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Sunday, February 28, 2016

Long awaited visit

Abdul Matin

FINALLY, Mamata Banerjee, who is popularly known as Didi in India, paid us a visit. We only wonder why she didn't come much earlier! She won a landslide victory in the West Bengal legislative assembly election in 2011. I happened to be in Kolkata during the election. I saw the exuberance of the people of Kolkata when the election results were announced. I saw how she was greeted by her fans and supporters after her victory. In her victory speech, she graciously announced that Prime Minister Sheikh Hasina called to greet her. She assumed the office of the chief minister in May, by ending the 34-year rule of the Left Front government led by the Communist Party of India (Marxist).
The people of Bangladesh were expecting Mamata to visit us at the earliest opportunity. It was announced that she would accompany Dr. Manmohan Singh, former prime minister of India, during his visit to Dhaka in September, 2011. Several bilateral agreements were due to be signed between the two countries during the high-profile visit. At the last moment, Mamata decided not to come due to disagreement on the sharing of the water of the Teesta River with Bangladesh. It was also reported that she had reservations on the implementation of the Land Boundary Agreement (LBA).
It was a great setback for both Dr. Manmohan Singh and Sheikh Hasina. Although several agreements, including the implementation of the LBA, were signed during the visit of Dr. Singh, two agreements, one on sharing the water of the Teesta River and the other on the transit of goods from West Bengal to the north-eastern provinces of India through Bangladesh, could not be signed. Without getting any cooperation from Mamata Banerjee, Dr. Singh was unable to bring about necessary changes in the constitution of India to implement of the LBA.
Why did Mamata oppose the Teesta agreement and the LBA? She always claimed that she had acted in the interest of West Bengal. As chief minister, it is, of course, her prime responsibility. Was it the only reason or could it be an expression of her anger against the central government? Whatever be the reason, there has been a significant change of heart in Mamata, after the sweeping victory of the National Democratic Alliance (NDA) led by Bharatiya Janata Party (BJP) in 2014. Unlike the weak coalition government of Dr. Singh, Prime Minister Narendra Modi's BJP has an absolute majority in the Lok Sabha. Modi is not dependent on Mamata like Dr. Singh was.
Several recent incidents further weakened Mamata's position. The blasts in Burdwan exposed her failure in tracking the activities of terrorist groups in West Bengal. The alleged association of some leaders of her Trinamool Congress (TMC) with the Saradha scandal tarnished her clean image. Moreover, the vast majority of the Bangalee population of West Bengal, particularly those with roots in Bangladesh, did not appreciate her stand on the Teesta deal and the LBA agreement. She must have taken all the factors into consideration in order to improve her position, particularly when the next election of the West Bengal legislative assembly is due in 2016. She realised that good relation with Bangladesh would undoubtedly be a plus point for her. So, long before her visit to Dhaka, she gave her approval to the passage of a bill in the Lok Sabha to pave the way for the implementation of the LBA.
In spite of what happened in the past, the people of Bangladesh welcomed Mamata with an open heart. She reciprocated by saying on arrival in Dhaka that she felt like she was at home! She led a 40-member delegation comprising ministers, cultural personalities and businessmen. She met the president and the prime minister of Bangladesh, placed wreaths at the Shaheed Minar on the International Mother Language Day, visited the Bangabandhu Museum and met cultural personalities and businessmen of Bangladesh. She repeatedly asked the Bangladeshis to repose faith in her to deliver a settlement on the Teesta issue. “It's a new beginning,” she said and added that the Padma, Meghna, Ganga and Jamuna belonged to “all of us” and none can be deprived of the benefits the common rivers offer. She also promised to be “a bridge” between Bangladesh and India!
Surely, Mamata also knows that besides the rivers we share a very rich language, an age-old culture and a long history. We share Rabindranath Tagore, Kazi Nazrul Islam and many other litterateurs, singers, artists, actors and actresses belonging to both West Bengal and Bangladesh. We share the Hilsha and many traditional foods of the Bangalees. She rightly described the relationship of the two Bengals (Bangladesh and West Bengal) as 'deep and durable' as perennial rivers Ganga and Jamuna.
How sweet, Mamata! She came, she saw, she conquered the hearts of millions. As she said, let this be a new beginning.

The writer is a senior nuclear engineer.

The Daily Star, 24 February 2015

Target three Mamata pledges on Teesta, land deal, anti-terrorism

Rezaul Karim

Mamata Banerjee yesterday promised to play her due role in the Teesta water sharing deal, the longstanding enclave exchange issue, and not allowing militants use West Bengal.
Mamata, who left Dhaka last night ending her three-day visit, made three vital pledges during her meetings with government high ups, especially Prime Minister Sheikh Hasina, said diplomatic sources in Dhaka and Delhi.
A member of her entourage told The Daily Star that the West Bengal chief minister had discussed the three issues with her policymakers in Kolkata prior to her visit to Dhaka.
The member said Mamata softened her position on pending issues with Bangladesh which would definitely open opportunities for solving the issues.
With her go ahead signal, the path would be cleared for the formalisation of the agreements and their implementation before Indian Prime Minister Narendra Modi's visit to Dhaka sometime this year, diplomatic sources said.
According to the sources, Mamata firstly flagged the Teesta issue and set the stage for a fresh dialogue on how to save the river and share the water resources with Bangladesh. She would now tell New Delhi to proceed for a deal.
She admitted that Bangladesh's demand for the Teesta water was legitimate and she had risen above the political constraints she faces in West Bengal, sources said.
Secondly, she gave the clearance for solving the Land Boundary Agreement (LBA) issue, which envisages transfer of 111 Indian enclaves with a total area of 17,160.63 acres and a population of 37,334 to Bangladesh.
In turn, Bangladesh would hand over 51 enclaves with an area of 7,110.02 acres with a population of 14,215 to India.
The territories involved in the exchange are in Assam, West Bengal, Meghalaya and Tripura.
In September 2011, Mamata had pulled out of the delegation the then Indian prime minister Manmohan Singh was leading to Bangladesh, citing her reservations about the two issues.
Thirdly, Mamata yesterday pledged that her state government would never allow any fundamentalist, terrorist, or banned militant organisations like Jama'atul-Mujahideen Bangladesh (JMB) to operate in West Bengal.
An entourage member quoting the Trinamool Congress leaders said the chief minister was very much aware that she would face uncomfortable questions in Dhaka, not just on the Teesta but also on the Burdwan blast, which suggested that JMB operatives were using West Bengal as a safe haven.
Talking to The Daily Star, several political and diplomatic analysts said the chief minister's visit was an “icebreaker” in the strained relationship between Dhaka and Mamata.
Her opposition to the Teesta deal and ratification of LBA dented her popularity in Bangladesh and the findings of an India-Bangladesh joint investigation that the JMB was using West Bengal as a safe haven did not help her.
Against this backdrop, Mamata was eager to fix her image with Dhaka, which the diplomatic circles of India and Bangladesh saw as the reason behind her visit.

