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caught in a double bind as they cannot qualify for debt reduction nor
can they get any IMF support for trade financing. The reason is, they
have no balance of payment crisis. Bangladesh and other countries
that are doing better by being cautious in trade transactions and
prudent in debt management are, indeed, being punished, the minister
says. Muhith spoke at the annual general meeting of the World Bank
and the International Monetary Fund that ended in the Turkish city of
Istanbul yesterday. Muhith returned to such a meeting after a lapse
of 26 years and made a trip down the memory lane. "What impresses me
most is that I find after more than a quarter century that we are
still grappling with many issues which have remained with us for
almost all of the post- War period," he recalls. The minister charges
that the World Bank has yet to start operations directed at anti-
cyclical measures in its member countries. "There is very little of
trade financing from any quarter although global liquidity is at
very comfortable levels," Muhith says. "The regional development
banks, however, are doing much better in holding the hands of the
low income countries. The IMF has at least allocated the new issue of
SDRs (special drawing rights) and the flexible credit facility is
proving to be helpful to some countries. "The debt reduction
initiative is proceeding in its traditional slow motion as if the
crisis is nothing new. But the systemic problem of what I would term
punishment for good performance and prudent debt policy is an issue
that cannot be neglected any further," Muhith says. The least
developed countries are forced to borrow costly short-term money to
finance essential imports such as fuel, fertiliser or food and
undertake their development effort at a lower level of their
potential. Muhith says this is a problem that defies any explanation
or justification. He believes that alternative ways of budget support
or sector lending for infrastructure investment or social protection
can possibly find some solution. "Such economies need firstly grants
and concessional loans that are available now at much reduced levels
and secondly rapid commitment of external assistance without
elaborate conditionalities." Bangladesh has been experiencing a
gradual decline in export earnings and in the volume of manpower
export. Remittance receipts are not affected yet mainly because of
improvement in the system of money transfer, the minister says.
Muhith points to reduced capital and investment flows in the
financial crisis, which have in turn adversely affected investment
decisions by the private sector in Bangladesh and other countries. "It
(financial crisis) has substantially reduced global trade including a
decline in manpower export that has turned into the main export
earner for many countries." "The unemployment rate in the weaker
economies is a matter of serious concern and the consequent need for
safety net expansion is a Herculean task," Muhith says. "The fall in
revenues, due to both external and domestic contractions, is further
limiting the fiscal space available to the weak economies to tackle
the crisis. This slowdown will impede the fight against poverty and
jeopardise the achievement of MDG targets by 2015. " The situation is
further complicated by the threat of climate change and environmental
hazards being faced especially by the low- income countries. "Climate
change symptoms have already created impossible challenges in my
country where devastating effects of successive cyclones and tidal
surges have obliterated habitations and warranted investment of
billions of dollars for rehabilitation of embankments, agriculture
and shelters," he says. "While we appreciate the G20 initiative to
almost triple the IMF resources for supporting developing countries
to fight the economic slowdown, we also note that a large part of
this support will be earmarked for middle-income countries leaving
little leeway to underwrite balance of payment and fiscal deficits
in the LDCs," the minister says. The LDCs have neither received any
substantial support so far from the WB group to ride out the crisis.
The minister has urged a special fund to be created with core
resources of the WB to provide quick budget support for the LDCs. The
development enterprise anywhere is a long-term undertaking. "Keeping
this in mind it is wrong for a DFI to withdraw from any critical
sector such as agriculture and water sector, transport and road
sector or energy and power sector in any developing member country,"
he says. "Mercifully the World Bank has realised the folly but needs
firmly to confirm a policy of continuous engagement in various
sectors of its member countries." "World Bank Group's withholding of
support in growth-inducing areas such as roads, railways and power on
a plea of institutional deficiencies in a particular country context
does not augur well for unimpeded growth and development," Muhith
says. "We must stem this tendency towards stop- go kind of
interventions in the credit recipient countries." "When additional
development financing is needed to face the economic crisis, it is
not clear how this 'front-loading' without any additional allocation
can sustain the development momentum." Muhith urges the global
community to revive the stalled Doha negotiations and consider duty
and quota free entry of all exports from LDCs under a simplified rule
of origin. RECOMMENDATION The minister emphasises the restructuring of
the global public sector for the financial and monetary system of
the future. "The architecture of the international financial
institutions and the global economic system as drawn up in Bretton
Woods still survives with some significant modifications." This
system when it was shaped took into account the experience of the
Great Depression of 1930 s and the urge for a Post- World War II
economic order enshrining equity, peace and prosperity. In recent
times, WB-IMF collaboration has flourished and the much-expected
third institution of WTO has come into existence. IMF has taken up a
larger role as development financier and as supporter of economies in
sudden and enormous balance of payment crisis. Muhith says new ideas
are in the air about a restructuring of the international financial
institutions with the sudden arrival of a severe depression and
near-collapse of the financial sector. "These ideas need to be
carefully and systematically pursued and not put under the carpet
once the crisis is temporarily contained," he suggests. "On the one
hand we need a regulatory body on greater and asymmetric monitoring
of the global economy, more comprehensive regulation of the
financial sector and the capital market and development of an
effective early warning system."
