Impunity plagues capital market: Debapriya

The fundamental problem plaguing the country's capital market is the persistent failure to prosecute those responsible for manipulating shares and ruining small investors in the 1996 and 2010 stock market crashes, rendering superficial solutions ineffective, Debapriya Bhattacharya, a distinguished fellow at the Centre for Policy Dialogue, said today (24 May).

"Superficial remedies or quick fixes won't solve the problem unless we address its root causes," he said.

Debapriya, also a noted economist, made these remarks in his keynote presentation at a discussion titled "Capital Market in Bangladesh's Political Discourse: Philosophy and Practice," organised by the DSE Brokers Association of Bangladesh (DBA), in the capital.

He noted that the first major stock market crash in Bangladesh occurred in 1996. "That collapse involved not only companies and brokerage houses, but also highly influential individuals. Some of them are no longer free today – not because of the market crash, but due to other reasons, and a few are even in jail."

Bangladesh's capital market has essentially become a casino, not a real capital market. A certain group owns the casino. You enter, you play – but at the end of the day, the profits go to the casino owner.

Amir Khasru Mahmud Chowdhury, BNP Standing Committee member

There was a breakdown in legal enforcement, a regulatory failure, and strong political interference, Debapriya said. "Because of that interference, the regulatory body was rendered ineffective. According to our estimates, around Tk18,000 crore was siphoned out of the market during that crash, and at least Tk15 crore of that was smuggled abroad. Yet, the government took no meaningful action."

He further said the legal case filed at the time was flawed – deliberately so – which allowed the perpetrators to go unpunished.

Recalling a 1998 live BTV programme titled "Janatar Mukhomukhi" (Facing the People), Debapriya said he directly questioned the then-prime minister about the faulty case. "She looked helplessly towards her finance minister and the governor. No one was held accountable. That was the beginning of impunity in our capital market. We did not uphold the rule of law, and because of political influence, countless small investors lost everything."

A similar situation, he added, occurred during the 2010 market crash, with no one punished and investigation reports from both incidents never made public.

In contrast, Debapriya highlighted India's response to the 1992 Harshad Mehta scam, where authorities filed numerous criminal and civil cases, leading to Mehta's imprisonment and subsequent capital market reforms. "Other countries around the world have also enacted reforms and ensured justice after such crises."

The economist suggested that Bangladesh must learn from these examples and address the deep-rooted problem of impunity if it truly wants to stabilise and restore trust in its capital market.

Declining market role

Analysing the current state, Debapriya observed that the market-to-GDP ratio has fallen from 27% in 2013 to nearly 13% today, with no guarantee it will stop falling. "This clearly indicates that the role of the capital market in our economy has weakened significantly –there's no doubt about that. And frankly, I don't see any signs of improvement," he said, suggesting the situation now requires "serious or even drastic treatment."

He highlighted the absence of new IPOs and fresh capital raising since the new government took office. While international institutions like the Asian Development Bank and the World Bank have recommended reforms such as improving market facilitation, demutualising stock exchanges, and offering tax incentives, Debapriya noted that "a few of these suggestions have been partially implemented, the majority were not followed through."

The economist questioned the government's concrete steps, particularly regarding incentives for foreign investors, benefits for listed companies, resolution of legal complications, and listing of state-owned enterprises. He also expressed surprise that three or four of the five recommended actions from a recent meeting with the chief adviser were "entirely the government's responsibility."

Debapriya stressed that for lasting impact, decisions must be "specific, actionable, and made through a transparent and inclusive process that allows for shared ownership," cautioning that foreign technical advice is unsustainable without a domestic sense of ownership.

Regulatory response and investor confidence

Mohsin Chowdhury, commissioner at the Bangladesh Securities and Exchange Commission (BSEC), said the regulator is actively working to implement the chief adviser's five-point directives, which include offloading government shares, bringing large companies to the market, and introducing tax incentives. 

He noted that the BSEC is closely collaborating with the finance ministry, the industry ministry, and the Bangladesh Bank, and has provided them with specific timelines to ensure the timely execution of the directives.

Dhaka Stock Exchange (DSE) Chairman Mominul Islam emphasised that restoring investor confidence is the biggest challenge, requiring "good governance in the capital market" as absolutely essential.

'Capital market transformed into a casino'

Amir Khasru Mahmud Chowdhury, a BNP Standing Committee member and special guest, said the capital market has been transformed into a casino over the past 15 years.

"Bangladesh's capital market has essentially become a casino, not a real capital market. A certain group owns the casino. You enter, you play – but at the end of the day, the profits go to the casino owner. Some will lose, some may win, but the house always wins. That's exactly what is happening in our market," he said.

The BNP leader added, "This trend has especially intensified over the last 15 years. A group manipulates the market for their own gain, exploiting general investors in the process."

Khasru also noted growing interest from international investors. "Many of my contacts are ready to invest in Bangladesh but are waiting for a free and fair election. They've reached out to me – some manage $10 billion funds, others handle $20 billion. They want to invest in infrastructure, manufacturing, and services in Bangladesh."

He further questioned the government's reliance on the IMF for a $4 billion loan. "Why should the government chase the IMF for $4 billion? That's not a significant amount. Bangladesh has the potential to attract $100 billion annually through this market. The advantage of such funds is that they are long-term and don't involve interest obligations."

Panel discussants included Bangladesh Jamaat-e-Islami Central Executive Council Member Md Mobarak Hossain, Policy Exchange Bangladesh Chairman Mashrur Riaz, National Citizens Committee (NCP) Joint Convener Taznuva Jabin and ICMAB President Mahtab Uddin Ahmed.