Diplomatic sources said Modi during his meeting with Hasina in September last year on the sideline of UN General Assembly suggested that the Bangladesh prime minister build rapport with the West Bengal government to help the Indian central government implement the Teesta and LBA deals.

The Daily Star, 22 February 2015

Will Modi realise his superpower aspirations?

Shahab Enam Khan, Parvez Karim Abbasi


The Trimurti of his foreign policy could be his greatest strength. This is the first part of a two-part long form.

The Latin term “Imago Dei” relates to a long held Judeo-Christian theological belief that God created man in his own image. Descending from the lofty realms of theological speculation to the worldlier arena of Indian foreign policy, pundits and analysts have entered into a frenzy of speculation trying to gauge the possible policy changes and course corrections emanating from South Block during Narendra Modi’s prime ministerial tenure.
It can be safely said that the effects of the economic and foreign policy changes of an emerging superpower will reverberate throughout the South Asian landscape. Any misplaced doubt regarding India’s preeminence in South Asia can be safely dispelled by the spectacle of Modi’s prime ministerial swearing-in ceremony at Rashtrapati Bhavan in Delhi.
The sight of all the heads of state from the Saarc region attending the inauguration could be likened to a Rajya Abishek of a Chakravertin Samrat or the Delhi Durbar during the times of the British Raj.
Economic diplomacy lies at the heart of Modi’s foreign policy. Foreign investment and trade opportunities are being assiduously sought, not only from traditional and familiar sources such as the Americans and the Japanese, but also from India’s perceived strategic competitor, China.
A case in point was Modi winning a $20bn pledge from Chinese President Xi Jinping even amidst the border flare-up that coincided uncomfortably during the Chinese president’s visit to India last September. The shrewd Gujarati business acumen has triumphed over saber-rattling and jingoistic nationalism that normally constitutes BJP rhetoric regarding China.
The success of Mr Modi’s “Make in India” campaign relies heavily on large-scale investments from China to revive the job-creating manufacturing sector. This is in line with his previous chief ministerial regime in Gujarat, where he welcomed Chinese investment with open arms.
It remains to be seen if Modi manages to inject sustained double-digit growth in the Indian economy that forms a crucial component in realising its superpower aspirations. The fate of the long-delayed modernisation of Indian defense force and attempts to match Chinese military might is inextricably tied with the health of the economy.
Furthermore, Indian offers of duty reduction, trade facilitation, tied loans to improve transit and connectivity issues, and free trade agreements to its neighbouring South Asian countries are yet to materialise or deliver concrete results in many instances.
The long arm of Chinese trade and investment has made considerable inroads in the region at India’s expense. The Chinese recently proposed the establishment of Asian Infrastructure Investment Bank and the Maritime Silk Road – all of which is calculated to increase Chinese influence in smaller South Asian economies.
These economies, that had formerly courted Indian trade and investment have now more than one option to choose from. The largesse India will be able to offer pales in significance to the Chinese one. Thus, Modinomics, in one sense, is dedicated to retaining Indian economic hegemony in South Asia that the Indian analysts and policy planners had taken for granted.
Many analysts have dubbed the foreign policy regime under Manmohan Singh as the “lost decade” of diplomacy. The deft and subtle diplomacy that had been the hallmark of the land of Chanakya was replaced by a series of erratic, confrontational, and ham-fisted knee jerk reactions. From picking fights with the sole superpower (the unseemly row regarding the visa fraud allegations surrounding Devyani Khobragade) to the trial of the Italian marines related to the Enrica Lexie incident, India had been punching above its weight and souring relations with its Western allies.
The periodic, calibrated border incursions by the Chinese have literally kept the Indian policy-makers and defense establishment on their toes. It has not only served to rein in Indian pretensions to parity with the Chinese, but have effectively prevented India from using the significant Tibetan exile population to fan anti-China unrest in Tibet.
The “Look East” policy of the UPA government, geared towards increased engagement in the Asia-Pacific region, had been largely overshadowed by increased Chinese presence in the Indian Ocean. “The String of Pearls” offensive by the Chinese is increasingly curbing Indian presence in its own backyard. It remains to be seen if Narendra Modi’s proposed transnational “Mausam” initiative can take the edge of the Chinese thrust in the Indian Ocean.
Nearer at home, the Congress-led UPA government was found woefully lacking in combating high profile terrorist attacks such as the 26/11 attack on Mumbai by Pakistani members of LeT (despite having prior intelligence regarding an impending attack).
Lack of effective coordination amongst the various Indian intelligence agencies paved the way for yet another large scale LeT attack on Indian soil following the attack on parliament in New Delhi in 2001.
Despite international condemnation and incontrovertible proof of tacit ISI support for LeT operatives, the Pakistani diplomats managed to pull off a near miraculous escape – a show trial for the ringleaders of LeT was all that the Indian diplomats managed to wriggle out from the Pakistanis. It speaks volumes about South Block’s ineptitude that it could not make use of the proverbial “smoking gun.”
The UPA government can be partially exonerated from failing to solve a six-decade, complex, multifaceted, problem with its archrival Pakistan. However, the sheer negligence it had shown to maintaining and fostering traditionally friendly relationships with neighbouring countries is well-nigh inexcusable.
It is mind-boggling to think that Manmohan Singh had never paid a visit to Bhutan, Nepal, or Sri Lanka during his prime ministerial tenure.
First on the list is Maldives, whose geostrategic importance far dwarfs its territorial size. Of late, the country has been warmly responding to increased Chinese trade and investment. This, in itself, should not be alarming in a globalised milieu.
However, the public dressing-down of the Indian ambassador of Maldives by the Maldivian political leadership and the termination of the $511m contract with a consortium headed by the Indian GMR group for maintenance of the international airport at Male, should not be brushed off lightly.
Mishandling by the South Block during the UPA period is partially to blame for the straining of relations. The Indian support vacillated like a pendulum back and forth from Mohamed Nasheed to Mohammed Waheed Hassan, which further exacerbated ongoing political instability in the archipelago.
This inevitably led to a considerable erosion of Indian credibility in the country. The recent humanitarian relief effort by the Modi government in alleviating the drinking water crisis in Male, is a step in the right direction and will partially reduce anti-Indian resentment.
Sri Lanka provides the classic example of foreign policy bungling by the UPA government under the influence of coalition politics and personal prejudice. The Indian government had previously refused to sell weapons to Sri Lanka in their campaign against LTTE.
This was done to appease the sentiments of the Tamil coalition partner of UPA, DMK. The Sri Lankans then turned to China, Russia, and Pakistan to procure the necessary hardware. This paved the way for increased presence of Chinese and Pakistani military personnel and advisors in Sri Lanka. Ironically, the UPA government then provided tacit consent to the combative President Rajapaksa’s final military campaign to decisively defeat the LTTE.
The LTTE’s role in carrying out the assassination of Rajiv Gandhi may have influenced South Block’s limited involvement in this matter. The Chinese reaped rich rewards for their timely assistance. They have invested in key strategic sectors, ie infrastructure and services in Sri Lanka.
The docking of Chinese submarines in Colombo port is a portent of the increased strategic and commercial ties between Colombo and Beijing. Of late, the defeat of Rajapaksa by his onetime ally, Maithripala Sirisena in the presidential elections could well play in to the hands of the Modi government.
Sirisena, in his presidential campaign, had criticised the exponential increase in Chinese influence on the island nation. Rajapaksa had hinted at RAW involvement in fermenting revolt within his party ranks and orchestrating his electoral defeat.
The new government has stated that it would work to redress the lopsided tilt towards China. The ground reality, though, remains that substantial Chinese investment and trade links would provide it with considerable influence on Sri Lankan policy-makers in the foreseeable future.
Nepal illustrates yet another lost opportunity for a more pragmatic foreign policy involvement from the previous UPA government.
During its first stint in power, the UPA-1 government provided a certain amount of support to the Maoist insurgents or the Communist Party of Nepal.
Thus, South Block was hedging its bet between the traditionally India-friendly Nepali Congress and the Marxists. It was also done to prevent Marxist insurgency from spilling over into restive areas of India such as West Bengal and Bihar and to contain growing Chinese involvement in the mountainous kingdom. It also helped foster agreement amongst the various Nepali political parties, who in turn then launched a concerted movement to bring an end to end to King Gyanendra’s unpopular direct rule.
However, it led things to slide from there. The ordinary Nepalese blamed Indian involvement behind the gridlock in the constituent assembly, delay in writing the constitution, tussle for control between the army and the Maoists, and agitation in the southern plains of Terai for autonomy.
Modi’s arrival on the scene may signal a more evenhanded and subtler approach in line with the Chinese. Modi and Sushma Swaraj’s visit to Nepal (the first by an Indian foreign minister in 23 years) did not show favouritism to any particular party – a gesture contributed in reducing palpable anti Indian resentment.
Bhutan, Nepal’s Himalayan neighbour would prove to be the least daunting of the checklists of Modi’s “neighbourhood first” policy. In fact, Narendra Modi made his first prime ministerial visit to Bhutan, where he again focused on strengthening and reemphasising business, trade (the hydro-electric deal) and strategic ties. Bhutan also will continue to prove a valuable ally to India in combating anti-Indian insurgents from Northeast India.
Probably, the country that the UPA government let down most was Bangladesh during its 10-year-long tenure. The ruling Awami League government under Prime Minister Sheikh Hasina was perceived to be friendly towards India and the Gandhi-Sheikh families also shared close ties.
India has provided strong support to the AL government of Sheikh Hasina since 2008. It had openly expressed its desire to see secular forces in power in Bangladesh as evidenced by former Indian foreign secretary Sujatha Singh’s visit to Dhaka in November 2013. 

