The New Nation - Internet Edition

Pulack Ghatack

The United States' financial turbulence and the subsequent turmoil in the developed world is expected to hit Bangladesh economy mildly but would hit the confidence in the prevailing economic system hard.

The International Monetary Fund has described the ongoing financial crisis as "the most dangerous shock to the financial sector since the 1930s" and said, "US may face a recession from the ongoing financial turbulence."

However, experts are optimistic to rule out serious impact of global financial crisis in Bangladesh immediately but suggested more regulation on economy rather than pursuing free-marketism recklessly.

The US crisis in the long run will certainly affect Bangladesh economy in different ways, though not heavily, four leading economists of the country told the New Nation yesterday.

They said the US crisis would also shake the confidence on free market mechanism worldwide and would stress the importance of regulation and more transparency and accountability in economic system.

Eminent economist Prof Muzaffer Ahmad said that impact of US crisis would not hit Bangladesh hard because this economy is mostly based on domestic sectors.

Impact on apparel sector, the main exportable item, would also not be severe as the country exports less-value items.

The seasoned economist does not see any severe consequence of US fall on manpower export of Bangladesh. "We can overcome any negative impact by developing skills of our people," he said.

Most of Bangladesh's remittances come from the Middle East countries that are not affected by the US turmoil.

About the global economic crisis he said, "Deregulations in the name of market economy was a wrong. United States also now admits it.

Prof Muzaffer suggested the government policy makers not to rely on unbridled market economy.

"We need strong regulatory system. Transparency and accountability should be exacerbated."

Noted economist Dr Atiur Rahman said, the US crisis would not create a big impact on our export.

"Manpower export may fall in the second round, if the crisis leads to a global recession," he said.

Financial system of Bangladesh is expected to remain unhurt as our banks and financial institutions are not so globalised, the economists said.

If any bank has investment in foreign share markets it should be cautious, Dr Atiur said.

He said that US would be able to absorb the primary shock. But its long-time impact and possibility of a consequent global recession was still uncertain.

Executive Director of the Centre for Policy Dialogue Dr Mustafizur Rahman said that it was not clear whether this crisis would lead the US economy towards recession or would push a global recession.

But he thinks that the US crisis would create impact in five places of Bangladesh economy.

"It will not be dangerous for export of Bangladesh but will slow the export growth," he said adding Taka would become stronger than US dollar resulting in less competitiveness of exportable items.

US willingness and capability for aid would decline, for they will mind to rescue their domestic economy. The bailout bill that passed in the US Senate on Saturday would decline their encouragements for aid.

Thirdly, he said, US investment would fall, Fourthly, they would pursue a more protectionist policy at WTO which would affect Bangladesh and some others negatively.

Impact on manpower export would depend on the depth of recession, which is yet to be ascertained, Prof Mustafiz said.

He said, "This is certainly to create a crisis of confidence in market economy. They preached us liberalisation. Now they are saying that market fundamentalism is not good."

"This debacle in the US economy shows us distinctly that regulatory and oversight mechanisms should be strengthened," he added.

Prof Anu Muhammed said the US problem might hit Bangladesh export directly as demand of the consumers will fall.

He said, "The myth of efficiency of market economy and capitalist system may fade away with it. US authoritarianism on others is expected to diminish with it."

Meanwhile, Finance and Planning Adviser Dr Mirza Azizul Islam recently said the country's economy, having no major stress at present, is unlikely to be affected largely due to the near recession in the United States and elsewhere.

"This is because we're mostly dependent on the multilateral donors, more than what we're dependent on the bilateral donors," he explained.

Meanwhile, Bangladesh Bank recently pulled its foreign currency investment out of different risky ventures in the face of a financial crisis in the US and some other parts of the world.

Apparently alarmed by the turmoil, a high-powered committee headed by a deputy governor of the BB started monitoring the situation on a daily basis instead of every 15 days.

The central bank's forex investment is estimated at around $5 billion. "There is no risk as the investment has been made cautiously," an official of the central bank said.

The BB has investments in some institutions such as Wachovia Corp, JP Morgan and a few mortgage companies in the US. Bangladesh Bank has no investment in badly-affected Lehman Brothers, it is learnt.

The central bank has invested 45 percent of its forex holdings in the US dollar, which was 26 percent a couple of months ago.