Bangladesh, Economic, International, Political

Bangladesh’s rising Foreign Exchange Reserve – getting the most out of it

With the highest ever Foreign Exchange Reserve (FER) of 43 billion USD (end 2020), Bangladesh faces a dilemma – should it continue accumulating the reserve or invest the surplus reserve on large-scale public sector projects?

The government seems to be staking in favour of development projects. A write-up in the Daily Star reported that “The Bangladesh government has decided to use the country’s ballooning foreign exchange reserves to implement development projects” (Byron and Uddin, The Daily Star, 12 October 2020). If this is true, it is a momentous but risky decision for Bangladesh.

The FER in developing countries are mostly used for self-insurance: to acquire the ability to pay for imports, service external loans, maintain a stable currency exchange rate, and competitively priced exports. A good reserve spares a country from kowtowing to donors and preserve its dignity.

But maintaining a reserve beyond what is necessary for self-insurance also involves a cost; the cost is the spread between current earnings (which is zero or near zero) and potential return. Safety considerations may dictate maintaining a high reserve for rainy days; on the other hand, investments in high yield projects could generate a handsome dividend.

There is therefore a temptation to use the surplus reserves for large scale investments, and get a handsome return.

Such investments would be welcome if they can be invested in high yield sectors, and the reserves could be made to increase at its historic rate to provide self-insurance for the country.  If these two requirements are not met, the country can be in financial peril in the longer run. Examples abound in the world on large publicly financed investments not delivering the right returns at the right time.

At this time of covid-19 related uncertainties, the risk arising from the volatility of the global economic situation can be quite large. Today, most countries in the world, impacted by covid-19, have slumped. Small and big businesses, especially those related to tourism, travel, and those requiring close human contacts have suffered. And so far, recovery has been erratic. Even with the roll out of vaccines, the recovery remains uncertain.

The prospects of investment in these circumstances vary widely across countries. The opportunities for successes and the risks for failures, both can be high depending on how well businesses click with evolving economic opportunities, public health and financial support scenarios. Well placed, they can succeed (like Amazon, communication like Zoom, and not the least the medical equipment suppliers and covid-19 vaccine producers); if not, they can limp on and even fail (like tourism, airline industry and other forms of public transport).  Huge public investments can fail to deliver, not only because of bad choice of projects but also due to adverse local and global economic circumstances, bad management and the risk of time and cost overruns.

China’s trillion dollar ‘One Belt One Road’ project financed out of its huge reserve is a long-term initiative to project China’s global reach and its economic and political intentions. It is a high-stake investment which is expected to over a number of years. The country has enough economic prowess, well recognized management capacity and political influence to pull it up. Even if it does not fire initially, the Chinese juggernaut support structure and financial capacity can pull it up.

Similarly, examples of sovereign funds of many petroleum rich countries and rich developed countries can succeed as they have large resource base to back them up, tide over bad patches and come out successful at the end.  Such examples of investments using sovereign fund are not of much relevance to Bangladesh given the country’s smallish surplus reserve and limited capacity to take up large projects on its own.

The debate in India on the choice between self-insurance and public investment in large infrastructure projects could be more pertinent to Bangladesh. India today boasts of having a very high FER of about 585 billion USD, but compared proportionately with Bangladesh, the difference is not enormously high. What makes it more comparable to Bangladesh is its socioeconomic environment and the governance structure, in which these two countries are not too far apart.

India too called for investing the surplus FER for infrastructure projects and public sector investments for industrial development. But it attracted flaks from financial analysts, independent reviewers and economists. The government’s policy to invest in large scale publicly financed projects  was criticised on the grounds that such investments could very well crowd out private investments, that investment in the industrial sector could be boosted by cutting tariffs instead of creating facilities for the potential investors to borrow funds. Moreover, it was argued that big public sector investments could create monopolies, which is considered to be an unwelcome outcome where anti-monopoly and anti-trust legislations are not well developed. A better policy would be to support the domestic economy through market stabilization scheme rather than investing in infrastructure projects.