The Dhaka Tribune, 18 February 2015

Gas Import, Power Plant In Ctg Myanmar's positive nod

Rezaul Karim

A high-powered Bangladesh delegation has put forward a proposal to Myanmar for importing gas from the Buddhist country for electricity generation here and then exporting the power to Myanmar.
Responding positively to this proposal, Myanmar said it would send a technical team to assess the viability of exporting gas from its Chin State, which is adjacent to Bangladesh.
As per the proposal, the gas would be delivered through a pipeline, crossing through the Naf river, to Chittagong where a power plant would be built. Power generated from the gas supply would be exported again to Myanmar.
If the proposal gets a nod, Bangladesh can earn substantially from the power generation, and also can buy electricity from it, officials said.
The five-member team headed by Prime Minister's Energy Adviser Tawfiq-e-Elahi Chowdhury returned to Dhaka last week after a five-day visit to Myanmar. The team had extensive meetings with government leaders, including the Myanmar vice-president, foreign minister, electric power minister and energy minister.
In addition, the Bangladesh side, during the meetings, also made formal proposal to import gas through pipeline, take part in joint investment for power generation, and purchase 500 megawatt of hydropower from Chin or Rakhine provinces through erecting cross-border power transmission grid line.
“For the first time Myanmar was very positive about our proposals,” said a delegation member. “We had tabled some energy import proposals in the past, but Myanmar had always said it would first deal with its ongoing electricity crisis before considering exporting [to Bangladesh].”
Around 33 percent of Myanmar's population has access to power. Bangladesh has twice the electricity coverage. The Myanmar government wants to aggressively increase its power coverage.
“We have also offered joint investment in developing hydropower projects and buy hydropower to Myanmar,” the official added. Myanmar has the potential of 100,000 megawatt hydropower but the country so far identified up to 40,000 megawatt hydropower.
Bangladesh has also proposed a common power grid for both countries to which Myanmar said one such grid was being built under the BIMSTEC initiative.
Diplomatic sources said Myanmar has mapped a 15-year power development plan to meet increasing demand, setting its sights on boosting capacity from 4,581 megawatts to over 29,000MW in 2031.

