|
EDITORIAL
Devastating flood: What is to be done?
With its usual attendant frenzied fury the surging flood causing massive human distress has once again visited the country. Flooding continued to deteriorate in many parts of the country, particularly in the northern districts, leaving tens of thousands either marooned or displaced. At least eleven people drowned in flood water in the northern districts. Diarrhoea and other waterborne diseases are spreading fast in the 40 districts that have so far been flooded for want of pure drinking water. At least 36 deaths from diarrhoeal diseases were reported in a month. Until a few days back, except some Army troops no Government or NGO activities were visible in Sirajganj, says a newspaper report.
Capricious Nature’s unpredictable whims cause incalculable widespread human suffering to hapless millions who are the common victims of horrifying cyclones, tornados, tidal bores, droughts and other calamities. Annual flooding is a usual phenomenon in this country, but deluge or over-flooding after every two or three years all or most of the resources poor people save after years of labour and toil are washed away forever, leaving them outright ruined economically. Indeed, one of the adverse effects of it is pervasive mass pauperisation.
Recovering from the losses of flood in a least developed country like ours is a stupendous proposition verging on impossibility. Think tank people are vociferous about the so-called impressive growth rate now famously described as Bangladesh puzzle. The reality is: over half the populace lives below the poverty line having little or nothing to fall back upon at times of privation. The hapless lot are the marginalised masses. The deluge has inflicted crippling damage —- as it always does —- to all and sundry. Relief operations and VGF programme can ease distress for the time being if it is efficiently and honestly conducted.
While safe drinking water is a must for survival it is learnt that tube-wells have gone under water. In some areas outbreak of diarrhoea has been reported. Besides, the worst sufferers among the marooned people are in inaccessible locations; hence special attention has to be given to address their problems.
One admirable virtue of the people is their resilience to overcome difficulties; and this time too they will prove their mettle as soon as the flood water recedes from homesteads. Indeed, they will try their level best as survival instinct will compel them to do so. Since agriculture has been badly battered and paddy fields are washed off thus totally damaging the standing plants so immediate measures brooks no delay in arranging saplings. We understand NGOs should be involved in the relief and rehabilitation process. In a country with about two thousand such organisations the task will not be hard to accomplish. But the government department which must play its designated role intensively to mitigate the afflictions of the distressed multitude is the Disaster Management Bureau.
The devastating floods which struck Bangladesh in 1987 and 1988 left more than 3,000 people dead. Hence a Flood Action Plan (FAP) was prepared in 1989 and launched in 1990. But a major reason why some critics oppose the FAP is the poor record of performance of flood control projects implemented in the past.
As an expert observed, one approach to be tested is that of selective intervention to steer the river away from critical bank sections. He was of the view that the Chinese appear to have had some success with this technique on the Hwang Ho River. It is time the Water Development Board men think about their future action plan now.
 ^ TOP OF THIS PAGE ^ MAIN PAGE
BB’s wrong monetary policy
Govt. keeps inflation rate high
Syed A. Basher and Sharif Faisal Khan
The rise in the inflation rate has prompted two views of the sources of higher inflation in Bangladesh. One is the cost-push inflation which is typically caused by supply shocks such as flood, draught and oil price hike. The other is the demand-pull inflation that occurs when the aggregate demand (AD) in an economy outpaces the aggregate supply (AS).
This article has two objectives: first, it identifies the leading source of the current inflationary pressure in Bangladesh using economic data and the famous AD-AS model. Second, it argues that more aggressively contractive monetary policy is needed to pull down the inflation rate below 2 per cent.
Before progressing any further, let us briefly review the AD-AS model. In the AD-AS model, the AD curve is downward sloping because when the price level (P) rises, the aggregate quantity (Q) demanded falls. The components of the aggregate demand are consumption spending, investment spending, government expenditure and net exports (exports less imports). By contrast, the short run AS curve slopes upward because firstly, we assume that the prices are somewhat flexible in the short-run and secondly, to induce firms to supply more output, the price level has to rise. The short-run equilibrium price and output are determined by the intersection of AD and AS curves (the point where the aggregate demand equals the aggregate supply). (See Fig. 1 for a graphical representation of the AD-AS model.)
