ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Economic Clouds Gather over Dhaka

On the surface, the Bangladesh economy seems to be doing well. What the caretaker government does not seem to be aware of is that economic sovereignty is building up as a major issue of concern for domestic industry and the middle class.

Letter from South Asia

Economic Clouds Gather over Dhaka

On the surface, the Bangladesh economy seems to be doing well. What the caretaker government does not seem to be aware of is that economic sovereignty is building up as a major issue of concern for domestic industry and the middle class.


urrent indicators can be used to paint a rosy picture of the Bangladesh economy.The Dhaka Stock Exchange (DSE) general index has climbed rapidly in 2007.The index reached 2553 in early September, compared to a starting point of 1582 before January 11 when the military took control in the country. The turnover of shares has on occasion risen to levels last seen during the stock market bubble of 1996.

Transparency International research, according to its most recent report, shows that the perception index of corruption in Bangladesh has improved. Overall, the economy shows an impressive 7 per cent growth. The international financial institutions (IFIs) and some United Nations agencies got it wrong in 2004 with their analysis of the ready-made-garments sector. They had forecast disaster following the end of the global quota regime in December 2004. Instead, exports rose strongly. The caretaker regime in Bangladesh recently announced the highest ever production of electricity, with a corresponding reduction in power blackouts. However, there are serious flashpoints that could emerge over the short- and medium-term.

The IFIs may have cried wolf a little too early regarding the impact of China on the garments industry. When the United States and the European Union slapped quotas on Chinese imports over the past two years, competitors such as Bangladesh benefited from the diversion of orders. Unfortunately, China will be free of its quotas in 2008 and this could be a major threat to the Bangladeshi garments sector. It has been one year since riots by protesting workers rocked the industry. The demands of the workers were watered down in a subsequent agreement, which the majority of owners say they are now conforming to. Despite this, there are regular instances of industrial unrest, which indicate that under the surface things are not well. The owners of the garments units prefer to believe in “conspiracies”. Many of them have accused the US trade union organisation American Federation of Labour and Congress of Industrial Organisations (AFL-CIO) of being behind the latest incidence of violence. Rather than look for the “foreign hand”, the owners and authorities would do well to recognise that the real wages of garments workers (mostly female) are falling, due to high costs of food, transport and shelter. The textile sector is vulnerable to adverse moves by competitors, with the added negative effect on demand of recessions in western markets.

The more traditional sectors such as jute and sugar are already deindustrialising. On April 20, four jute mills were shut down in the south-western district of Khulna. More than 100 people were injured in subsequent clashes with police in protests over the future of 22,000 workers. The jute industry still exports goods worth $ 500 million annually, though the trend is towards supply of raw jute to factories in other parts of south Asia. The public sector jute mills suffered from intermittent supply of electricity and a woefully inadequate budget to purchase inputs. Commentators in Dhaka regularly contrast the relentless destruction of the jute industry in Bangladesh with the expansion in West Bengal, including the approval on September 2 of creation of three jute parks in West Bengal. On the site of what was until 2002 the largest jute mill in the world at Adamjee, the government has just given permission for a power plant. It seems it did not occur to the authorities that such power plants could have been located to supply a jute industry for which the country has a unique advantage. Sugar mills are in similar decline and not receiving the same type of support prevalent in the region.

Energy Resources

On August 26, 2006, the paramilitary Bangladesh Rifles shot dead three teenagers and injured scores of others protesting over the proposed open-pit coal mine at Phulbari in north Bengal. Following continuing unrest, the Bangladesh Nationalist Party regime in power at that time agreed to a settlement. The mayor of Rajshahi, Mizanur Rahman, signed an agreement with the National Committee to protect oil, gas, mineral resources, power and ports when the protests looked like going out of control. A small British company, Asia Energy, had to withdraw and its London share price plummeted. However, it renamed itself as the Global Coal Manage ment and still maintains a presence. In 2007, it arranged for some journalists from Dhaka to see open-pit mining in Germany and write glowingly of such locations, as part of lobbying efforts to return to Phulbari. In August this year, the power and energy adviser, Tapan Chowdhury, remarked that “the law ministry was yet to give its opinion regarding the scrapping of the deal with Asia Energy”. This, along with other ambiguous statements, has raised sus picions that the authorities might allow the return of the British company to export coal. The mayor who signed the agreement on behalf of the previous government is now the subject of a corruption investigation. The Bangladesh Environment Network (BEN) has issued out a strongly worded statement which implied that the current government may adopt a coal policy which “is allegedly drafted by a private firm” (The Daily Star, June 23, 2007). In relation to natural gas, it went on to say that “it is also amazing that, when Bangladesh herself has a desperate need for energy, the government is reportedly considering foreign investment proposals that are, in effect, proposals to export away Bangladesh’s gas in embodied form”.