The Daily Star, 09 February 2015

Forex reserves cross $23b

Md Fazlur Rahman

Foreign currency reserves have crossed $23 billion for the first time in the country's history, on the back of steady export, remittance growth, and lower oil prices.
The reserves stood at $23.03 billion yesterday, according to figures from the central bank.
“A stable flow of remittances and export earnings contributed to the record reserves,” said Kazi Saidur Rahman, head of the forex reserve and treasury management department at the central bank.
He said the reserves are adequate to meet import bills for the next seven months.
Bangladesh added a staggering $20 billion to its reserves in the last one decade.
Many pointed to the lower growth of imports for the record reserves. 
But officials of the central bank said although the expenditure for fuel import has come down other imports such as raw materials and machinery have gone up recently.
 “So, our imports have not come down. Rather, our foreign currency earnings have gone up. As a result, the reserves are rising,” said another central banker.
The country exported products worth $17.79 billion in the first seven months of the current fiscal year, up 2.06 percent from the same period a year ago.  Imports also grew, by 18.28 percent to $20 billion in the first half of fiscal 2014-15.
Remittances rose 8.57 percent year-on-year to $8.72 billion in the July-January period. The price of oil has more than halved since September 2014, which has boosted the foreign currency reserves, as the country is fully dependent on imports for meeting its demand for petroleum products.  
The Bangladesh Bank official said, when oil prices were high the country had to spend $500 million per month to meet the import bills for oil. Now it costs $250 million.
The reserves will, however, come down next month when the country pays $1 billion to the Asian Clearing Union as import liabilities. 

However, the reserves will still remain above $22 billion, the official said.

The Daily Star, 27 February 2015

Investment targets for next five years set to be slashed: Poor past performance, political turmoil blamed

FHM Humayan Kabir

In a major policy shift, the government is set to cut investment targets significantly for the next five years amid prolonged political unrest and lower-than-expected growth in the last few years, officials said Tuesday.

Officials said the government has proposed to cut the investment-GDP ratio by 4.3 to 4.8 percentage points as it has drafted a Medium-Term Macro-Economic Framework (MTMF) for setting the economic goal at the upcoming Seventh Five-Year Plan (FYP) under the Perspective Plan (2010-2021).

In its move, the General Economics Division (GED) has proposed to cut its investment-GDP (Gross Domestic Product) ratio significantly by 4.4 percentage points to 28.9 per cent for the next financial year (FY) 2015-16 from that of 33.3 per cent in the Perspective Plan, a Planning Commission (PC) official told the FE.

The GED has also proposed to slash the investment-GDP ratio by 4.6 percentage points to 29.5 per cent from 34.1 per cent in FY2017, by 4.3 percentage points to 30.7 per cent from 35 per cent in FY2018, by 4.8 percentage points to 31.3 per cent from 36.1 per cent in FY2019 and by 4.8 percentage points to 32.2 per cent from 37 per cent in the FY2020.

When asked, GED Member Professor Shamsul Alam told the FE that although the investment growth projection is likely to be slashed a little bit, the country's middle-income status would be achieved soon as per capita income will rise significantly.

In the last financial year FY2014, Bangladesh's investment-GDP ratio was 28.69 per cent, a 2.31 percentage points lower than 31 per cent target in the Perspective Plan.

The Foreign Direct Investment (FDI) in Bangladesh dropped to US$1.35 billion in the last FY2014 from that of $1.73 billion in the previous FY2013, central bank data showed.

The Bangladesh Bank (BB) in its latest monetary policy has projected to receive $1.60 billion FDI in the current FY2015.

Meanwhile, Bangladesh's current Gross National Income (GNI) per capita stood at US$1,190 till last FY2014.

As per the World Bank definition, income classification by GNI per capita for lower middle income is $1,036 to $4,085.

"If a country can maintain the per head income threshold of the World Bank for three consecutive years, it will be defined as the MIC (Middle-Income Country)," said a senior GED official.

As per the WB definition, Bangladesh may achieve the MIC status after a year if it can maintain the current per head income threshold for one more year, he added.

The GED in its macro-economic projection said the government would have to ensure investment-friendly environment raising private sector credit flow with lower interest rate, some tax liberalisation measures and restructuring of the public-private partnership system.

Meanwhile, the GED has also proposed to cut the GDP growth projection for the next five years due to the impact of political turmoil on the economy and lower than expected growth in different macro-economic indicators over the last five years.

Professor MA Taslim of the Dhaka University told the FE that continuation of more than 6.0 per cent economic growth in FY2015 would be very difficult as investment is not picking up due to lack of business confidence.

"Not only the economic growth, keeping the other economic indicators like GDP-investment ratio will be very difficult for the government amid the political turmoil and other shocks," he said.

Although boosting private investment is the best tool for economic upgradation for the country, a cut in its projection following the past stagnant-like scenario will affect improvement of the country's overall economic growth, Professor Taslim told the FE.

The Financial Express, 25 February 2015

Economic Analysis Looking East for new directions in trade and industry strategy

Zaidi Sattar

While the streets of Bangladesh are tense and the political stalemate remains unresolved, any thought of new directions in economic strategy might seem quite out of place. Yet, if history is any guide, this cannot be everlasting. A decade or two later, we could reminisce about these days of national discomfort as short-lived episodic hazards of Bangladesh politics raising transaction costs of business. For the present, life has to go on and we will live another day hoping that tomorrow will be a lot better than what it is today.

