Coordinated and tangible efforts needed to tackle crisis

If we assess the situation from a broader perspective, we cannot get away by simply attributing the pandemic or the Ukraine war as the reasons causing the crises. These are definitely legacy problems.   

Let me give you the example of the 2007-08 financial crisis, which came in ripples. Our immediate response was to tell all bankers to bring in all Nostro account money immediately. Now, it took the Bangladesh Bank two weeks to give the instruction.

We were also quick to instruct immediate depositing of Export Retention Quota money to the banks. The point is – a crisis like this requires quick actions. Our policy response is too soft, too delayed and not very transparent.

Then private sector borrowing now stands at $18 billion, most of which are short term. Paying off these loans will be a struggle for the borrowers.

Unless the Bangladesh Bank takes a strong stance, it will be very difficult to navigate through the crisis.

Let's talk about Foreign exchange management – I told the governor two or three years back to visit and revisit the foreign exchange market to determine the gap between the Real Exchange Rate (RER) and the Nominal Exchange Rate (NER). Only knowing the figures of the target, the broad money and the narrow money will not do, the foreign exchange market must be revisited.

Selling dollars is not the solution. If the depreciation was creeping, say dollar prices went from Tk75-76 to Tk80, the businessmen would have been able to absorb it. Because, they rely on their specialists' forecast of the foreign exchange trend to make their investment decisions.

Since all these things were not properly addressed, we now have the entire banking sector and the economy facing the crisis.

We need to also look at another aspect– many of us think it is solely on the Bangladesh Bank to do everything about the foreign exchange. The central bank alone cannot determine the foreign exchange trend as other factors like import, import value, export affect the forex trend. Import and export falls under the customs, not the central bank.    

About the four different dollar rates we have, my opinion is it does not work, rather creates confusion.

About default loans, which is now Tk1,45,000 crore, compliance must be enforced. That is what we did, as the Bangladesh Bank follows rules and regulations, which are of international standard.

I have never seen Cash Reserve Ratio (CRR) or Statutory Reserve Requirement (SRR) of banks to be waived. It's rather strange. It is also not mandatory that Monetary policy should remain unchanged for 1 year. It can be changed in line with challenges at hand.

On tackling inflation, I say the market should be monitored and should be controlled if necessary. You are controlling the lending rate, foreign exchange, why don't you control the market prices. We must be hard on that.

Repeatedly affording the borrowers loan moratorium or waivers gives out a wrong signal.  Chandra Sekhar, who served as India's Prime Minister for a brief period, said about loan waivers, "No loan waivers. Only over my dead body." I remember that it worked for India. He said, waivers can be on a case by case basis not for all.

We need coordinated and tangible efforts to tackle the crisis. We should bring in reforms to improve productivity, transparency and governance inside the banking sector.

Dr Salehuddin Ahmed, former governor, Bangladesh Bank