Inflation, bad debts need to be addressed immediately

First step is to stem the leakage of rapidly growing bad debts

Muhammad A (Rumee) Ali, former deputy governor, Bangladesh Bank

Actually, the biggest problem is that we do not know where we are in terms of our banks' current financial status, mainly the extent of its impaired assets and capital adequacy. The integrity of the financial data is suspect. 

Recently, our finance advisor said, "There is nothing left in the financial sector." The managing director of one of the top banks said that the crisis is much deeper than what we see on the surface. All this confirms my view that we do not know where we are. 

To take effective steps, we need to prioritise on the basis of that information, how we want to work to bring back stability in the market. But first we have to stop the haemorrhaging of the banks through the frauds perpetrated on the banks in the guise of loans. 

In order to do that, large drawdowns on loan accounts must come under scrutiny and all new facilities granted in the last two years — particularly ones over a threshold, say Tk5 crore or Tk10 crore, should be reviewed carefully. Any facilities where the borrower or any other aspect of the facility raises questions must be stopped and sent to the senior management or board for decision. 

In all banks, these files should be reviewed by the central bank. The boards of banks which are suspect must be immediately dealt with as appropriate, along with changes in senior management where it is warranted. 

There have been situations where the central bank did not act prudently and sometimes totally outside the scope of its own set norms and standards. The complicity of officials at the central bank cannot be denied. There has to be appropriate action to restore the credibility of the offending departments. 

While there are many other steps that need to be taken, and this is not an exhaustive laundry list, one more important issue I believe will help bring clarity over the situation is to resolve the "where are we now?" question. 

Special audits need to be made mandatory. And these audits need to be undertaken by external audit firms selected by the central bank under Terms of Reference (TOR) decided by the latter. Existing external auditors will not be eligible for this task. 

All the banks that fit previously set parameters should come under scanner. This will, if the audits are done diligently, help resolve the lack of clarity in the financial status to a great extent.

Sketch: TBS

Process to stop the bleeding has started, but it needs to be stopped entirely

Dr Zahid Hussain, former lead economist, World Bank Dhaka Office

Some reforms are already underway: the provision of whitening black money has been scrapped; the law which stated no one can question the establishment and operations of rental and quick rental power plants in the courts has been suspended; the responsibility of setting energy prices which was taken over by the ministry has been returned to energy regulatory commission. So, a lot of reforms that can be made immediately have been taken care of.

The banking sector is in a lot of trouble. There too, the boards of the banks in trouble are being restructured.  So, work is being done to stop the bleeding. But some things need to be done, the results of which will reach the ordinary people very quickly.

Utmost importance should be given to inflation. Even within inflation, there are types of inflation that need to be given priority — which price should I focus on first? The price of essentials, the price of food especially rice, lentil, flour, cooking oil, salt, onion which are bought by everyone on a regular basis need to be prioritised. Low-income households are suffering a lot because of the high prices of such goods. 

Just a contractionary monetary policy, which was proposed and not really implemented, even if implemented properly will not solve the issue entirely. The main problem lies elsewhere. In market management, there are two types of syndicates, one is extortion, another is that of big players. 

If the extortion syndicate is reined in, we will see the results immediately.  We have seen an indication of that after 5 August. The Bangladesh Competition Commission and the Directorate of National Consumer Rights Protection are somewhat aware how big players manipulate the market. The competition law needs to be better implemented. The legal loopholes need to be closed. This government is not the hostage of these big players unlike the last one.

The process to stop the bleeding has started but it needs to be stopped entirely. For the financial institutions in trouble, some restrictions have already been implemented on their balance sheets. When it comes to provisions, there is a lot of noncompliance, which even if caught by regulators, nothing could be done either due to lack of will or due to political pressure. These need to be addressed immediately. 

Foreign investors complain a lot about visa issues. For example, the work permit of a foreign worker did not match their visa duration. This caused a lot of issues. If one expired, the other became invalid. Foreign investors may be provided on-arrival visas or the visa process could be made available online. Why give three-to-six month visas, give them long-term multiple entry visas. The process to bring in foreign investment and take away the profits need to be made easier. There we will also get some immediate impacts.

Muhammad A (Rumee) Ali and Dr Zahid Hussain were interviewed over the phone by TBS' Nasif Tanjim.