Meanwhile, the global economy is on the move. Innovation and the process of creative destruction is the order of the day, with new opportunities beckoning entrepreneurs in Bangladesh no less. They can only ignore them at their own peril, something we can all regret later.
One such opportunity is being created by the new somewhat unnoticed trade and industrial revolution that has taken place in our backyard - East Asia. Back in the 1960s and 1970s, it was East Asia that showed the way to export-led growth for developing countries.
Again, it is East Asia that has emerged as the pioneers in integrating with cross-border production networks and trading in intermediate goods, the fastest growing segment of international trade, making up some 75% of East Asian commodity trade over the past two decades.
Participating in regional or global production networks or trading in intermediate goods has hardly played any role in Bangladesh's industrial evolution. It is therefore high time to reflect and take action before the train leaves the station, as it were.  
After an initial decade of experimentation with import substituting industrialization, Bangladesh did come to terms with export-led growth as a strategy for income and job creation. That has paid huge dividends for the nation and promises to do so in the future.
Export markets are vast, and trade openness - in goods as well as in services - is likely to be the order of the coming decades, what with the rapid spread of automated procedures for movement of goods and services, global integration of production networks, significant reduction of transport costs, and modernization of ports, customs administration, and other trade infrastructure.
Going forward, export markets, rather than the limited domestic economy, will also be the main driver of employment for the vast number of labour force entering the labour market as an offshoot of the demographic transition the country is experiencing.
Though export markets are spread across the globe, bulk of the effective demand for our export products, dominated by readymade garments (RMG), has come from the West, i.e. North America and the European Union (EU). As part of our strategy for geographical diversification of our export markets, it is now time to look eastward where, clearly, there is a growing market for our exports, in India, Japan, China, Australia, S. Korea, and the ASEAN countries en bloc.
However, to make the most of the emerging opportunities, a re-orientation of our approach to trade and industrial policy is critical. Because trade patterns are changing, creating opportunities as well as challenges for Bangladeshi exporters.
The structure and composition of manufacturing is changing with new features and processes replacing old ones. In a fast changing landscape of trade and industry, where will our comparative advantage be in future?
The Industrial Revolution had led to a proliferation of invention in process engineering in manufacturing leading to the "first unbundling" which occurred in the 19th century when the principle of 'division of labour' was applied to assembly lines popularized by Henry Ford in the automobile industry.
 According to research done by UNCTAD-WTO-ERIA (Economic Research Institute of Asean), the "second unbundling" is now in progress giving rise to a new trend in the character of export-led growth. It is the 'unbundling' of production across countries fostered by widespread trade liberalization, advances in information communication technology (ICT), and lower transportation costs. This allows entrepreneurs to 'unpackage' their factories and locate various production stages (tasks) across countries in accordance with each countries' respective comparative advantage.
The fragmentation of production processes across different countries has given rise to global value chains (GVCs) creating opportunities for intra-industry trade globally as well as between contiguous economies within a region. This is the new type of international division of labour, and it turns out that East Asia currently has the most advanced production networks in the world, particularly in electronic and machinery industries.
International trade theory involving transaction costs see "production networks" being feasible only when speed and tight coordination among production blocks are effective through swift service links that ensure quick, high-frequency, synchronized transactions in the manufacturing sector. This is found typically at the regional level such as in East Asia, or potentially in South Asia, rather than globally. This latest configuration of production networks and trade integration inevitably fostered a boom in intermediate goods trade, which has over the years become a major driver of export growth particularly in East Asia and other emerging economies of Asia.
In the 1970s, at a time when developing countries were saddled with non-performing import substituting industries that failed to generate high growth, several East Asian countries (S. Korea, Taiwan, Hong Kong, Singapore) showed the way to prosperity through rapid export-led growth.
In the 21st century once again, East Asian countries, including members of Association of South East Asian Nations (ASEAN), are showing the way in exploiting GVCs created by production networks held by multi-national companies (MNCs) from developed as well as developing nations. Thanks to these production networks complimented by high-frequency synchronized trade transactions, trade in intermediate goods has become the fastest growing segment of international trade. Some three-fourths of trade of East Asian countries is in intermediate goods.
The lesson? Capital-strapped developing countries no longer need to invest in huge plants and equipment to produce final goods, but can specialize in the production and trade in parts and components of final goods, all according to each country's comparative advantage.
That scenario seems to fit well with the Bangladesh context characterized by capital scarcity, labour abundance, and the proliferation of small and medium enterprises (SMEs) in the manufacturing and service sectors. The potential is vast but a number of constraints stand in the way.  

First, Bangladesh exports predominantly final goods (98%) and intermediate goods in the export basket are all but absent.
Second, domestic production of import substitutes is concentrated in final consumer goods which receive high tariff protection while intermediate goods production (e.g. light engineering, parts and components of electrical or electronic products) receive little or no protection. Indeed, a review of tariff trends show a secular decline in input tariffs (including those on intermediate goods) undermining any incentive for directing investment in the direction of intermediate goods production. Thus, in the manufacturing sector, effective protection (i.e. policy support) on consumer goods has been rising at the expense of protection on intermediate goods - a clear anti-intermediate goods bias of trade policy.
Third, whereas a lot of policy attention has been focused on developing linkage industries for the RMG sector, with significant positive results, precious little attention has been given to the economy's linkage industries, i.e. intermediate goods industries. Consequently, Bangladesh continues to have a negligible share of intermediate goods in overall manufacturing. Though it has been popular to highlight the dynamism of the small entrepreneurs in the light engineering sector, its profitability under the present tariff regime is low resulting in stunted growth from poor access to institutional finance from the banking sector.
Finally, to exploit GVCs, (a) import-export procedures need to be streamlined in order to ensure high-frequency synchronized transactions within production networks. For this, Bangladesh must fully implement the trade facilitation agenda of the World Trade Organisation (WTO) making effective use of copious resources made available by development partners; and (b) Bangladesh has to invite MNCs by creating a welcoming foreign direct investment (FDI) environment in order to integrate domestic production enterprises with cross-border production networks.
This is a tall order but one that can take Bangladesh to the next level of export-led growth with a diversified export basket that comprises significant share of intermediate goods from a rising competitive and diversified domestic industrial base.
As in the 1970s, East Asia is offering a new model of export-led growth for the world. A number of East Asian developing economies have taken advantage of the mechanics of production networks and have successfully moved up the ladder of industrialization. Singapore, Malaysia, Thailand and the Philippines went through this process by the late 1980s and early 1990s. China accelerated the process of participating in production networks, particularly from 1992. Indonesia, Viet Nam and India began the process in the mid-1990s and 2000s. Cambodia, Lao P.D.R. and Myanmar are now about to jump on the bandwagon. Can Bangladesh afford to be left behind?
The foremost challenge is to redirect industrial and trade strategy to capture the opportunities unfolding in the East. Opportunities beckon, but the challenge is formidable. Bangladesh must move fast in order not to miss the bus.
(Dr. Sattar is Chairman, Policy Research Institute of Bangladesh. Email:

The Financial Express, 23 February 2015

Growth rates and instability

Faaria Tasin

An interesting trend can be observed when one takes a look at the Gross Domestic Product (GDP) growth rates of the country during the past few years. If GDP growth rates are plotted according to year, it has a resemblance to a wave, containing a peak and a trough. The dips in the economic growth rates can be seen during election years where rates start to decline in the years preceding the election years.  
We have seen that every election brought along with it an element of political violence. This violence in turn disrupts normal economic and social activities. So when the economy got a respite from the political violence of 2013, many of us may have breathed a wary sigh of relief. This, however, was very short-lived as the economy faced another gust of political violence since the beginning of this year.
One of the key drivers of economic growth is investment in Bangladesh. Total investment as a proportion of GDP has been hovering around 26% - 28% for the last five years. One reason for lower public investment is inadequate tax resources; for private investment, the main binding constraints are energy, land and transport.  In the face of these existing constraints, political violence certainly makes the investment environment even more stagnant.
So why can't the country afford to compromise with investment at this stage? One reason is that the country is currently experiencing a 'demographic dividend' (a rise in the proportion of people in the working age population accompanied by a decline in dependent age population), and 1.8 million people are entering the job market every year. Without adequate expansion, the economy will not be able to absorb all the people entering the workforce.
If we look at the information available for private sector credit growth, we will see that between June 2014 and November 2014, growth rates on average were 12%. This was lower than the projected rates and was done for a period when political instability was not as intense as it is currently.
Another problem of low investment and GDP growth rates is that a decline in GDP growth rates also implies that many people are deprived of a chance to move up the poverty line. One group that bears the biggest brunt of political instability is that of the daily-wage earners. On one hand their daily incomes fall and, on the other, disruption in the transport system leads to a rise in food prices, causing their real income to decline further.
Wholesale shops and shopping malls experience a fall in sales during periods of political instability. Although businesses have different coping strategies to make up for some of the loss due to instability, however, what the industry most certainly cannot make up for is the clear signal of an unreliable market. Skepticism regarding the economic health of the country may discourage foreign investors from investing as there are other countries offering competitive factors and better political environment.
According to Dhaka Chamber of Commerce & Industry's (DCCI) calculations, losses stand at around Tk. 22.77 billion ($285 million) a day. In addition to economic costs, there are social and human costs associated with political instability. Students are faced with missed classes and postponed exams, which adversely affects their performance and hampers future prospects. Human costs exist in the form of lives lost and injuries; however, social and human costs are harder to quantify.
As far as GDP growth rates are concerned, growth rates climbed up steadily after election years. What lies for future growth rates of the country at this point is uncertain and will be revealed with time.

The writer is the head of research at The Daily Star.

The Daily Star, 14 February 2015

Local government financing and effective decentralisation

Mahfuz Kabir

Local government is one of most important but sensitive items in the policy and budget making arena in Bangladesh. Quite surprisingly, it has not been regarded as a core or building block for national development plans even though local development and service delivery are critically dependent on efficient and effective local government. As the local government institutions (LGI) remain at arm's length from the citizens, decentralised development planning and building administrative capacity of LGIs are essential not only for delivering services to the grassroots but also for improving effectiveness of the central government and ability of local administrative units.
In Bangladesh, it is widely believed that all the tiers of LGI have been suffering from resource deficiency to provide quality services despite immense potential of enabling them to be financially solvent. Currently, there is no scientific formula for financing all LGIs, but considerations like backwardness and population are used to allocate funds for some LGIs.
Keeping this in mind, some very important initiatives were taken by the government in the last six years. The most important ones were to introduce and modify the laws of critical LGIs to make them democratic in composition and function, and to specify the areas of revenue generation including financial support by the government to emerge as financially viable institutions. While the laws are now generally good with some scope for further improvement, the major issue is proper implementation of the law including the financial aspects.
In general, financing of LGIs has not had any particular pattern in recent years and for the foreseeable future projected by the Medium-Term Budget Framework (MTBF). There are oscillations in direct transfer of funds in all the LGIs in terms of both amount and rate of change. Rural LGIs are seen to experience more oscillation than the other types of LGIs. The aggregate direct allocation to the LGIs also shows frequent fluctuation of provisional and realised fund transfers. In the last fiscal year (2013-14) the share of central transfer to LGIs was only 1.52% of budget and 0.42% of GDP, which were 3.1% and 0.62%, respectively in 2010-11.
Undeniably, LGIs are heavily dependent on direct grants from the central government and shared tax revenue with the land department. The major sources of revenue are concentrated in quite a few sources. However, there is no general and predictable pattern of fund flow from the government, except for Union Parishads. The projections of allocation in the MTBF continue to witness significant change. For instance, the last fiscal year's MTBF (2013-14 to 2017-18) projected a growth of allocation for City Corporation by 233% and for Paurasabha by 495%. However, the realised allocation for the both the councils witnessed significant reduction and indeed negative growth in 2014-15 compared to 2013-14 as per the MTBF document of the current fiscal year (MTBF 2014-15 to 2016-17). It clearly contradicts one of the core premises of the MTBF that the realisation of projected allocation would not change significantly for the first year of projection but would start deviating afterwards.
This fact provides two strong messages for the policy makers and other actors in local government sector. First, the budgetary projections for LGIs in the MTBF are ineffective to a great extent. In other words, it indicates that there is no need for MTBF projection of budgetary allocation for LGIs if it turns out to be futile in the next year. Second, indication for financing LGIs is absent in the process of medium-term national development planning. Without specific and tangible commitment for allocation in the overarching national document like the outgoing Sixth Five-Year Plan (2011-2015), the MTBF documents cannot translate it into financial allocation and projections for the medium term. Indeed, there is no financial indication or directives for LGIs in the Sixth Five-Year plan. Therefore, it is necessary for comprehensive understanding of financial requirement of the LGIs for the Seventh Five-Year Plan (2016-2020). Then MTBF will convert it into the specific project-based and operational fund requirement for each of the LG tiers and conduct projection for the medium term.
Currently, there is no financial distribution policy for the LGIs in Bangladesh. This results in 'special' and discretionary allocation. Coupled with uneven distribution of shared immovable property transfer tax it again results in acute horizontal inequality of financing local government bodies. An index-based funding mechanism should be introduced for distributing fund among the LGIs as a scientific foundation for developing financial distribution policy.
The practices of index-based and discretionary funding coexist and work together harmoniously in India. Indeed, theories of fiscal federalism reveal that determining LGI funding transfers based on the political incentives leads to inefficient allocation of resources, distributive injustice and inequality across geographic regions. In order to overcome the negative consequences of political bias in LG funding, some countries established independent agencies (e.g., Central and State Finance Commissions of India) in distributing national resources.
The government can introduce an index-based financing distribution mechanism for reducing political bias. The index could be either simple or composite, but the sub-indices must have the indicators of financial performance, service delivery as per the law, and fund requirement depending on quantitative analysis of resource gap to provide desired services to the citizens.
The above-mentioned issues are some of the most critical aspects of financing and development of LGIs, which should be reflected in the upcoming Seventh Five-Year Plan. Effective decentralisation through inclusive and sensitive inter-governmental transfers as well as sensible resource sharing is a key to strengthening democratic LGIs and promoting services to the citizens, which has always been a challenging task for the central government. Therefore, tangible commitment is required in the Plan document so that it can be readily translated into predictable financial allocation for the next five years to help achieve the overarching national 'Vision 2021.'  
 The writer is an Economist and Senior Research Fellow at Bangladesh Institute of International and Strategic Studies (BIISS).