While the above provide some indications of what could possibly be the direction and modality of utilizing surplus reserve in a situation similar to that of Bangladesh, the answer to the dilemma facing Bangladesh has to be sought and resolved in the specific Bangladesh context.

Apart from the issues raised in the context of India, for Bangladesh, one has to consider the constraints on project implementation due to the evolving covid-19 situation, the usual drama of not so infrequent changes in project designs and management inefficiencies leading to time and cost overruns, and therefore delays in profiting from the returns on investments. The government currently has its hands full with (more than a dozen) large scale development projects, financed by foreign loans as well as by the country’s own resources. These mega projects are at various stages of completion, and some are suffering from significant time and cost overruns. The projected returns are expected to be delayed, and therefore low at current prices. Even though Bangladesh is projected to do well in terms of recovery from covid-19 slump, thanks to the pick-up of the vibrant garment sector and minor damage, if any, to the agricultural sector, the longer term prospects of recovery and growth would depend on how quickly the covid-19 pandemic is tamed.

And it will also depend crucially on how quickly the remittance income of the country, the main driver behind the growth of FER, picks up. It is hard to make a projection; much of the pickup will depend on the growth of the host economies of Bangladeshi migrant workers. It will also depend on whether the economies which traditionally absorbed Bangladeshi workers will continue their dependence on unskilled and semi-skilled workers or move towards automation, use of robot technology, and highly skilled workers.

The flow of remittances can probably increase over the short term, but in the longer term, it may as well decline.

The country’s FER therefore may even go up the in the near future, but whether it will return to the current high level is questionable. In this scenario, it would be wise for the country to focus on completing more than a dozen on-going large scale infrastructure projects (financed through local funding and donor assistance). It would be wise to take a step back from taking on more large scale investment projects, assess the situation, local and global, and not throw precaution out of the window in a hurry to minimize the opportunity cost of surplus FER. 

This does not mean that the purpose of holding on to the reserve fund is to keep the surplus fund idle. Given the time and cost overruns of the on-going projects, much of the surplus fund may be needed for successful completion of the on-going projects. Besides, the government could focus, in the short and medium term, on supporting (through subsidized loans) the small and medium industries in the private sector to strengthen the industrial base of the country, finance advanced research and capitalization of agriculture, develop the IT sector, and improve manpower skills so that expatriate workers can move up the ladder of income scale when they get employed abroad.

As the global economy recovers and the country begins to build up its reserve fund, it would be time for the country to be ambitious again. Until then, the government has to be cautious with people centric approach for consolidating growth. The country is doing fine, and the mega projects awaiting completion will keep the country engaged for some time.  Hurried approach and high ambition with more large scale projects can overheat the economy and jeopardies the stable and good progress the country made so far.

Dr Atiqur Rahman is an economist and ex-Lead Strategist of IFAD, Rome.

Bangladesh, Cultural, Economic, Human Rights, International, Literary, Political, Religious

Egregious allegations of communalism against Rabindranath

Rabindranath Tagore (1861-1941) lived through a very turbulent phase in Indian and world history – the period when British Raj attained the peak of its colonial power and exercised most brutal authority in India, the period when Bengal (the state which allowed the first foothold of British merchants in India at the beginning of 18th century) was partitioned off and then annulled, the period of two world wars and the period which saw the rise of unstoppable swadeshi (self-rule) movement.

A poet, a novelist, a litterateur, an artist, a reformer, in short, a myriad of a man, Rabindranath Tagore lived and died in the thick of actions. He not only advanced Bengali language and culture to the world scene but also gave Bengalis – Hindus and Muslims alike – their self-esteem, identity and cultural heritage. His songs are used as national anthems in India as well as in Bangladesh and Sri Lanka’s national anthem drew inspirations from his song.

However, a large section of Bangladeshi die-hard Muslims with the mind-set of Pakistani religious antagonism towards Hindus had been sniping at Tagore ever since the creation of Bangladesh in 1971. The allegations ranged from Rabindranath being communal and anti-Muslims, citing that he opposed the partition of Bengal to deny the Muslims a separate homeland and he opposed setting up of Dhaka University etc. All of these allegations were egregious and conjecture of bigoted minds.

