billion may seem tiny. I lowever, a country's FX reserves if sufficient to cover for 3 months of its foreign obligations, is accepted as safe. This gives comfort to the foreign investors of the repatriation capacity of a particular country. Historically our reserves have been barely at that safe level or marginally lower. At present with the reserve at a level over USD 10 billion, covers for over 5 months of imports. With growing exports and remittances, we can even reach higher levels of coverage.
High level of reserve helps
attract new foreign investments. While good level of reserve attracts FDIs, new FDIs provide further boost to the reserve resulting in a movement in a cyclic direction.
We can take the example of continuously growing FX reserve of India where the FDIs are also constantly growing. In our case too in the recent years, we have seen encouraging progress in similar direction with both new FDIs as well as reinvestments.
A question has been raised by some of our intelligentsia whether this high reserve (though it is very meagre by any standard and especially against the huge potential Bangladesh economy offers or seasonal crisis it may face) has been built up at the cost of the private sector growth or other growth sectors of the economy.
It will possibly be an injustice to Bangladesh Bank, if we want to project the fact in that way. Bangladesh Bank was not seen buying dollars from the market as frequently as we have expected to
them to do, at times to support the falling dollar in order to maintain the momentum of export and remittance growth. Rather banks suffering from excess liquidity at times went to the central bank to square up in excess of the open position limit dollar holdings.
If Bangladesh Bank would not have supported dollars during the time of excess liquidity in the inter-bank market, we could have seen dollar at 63-65 taka even, which could be damaging for our exports and especially remittance of non-resident earnings through official channel. Planned way of managing forex also helped the central bank to maintain an optimum exchange rate of (+-) 70- taka to a dollar.
Bangladesh Bank has been maintaining a strictly steady course since it started its voyage of reforms. Successive central bank governors have been like on a relay race continuously passing the baton to the successor who has been strong in navigating at the
same course even during turbulence. Policies have remained consistent with drive for completion of missions of the predecessors. FX and monetary policies have been managed dispassionately with specific consideration of a developing nation like ours. One result of that is Bangladesh being one of the few countries to have managed to weather the Asian crisis of the late 90s. A standing ovation is due to /Xllah Malik Kazemi, former deputy governor and now adviser of the central bank for his courageous and professional pursuance of the FX and monetary policies for nearly two decades helping overcome crisis periods despite continuous reforms and deregulations. I will be miser with my pen, if I don't credit his successor Ziaul Hasan Siddiqui too, an extremely biased person with regard to protecting die interest of the country and its central bank. I do remember Dr Farashuddin and his successor Dr Fakhruddin Ahmed too.
In 2001, Farashuddin was seen very active in his efforts to increase the ailing reserve to support increasing trade. He was the man to focus seriously against the hundi' business and ensure increasing remittances through the official channel. Fakhruddin worked on fixing various points of erosion and streamlining FX earnings, by fixing the process and the platforms. Their successor Dr Salehuddin Ahmed also carried on the torch’. Now looking back all of us as Bangladeshis, take pride of a resilient central bank, a strong FX position for which they have been the architects who maintained a low’ key. yet remained decisive.
Their presence has been wry much imposing in our monetary management. They have been a source of confidence for all of us especially who are engaged in financial sectors, through their guidance and presence of mind in formulating numerous prudent and timely policymaking.
I would end with Dr Atiur Rahman, the current torch bearer who has the privilege to display to the nation the flavour of a USD 10 billion FX reserve. Added to this is of course his renewed focus on agriculture to shift the 'terms of trade' in favour of the rural Bangladesh. However, challenges remain for him to manage inflation in view of the slowly rising international commodity prices, salary increase of the public servants and even increasing remittances, take exports back to track, synergise the domestic economy, yet paving the path for newer and increased foreign direct investments. Agriculture is good for rural employment generation, increased purchasing power and harmony in the society.
At the same time, we need to accelerate ‘wealth creation' by synergising the entire manufacturing sector with a robust service sector. There is also a challenge with effective and rewarding management of the FX reserve.
The wnter is a banker and econoiM analyst