The Daily Star, 01 February 2015


Mahfuz Kabir

At last, the new monetary policy statement (H2/FY2015) has got a professional look after years of experimentation, finding a balance between continued commitments and inevitable economic realities. Truly, the greatest achievement of the consecutive 'cautionary' and 'pragmatic' monetary policy over the last four years was an unbelievable taming of inflation without offending economic growth.
The document is quite elaborate, with clearly defined first and foremost objective of continuing to resist inflation to reach the target of 6.5% by June 2015 besides achieving between 6.5% and 6.8% economic growth in the current fiscal year. However, the attainments are subject to some prominent 'ifs' and 'buts' like political instability, upward risk in inflation, and infrastructure and energy deficiencies. However, the monetary policy is aimed at striking a balance between the objectives of moderate inflation and the targeted economic growth. And for the first time the policy document has sufficiently elaborated about inflation, the experience of other countries and its projected moves to justify the policy targets.
The document has four parts. The first part covers the policy highlights, key objectives and strategies for the second half of the current fiscal year. The second part includes the backdrop of macroeconomic, nominal and real sectors to set the tone and core vision of the policy stance. The third part of the policy is quite detailed, and covers global economic outlook, domestic sector, external sector, and money and financial sector. Some debated issues and myths have been objectively analysed and demystified in the appendix. These include the nexus between announcement of pay scale and inflation, point-to-point versus average inflation, growth projections and growth-inflation linkage so as to justify the direction of monetary instruments for the remaining five months of the ongoing fiscal year.
As mentioned in the policy highlights, the balance between moderate inflation and economic is a major objective in the stated policy. Interestingly, it was shown in Annexure C that inflation has been strongly and positively correlated with output growth for about two and a half decades -- since early 1990s. The stipulated output growth for this year is 8% as per the Sixth Five-Year Plan, which is still a far cry. But, higher economic growth is a must to attain the middle-income country status by 2021, which we must achieve. Therefore, it would be a big challenge for the monetary policy to tame inflation amidst pulling off the postulated economic growth as higher output is seen to be triggering inflation in the long run.
The policy document reveals that the deposit interest rate at retail level decreased in July-December 2014. It is a market based signal about the low return of savings indicating that general investment has not been considerably stimulating. The amount of private foreign borrowing due to high domestic interest rate has remained insignificant, although the monetary policy has continued 'yes card' to it for having downward pressure on lending rate. However, the actual cost of borrowing from banks has long been claimed to be higher than the official rate, as reported by many business people, due to informal transaction costs. Bangladesh Bank needs to have an investigative approach to undertake reform measures towards lessening pressure on business people. The stated punitive measures for deceitful practices that led to diffidence in the financial sector are welcome.  
The remitters who are deeply rooted in Bangladesh have no trust deficit in the economy, which is marked by their continued support with remittance. It helped regain the foreign currency reserve of a healthy $22 billion in the midst of a stressful month. Pragmatically, the monetary policy aims to continue maintaining 'comfortable' forex reserves to cover imports of five to ten months. The current reserve, however, can easily be utilised to cover import payment of the next six months even after clearing the payment of Padma Bridge for the current fiscal year. Prudence in protecting depreciation of Taka through heightening reserve is also praiseworthy. However, capital flight that usually takes place through various channels during crisis must be stopped.
Attaining the targeted growth of private sector credit set at 15.5% with further upward flexibility for the productive activities would be a challenge for the period of this monetary policy as one month has already gone under-invested. The target would be notably unrealised if the crisis period is prolonged, which is likely to dishearten the entire nominal and real sectors.   
An optimistic monetary policy is placed in the midst of a high-voltage politics when all parameters and prerequisites were set for Bangladesh to grow fast despite infrastructural, energy and governance deficiencies. At the same time, inflation was tamed down to 'moderate' level due to incessantly cautious monetary instruments for a half decade despite many harsh criticisms. In fact, the output growth-inflation trade-off was smartly translated into an extremely rare dividend of 'trade-on' through fair means of financial sector policy. Now, attaining overarching goals of the new monetary policy, which has built on the successes of the past ten policies, hinges critically on the on-going destructive pursuits, burning and killing. Disappointing indeed!

The writer is Senior Research Fellow, Bangladesh Institute of International and Strategic Studies (BIISS).