Cost-push inflation (also known as supply-shock inflation) basically means that prices have been pushed up by increases in costs of factors of production, such as oil. Globally, oil price has increased from mere $25 per barrel in mid-2003 to over $70 as of this writing. This has prompted Bangladesh’s government to raise the domestic fuel prices gradually including the most increase by Tk. 7-9 per litre in April 2007. Meanwhile, the share of oil imports as a percentage of the country’s total import bill rose from 9.2 per cent in 2004/05 to 13.6 per cent in 2006/07.
We can analyse the impact of such an oil-price shock using the AD-AS model. Suppose, prior to the oil-price shock, the economy was operating at the equilibrium point E0 with aggregate output at Q0 and price level at P0 (see Fig.1) As the oil price shock hits Bangladesh economy, the cost of production increases leading to a decrease in the aggregate amount of output supplied by the firms. Graphically this can be seen by a leftward shift in the AS curve from AS0 to AS1. As a result the economy moves from equilibrium E0 to E1. At the new equilibrium E1, output decreases to Q1 while price level increases to P1, implying that oil-price shock has contributed to inflation and negative output growth.
If we match the predictions of this model arising from an oil-price shock with recent data on real GDP growth rate and inflation rate, we will find a contradiction. The annual average CPI inflation increased from 5.83 per cent in 2003 to 7.02 per cent (12-month annual average) in April 2007. While the real GDP growth rate over the same period increased from 5.3 per cent to 6.6 per ent (estimated). Thus, supply shock alone cannot explain the persistence inflationary pressure in Bangladesh. This analysis also contradicts the view expressed by CPD economist Debapriya Bhattacharya, who has recently said that “inflation rate is increasing due to problems on supply side, not for increased demand as explained by the IMF” (The Daily Star, July 15, 2007). Below we argue that demand shocks have played a larger role in the persistent inflationary pressure in Bangladesh.
One can easily see that despite the record high oil and other commodity prices, the real GDP growth has been increasing over the years (from 5.3 per cent in 2003 to 6.6 per cent in April 2007). This feature coincides with the proposition of demand-pull inflation which argues that inflation arises when aggregate demand in an economy outpaces aggregate supply. In recent years, strong export demand, expansionary fiscal policy, large inflow of remittances and higher growth rate of money supply have contributed to strong aggregate demand for goods and services in Bangladesh. The year-on-year growth rate of broad money (M2) increased from 11.9 per cent in June 2004 to 18.2 per cent in May 2007. This excessive growth in money kept the real interest rate (actual cost of borrowing after adjusting for inflation) relatively low. The lower real interest rate in turn has stimulated consumption, investment and government spending, resulting an overall increase in the aggregate demand for goods and services.
In the AD-AS model, an increase in the aggregate demand can be shown by a rightward shift in the AD curve from initial AD0 to AD1. As a result, the equilibrium moves from E0 to E1 (see Fig. 2). At the new equilibrium (E1), the price level increases to P1, while the output level increases to Q1. Therefore, a positive demand shock leads to both higher inflation and higher economic growth. Clearly, these two features are consistent with the actual data reported above. In fact, Bangladesh’s economy has been affected by both adverse supply shocks and positive demand shocks. However, based on the AD-AS analysis and macro data we can argue that the demand shocks have been stronger than the supply shocks. This leads us to conclude that increased demand being the leading factor behind the persistent inflationary pressure in Bangladesh.
In the presence of inflationary pressure, central banks generally pursue contractional monetary policy to fight inflation. Under a contractional monetary policy, a central bank decreases money supply in order to raise the interest rate. Higher interest rate reduces consumption and investment spending. As a result, aggregate demand falls causing both inflation and output to decline. In the short-run there is a trade-off between inflation and real GDP growth. If we want to reduce inflation, we will have to forgo higher output growth in the short run. Over time as people revise their inflationary expectations downward, the output growth will increase. That is, in the long-run there will be no trade-off between inflation and real GDP growth rate.