Many Bengali Muslims who lay such allegations on Rabindranath quote Major General (Retd) M A Matin’s book called ‘Amader Swadhinata Sangramer Dharabahikata ebong Prasangik kicchu Katha (Chronology of our freedom struggle and some associated discussions) published by Ahmad Publishing House, Dhaka in 2000. The Retd. Army Officer placed most of his allegations on heresy without any substantiation or corroboration and packaged such opinions as statement of facts!

The author, M A Matin, implied throughout the book that Rabindranath was an orthodox Hindu and hence anti-Muslim and that was why he opposed the partition of Bengal. As a further proof of his anti-Muslim character, he was stated to have opposed the setting up of Dacca (now Dhaka) University.

Let us look at the points whether Rabindranath was an orthodox Hindu and anti-Muslim or not and the reason for his opposition to the partition of Bengal. And then I would look into his attitude towards Dhaka University.

If one looks into Tagore’s ancestry over the last few centuries, one would find that Tagore’s Brahmin clan, who hailed from Jessore, had long and close association with Muslims. Two Brahmin Tagore brothers in Jessore were close to Mohammad Tahir Pir Ali, the wazir of the governor of Jessore, who himself was a Brahmin but converted to Islam for matrimonial and financial reasons. Tahir Pir Ali made Tagore brothers smell and eventually eat meat (probably beef) and because of that event the brothers had been expelled from the orthodox Brahmin sect. However, their whole family remained Brahmins and the brothers were ostracised as ‘Pirali Brahmins’ (Ref: Rabindranath Tagore, The myriad-minded man by Krishna Dutta & Andrew Robinson, Bloomsbury Publishing, UK).

These two brothers (Pirali Brahmins) eventually left Jessore due possibly to social discord and moved to Calcutta (now Kolkata). One of these two brothers’ descendants – two brothers – Darpanarayan settled at Pathuriaghat (whose descendant includes Sharmila Tagore) and Nilmoni (the great-great-grandfather of Rabindranath) settled at Jorasanko. His descendant, Rabindranath’s grandfather, Dwarkanath, a flamboyant zamindar, and his son Debendranath, Rabindranath’s father, started the Brahmo Samaj, which was a sort of philosophical belief more akin to Buddhism and animism. Now, to allege Rabindranath Tagore, a Pirali Brahmin, was an orthodox Brahmin and anti-Muslim would be very much off the mark. Rabindranath published a book called ‘Religion of Man’ which propounded a religion embodying humanity, a religion of human consciousness merging into the limitless creation – shimar majhe ashim tumi. Rabindranath Tagore’s own description of his family as depicted in ‘The Religion of Man’ was, “The unconventional code of life for our family has been a confluence of three cultures, the Hindu, Mohammedan and British”.

In his writings, Rabindranath always showed empathy with the Muslims. In his novel called ‘Ghare Baire’ (The Home and the World), the main character, a Hindu zamindar, stated quite boldly that he would not condone Swadeshi activities if it meant hurting his Muslim subjects – those people were abject poor people, they did not have the luxury of boycotting foreign goods and lose their living. As the story goes, the zamindar gave up his own life when he went to protect his Muslim subjects in the thick of Hindu-Muslim riot. Rabindranath was roundly criticised for such narratives.

It is beyond dispute that Rabindranath opposed the partition of Bengal, not because he wanted to deny the Muslims a separate homeland but because he wanted Hindus and Muslims live together in amity and harmony, as they had been doing for centuries. Moreover, it was quite natural for the Tagore clan to oppose partition, because Tagore’s roots were in East Bengal – Tagore’s zamindari was in Shilaidaha (Kushtia), Rabindranath’s wife was from Jessore (now in the district of Khulna) (Jessore and Khulna were in one district called Jessore until 1892. Rabindranath’s wife, Mrinalini was from Khulna, Ref. Islam o Rabindranath Anyanya Prasanga, by Amitabh Chowdhury, ISBN No. 81-7293-188-3) and the Tagore family maintained close ties with their ancestral home ever since they moved to Kolkata. The partition would deprive Tagore family of its roots. The partition of Bengal was implemented on October 16, 1905. On the day of partition, Rabindranath peacefully and in a friendly gesture initiated the Rakhibandhan (the tying of Rakhi, meaning friendship). The partition was, however, annulled in December 12, 1911.