The Daily Star, 03 February 2015

China offers help to set up burn units


Patients suffering from burn injuries visiting medical college hospitals in Dhaka and Chittagong could soon be in for better access and treatment. The China National Electric Import and Export Corporation (CUEC), a Beijing-based foreign trade company, has expressed its interest in helping Bangladesh-establish modernised burn units in divisional medical college hospitals across the country. The offer comes in the wake of rise in the number of burn patients crowding hospitals. Due to countrywide violence, patients have been deprived of proper care as burn unit facilities are not available. The offer of help came when Wu Fudao, Chief Representative, South Asia Division of the CUEC, who wrote a letter to the Project Director of the National Institute of Burn and Plastic Surgery, Dhaka, expressing their interest in extending support to set up burn units in divisional medical colleges.
Terming burn units as an extremely specialised area of medical care, Fudao, in his letter called for technical cooperation with a Chinese hospital for better care. He further informed that several top Chinese hospitals are eager to contribute towards the people of Bangladesh and Sino-Bangladesh friendship. 
Fudao, in association with the Beijing Jishuitan Hospital, a leading hospital in China for burn injuries, has offered assistance in design, supply, building, commissioning, technology-transfer, knowhow and maintenance of equipment, including financing from China on a government to government basis for the setting up burn units. A draft Memorandum of Understanding (MoU) has also been enclosed with the letter offering assistance.
“We have also discussed funding with our government and EXIM Bank regarding loan financing of the burn units that will not only cover Dhaka or Chittagong, but also Rangpur, Rajshahi, Mymensingh, Sylhet, Barisal and Khulna,” Fudao said. The actual terms and conditions of the financing will be negotiated and finalised between China and the Economic Relations Division (ERD), he added.

According to the draft MoU, CUEC will ensure support from the Embassy of China and the ministries and departments in Beijing to secure Chinese funding at the earliest. Regarding setting up of the “Burn Units” in Dhaka and Chittagong, the draft MoU says funding could either be in the form of grant-assistance or concessional loan, whichever is available at the earliest. Similar units will follow in the medical college hospitals at Rangpur, Rajshahi, Mymensingh, Sylhet, Barisal and Khulna at the shortest possible time.
Meanwhile, the ERD has sent a letter to the Embassy of China stating the Bangladesh government's emphasis on the development of burn units in different medical college hospitals. The letter affirms the government's interest in implementing a project titled “Development of Burn Unit of Dhaka and Chittagong Medical Colleges hospitals” under the Ministry of Health and Family Welfare.
The main objectives of the project include upgradation and expansion of the hospital and treatment facilities; specialised treatment to burn victims; training doctors, nurses and support staff on modern clinical management of burns and conducting research on burns for developing an improved management protocol.
So far, scores of people have been injured in violent attacks across the country during the non-stop blockade, with a large number of arson attacks being carried out on highways. Hundreds of vehicles, including those belonging to law enforcers, have been attacked and burnt. Prime Minster Sheikh Hasina had recently told parliament that over a hundred people were killed and over 850 vehicles torched since the BNP-led 20-party alliance began its agitation. Making things worse, inter-city transport services have come to a grinding halt.
The victims of this deadly violence lost their lives mainly due to arson attacks on buses and cars, the PM had said. The 20-party alliance has been enforcing non-stop blockade in protest against the “confinement” of BNP chairperson Khaleda Zia since January 5.

The Independent, 18 March 2015

Kerry to visit Dhaka ‘in months’


US wants to strengthen current govt, says foreign minister

United States Secretary of State John Kerry will visit Bangladesh ‘within months’, Foreign Minister Abul Hassan Mahmood Ali told The Independent yesterday.
The minister also said that Kerry has expressed his country’s intention to strengthen the current Awami League-led government. “Secretary Kerry told me that they are with the government and they want to strengthen the hand of the current government,” the foreign minister said in an interview with this correspondent at his office. 
Ali returned home from Washington early yesterday where attended a White House-sponsored summit on countering violent extremism and held meetings with US Secretary of State Kerry and United Nations Secretary-General Ban Ki-moon.
“Kerry will come to Bangladesh soon. I must come, Kerry told me,” said Minister Ali, adding that the time for the visit has not been fixed yet.
Answering to a query, he said the visit of John Kerry would take place ‘within months’.
Kerry condemned the attacks on civilians and called upon the opposition parties to stop such attacks, said the minister.
“He categorically called upon the opposition to stop violence,” he said, adding that Kerry also called upon the government to end the ongoing violence in the country. 
According to the readout of the meeting, Kerry called for government action to peacefully end the recent violence, underscored the government’s role in ensuring peaceful political expression for all parties, and emphasised the need for a free and fair media that plays a constructive role in ensuring human rights.
It also said that the secretary offered renewed US support to help achieve a political solution that would return Bangladesh to its democratic foundations.
When asked what support Kerry wants to offer, the foreign minister said, “He said nothing specific. He said they are with us.” Asked what his response to the US offer was, he said, “I said thank you very much. We will see.”  
“Bangladesh is a democracy and we support the democratic process of Bangladesh. We want Bangladesh to be a successful country,” Ali said quoting his US counterpart.
“No one talked about any interim polls. No one talked about any dialogue for holding elections,” he said.
“Kerry said we just want the violence to stop,” he added.
During the meeting, Minister Ali requested his US counterpart to extradite Rashed Chowdhury, a convicted killer of Bangabandhu Sheikh Mujibur Rahman, who is reportedly hiding in the US.  
Asked about Kerry’s response in this regard, Ali said, “He listened to it. I hope we will be able to see a positive result.”
The US secretary of state praised Bangladesh’s economic and social development and sought Bangladesh’s support on issues relating to climate change, he said.
“Kerry was full of praise for Prime Minister Sheikh Hasina for her work on climate change mitigation. When Kerry will be in Bangladesh, he will see the projects on climate change”, said the foreign minister.  
“We have broad-based cooperation with the US,” he said.
The minister said his US counterpart appreciated his attending the summit on countering violent extremism.
At the summit on February 19, Minister Ali said, “Terrorists are terrorists irrespective of their belief, creed and caste. There must be an absolute zero tolerance to all forms of terrorism and violent extremism.”
“It is a matter of growing concern that the BNP and other political parties in Bangladesh are directly inciting an extremist agenda in order to challenge the democratic, non-communal, and non-confrontational narrative we are trying to propagate from the government,” he said.
“In fact some of their recent cowardly acts like throwing petrol bombs at passenger-laden vehicles are almost akin to the terror tactics being used by the Islamic State and others,” he added.

The Independent, 23 February 2015