Economic and Political Weekly October 6, 2007

The caretaker government announced a third round of exploration for gas amid worries about dwindling reserves and shortages early in the second decade. On July 15, Tapan Chowdhury told reporters that “as the country is set to face gas shortages from 2011, we are exploring the option of importing gas from Myanmar” (New Age, July 16, 2007). The energy secretary, Nasir Uddin, has announced that with the current reserves of gas no new gas supply would be possible to any power plant after 2011. Against this background, the regime is setting itself up for trouble if it makes the wrong decisions regarding foreign utilisation of gas and coal. An unrelated series of nationwide protests in August were led by students, without meaningful backing by neutered political parties. The spark was the presence of army personnel on the Dhaka University campus which led to an altercation. The students were joined by thousands of slum dwellers, evicted a few months ago by the administration. For a few days the outcome hung in the balance. Control was restored eventually after the demonstrations, without clear demands and effectively leaderless, ran out of steam. Issues relating to gas and coal will prove to be far more potent issues in the future, with backing from the middle class.

Trouble at the Top

At a round table meeting on September 9, the chairman of the think tank, the Centre for Policy Dialogue, Rehman Sobhan, warned that the “country’s sovereignty cannot be compromised”. He continued: “unless you get a significant popular mobilisation behind your policy choices and investment priorities, people will at some point or the other reject it…” Other leading economists criticised the government for “not placing any clear vision before the nation”. The finance advisor, Mirza Aziz, in response, pointed to the Poverty Reduction Strategy Paper (PRSP) as a “source of knowledge about the future vision of the country”. To most intellectuals this amounts to waving a red rag in front of a bull. The PRSP is regarded as a thinly disguised document of the International Monetary Fund and World Bank. The administration is facing unprecedented criticism from the major business associations over its collusion with IMF and World Bank dominance over economic policy (New Age, August 2, 2007). In a joint statement, the Federation of Bangladesh Chambers of Commerce and Industry and 11 other business bodies urged “the government to come out of the vicious cycle of the prescriptions made by the IMF and similar institutions. Bangladesh businesses have been extremely critical of the interference of international agencies, particularly the IMF, in influencing and trying to impose conditions and dictate terms in every trifle detail of the economic management of a sovereign country”. As if in response, public disagreements are occurring between the IMF and authorities. Following a meeting with a visiting IMF delegation, the Bangladesh Bank governor, Salehuddin Ahmed pointedly said “what they (IMF) are saying is not important, we’ll take our decision” (New Age, September 19, 2007). The IMF is pressuring the government to follow a contractionary monetary policy to curb inflation, at costs to economic growth and jobs.

The controversy spread to the courts when the high court asked the government to explain why it should not be prevented from pursuing a Policy Support Instrument (PSI) deal with the IMF. The PSI involves a six-monthly assessment and recommendation, without providing any loans. Lawyers filed a petition challenging the interim government’s autho rity to negotiate with the IMF “with a PSI deal feared to subject Bangladesh to intrusive policy advice without any financial assistance from the lending agency”. Thomas Rumbaugh, head of the visiting IMF mission, was forced to climb down, stating that: “both the sides have agreed that a PSI would not be the appropriate tool for Bangladesh now”. He revealed his anger by calling IMF critics “a bunch of ill-informed rabble rousers” (New Age, September 19, 2007).

This comes on top of businessmen already complaining about the environment of fear created by the anti-corruption programme. On top of the 142 suspects since January 11, a new list of 80 high profile individuals (including very prominent businessmen) was published on September

27. This new wave of investigations comes despite bankers having informed the Bangladesh Bank governor about a worrying rise in defaults of the larger companies such as Beximco and Boshundhara, where the main owners are in jail or in hiding.


There has been no open sign of what kind of economic policy the generals themselves believe in. They appear to have outsourced economic policy to the so-called technocrats of the caretaker administration, which by extension has emboldened the Aid Consortium. This is not altogether surprising given that the lead figure in the administration is a conservative, Fakhruddin Ahmed, an exemployee of the World Bank. The military input has been limited to elite Rapid Action Battalion and paramilitary Bangladesh Rifles involvement in the food distribution network, with threats to deal with “hoarding”. They have shown little interest in production and would rather minimise the cost of distribution to reduce the price of food in urban markets. This might seem to be politically astute, but even this is not yet working. Last week, the chief of the BDR, Shakil Ahmed, had to tell the Federation of Bangladesh Chamber of Commerce and Industry that “we hope that prices will come down to tolerable ranges by December-January (2008)”.(New Age, September 20, 2007).

The “dream team” of technocrats, backed by the military machine, was meant to ramp up economic growth significantly with the blessings of the western embassies. The regime was expected to encourage a wave of foreign investment to take advantage of the resources and sizeable domestic market. So far the signs have not been encouraging. Besides the slow progress with the Tatas on utilisation of gas resources, the purchase of Rupali Bank (one of the larger state banks) has been held up. There are now doubts whether this will go through.

The regime can see the contours of an opposition forming to challenge its economic direction. It is caught between the demands of foreign donors and business with that of domestic industry and the middle class. It would prefer to limit the debate to indicators of electricity availability and eventually lower food prices in the cities and towns. Instead, economic sovereignty is set to become the principal issue.



Economic and Political Weekly

available at

Sundar News Agents

(Magazine Market) 158 D N Road, Shop No 6 Near Kelkar Hotel

Fort, Mumbai 400 001

Economic and Political Weekly October 6, 2007

Dear Reader,

To continue reading, become a subscriber.

Explore our attractive subscription offers.

Click here

Back to Top