The very stipulation that the proposed partition of East Bengal would provide a homeland for the Muslims was ludicrous and bog-headed in those days. Those brain-washed Muslims who propagate this view of separate homeland for Muslims are trying to backfit 1940s events (demand for Pakistan) back into the 1900s to tarnish Rabindranath’s character for opposing the partition.

It was stated in MA Matin’s above mentioned book that on March 28, 1912 a huge meeting was organised at Garer Math, Kolkata to protest against the proposed setting-up of Dhaka University and that meeting was presided over by Rabindranath Tagore. Afterwards a delegation of top-level Hindu leaders went to meet Lord Hardinge, the then Viceroy of India, and warned him that the establishment of Dhaka University would face the similar fate to the partition of Bengal. However, there were no reference or corroboration of Rabindranath’s attendance in Garer Math meeting in MA Matin’s book; simply his unsubstantiated assertion.  AZM Abdul Ali, editorial board member of literary magazine ‘Kali o Kolom’, in an article immediately after the publication of MA Matin’s book disputed the statement that Rabindranath attended the meeting and asked MA Matin to provide reference or source of his information, but there was no reply!

An article by Asahabur Rahman in Dhaka Tribune on May 16, 2018 stated that a search in Tagore archives showed that on March 28, 1912 Rabindranath was at Shilaidaha. He left Kolkata on March 24 and stayed at Shilaidaha until April 12 recuperating from his illness. However, he composed 17 poems and songs during those days and, as he usually put the date and name of the place where he composed a piece, he put Shilaidaha as the place where those pieces were composed during that period. So, how could Rabindranath be in Kolkata on March 28, as the MA Matin asserted? 

The Dhaka University was established on the basis of recommendations made by the Nathan Commission, appointed by the government of Bengal, on May 27, 1912. However, due to the outbreak of WW1 (Aug 1914 – Nov 1918), the Commission recommendations were shelved and then nearer the end of the war, the government of India established another Commission -the Saddler Commission – in November 1917 to look into that outstanding matter. On the basis of positive recommendation by the Saddler Commission in March 1919, Dhaka University was eventually established in 1921.

Rabindranath visited Dhaka in February 1926 as a guest of Nawab of Dhaka, Khwaja Habibullah. He was given three receptions by the Dhaka University – two were organised by the Dhaka University Central Students Union (DUCSU) held at the Curzon Hall and the other at Salimullah Muslim Hall (S M Hall) organised by the students of the Hall. If Tagore had been against the establishment of Dhaka University, it was highly unlikely that within five years the students of the university would forget all about his opposition and extend warm welcome and give cordial receptions by the Muslim and Hindu students alike! In addition, various institutions and organisations in Dhaka such as the Jagannath College, Dhaka Collegiate School, Hindu-Muslim Seba Sangha, Dhaka Municipality, Peoples’ Association etc organised special receptions for him.

So, where is the evidence of Tagore’s opposition to the establishment of Dhaka University? MA Matin made the allegations against Tagore without any foundation, without any evidence. Professor Rafiqul Islam of Dhaka University wrote a book entitled Dhaka Bisshobidyaloyer Ashi Bochor based on his long research. His findings didn’t support MA Matin’s assertions at all. Some of the Bengali Muslim writers, now and in the recent past, blinded by Islamic zeal tied up Tagore’s opposition to Bengal partition (which he opposed in order to maintain communal harmony) and fabricated Tagore’s opposition to the Dhaka University to make up a well-rounded story of Tagore’s anti-Muslimness! It is a classic case of joining up a lie with a truth and packaging the whole thing as truth!

 –          Dr A Rahman is an author and a columnist.