The Bangladesh Bank (BB) claims that it was following tight monetary policy over the period from January 2006 to June 2007, and shall continue to follow the same for next 6 months effective from July 2007. According to July 2007 Monetary Policy Statement, Bangladesh Bank’s “monetary policy is accordingly designed around a projected real GDP growth rate, and moderate level of CPI inflation attainable/sustainable without unduly depressing output.” Real GDP growth rate is projected to be 7 per cent in 2008. To achieve this growth target, “BB’s monetary policy will target an annual average CPI within a range of 6.5-7.0 per cent for FY08”. For BB higher rate of economic growth is the first priority. Bangladesh Bank is NOT aiming to pull down the inflation rate. Despite the hue and cry among the public, we are surprised to see that the Bangladesh Bank is basically trying to keep the inflation rate at the level which has prevailed in past 3 years. In the fiscal years 2004 and 2005, the average annual CPI inflation rates were 6.49 per cent and 7.16 per cent, respectively. This rate was 7.02 per cent in April, 2007. Since BB is knowingly sustaining the inflation rate around 7 per cent, the BB as well as the government (because BB’s policy is influenced by the government) should take the responsibility of the current inflationary pressure in the economy.
We think that under the veil of “cautious and restrained” monetary policy, BB was basically undertaking expansionary monetary policy to validate or support government’s expansionary fiscal policy especially during the period from January 2006 to June 2007. The expansionary nature of BB’s monetary policy is evident from the growth rate of broad money. The year-on-year percentage change in the broad money increased from 14.2 per cent from June 2005 to 18.2 per cent in May 2007. As a result, the real interest rate decreased to approximately zero or negative, leading to higher consumption and investment spending, huge government borrowing, and thus higher inflation. For instance, the nominal interest rate (yield) on 364-day treasury bills in June 2007 was 8.48 per cent. The expected CPI inflation, reported by Economist Intelligence Unit, in 2007 on average is 7.5 per cent. Therefore, the real interest rate, which is calculated by taking the difference between nominal interest rate and expected inflation rate, is approximately 1 per cent. However, the real interest rate of 1 per cent overestimates the actual cost of borrowing. If we consider the expected rate of change in the domestic currency, we see that the value of taka against the U.S. dollar decreased by an annual average rate of 4.03 per cent over the period from July 2005 to June 2007. Adjusting for the domestic currency depreciation and the premium for the risks associated with investing in Bangladesh, the real interest rate drops well below zero.
The evidence of negative real interest rate on 364-day treasury bills shows that the government itself has the incentive to keep the inflation rate high so that it can borrow money from the public and the banking system free of cost. No wonder, we are not seeing any aggressively contractional monetary policy from Bangladesh Bank by solely targeting to pull down the inflation rate below 2 per cent!
The authors are affiliated with York University and Queen’s University in Canada. Their e-mail addresses are basher@econ.yorku.ca and khans@econ.queensu.ca. Data are taken from Bangladesh Bank website
and Economist Intelligence Unit.
^ TOP OF THIS PAGE ^ MAIN PAGE
VIEW POINT
Railway link between Bangladesh-India
Muhammad Afsar Ali Farajee
Direct passenger railway service will start from early September next. Already we have direct bus service between Dhaka and Kolkata. But the reality is that the number of Bangladeshis visiting India is always more than the Indians visiting Bangladesh. Many students from Bangladesh pursue their studies in different Indian educational institutions and it is also a fact that a few lakh Bangladeshis visit India every year for medical treatment. It is practically a one-way traffic comparatively; only a few Indians visit Bangladesh to meet their relatives or dear or near ones.
Seven North eastern Indian states are practically almost landlocked. These seven states have no sea port except Kolkata sea port, cost of air travel is very high and hence people of the seven sister states prefer railway travel for journey to Kolkata. Distance between Agartala and Kolkara is more than a thousand kilometres and practically it requires at least 3/4 days for any train journey from Agartala to Kolkata.
Till 1965, Bangladesh (then East Pakistan) had good railway communication network through different routes like Burimari-Chengrabandha, Mogalhat-Giraldaha, Biral-Radhikapur, Darshana and many other routes. A citizen of our country could easily visit neighbouring India with valid documents. Our currency could also be converted into Indian currency and vice-versa. But on September 6, 1965 a war broke out between India and Pakistan and all the train routes between Bangladesh and India was cut off.
At present, there is a metre gauge railway line up to Burimari railway station of Patgram upazila of Lalmonirhat district and there is no railway line between Burimari (Bangladesh) and Chengrabandha. But there is an all-weather pucca road from Burimari to Chengrabandha. All trades between Bhutan and Bangladesh are carried on by road through Burimari land port. We can also visit India and Bhutan by this route. But there is no railway communication network between India and Bangladesh by this route. There is good prospect of establishing direct railway link between Burimari (Bangladesh) and Chengrabandha (India).
India has already a land route which is known as India Tibet Business Route. Businessmen of India and China are being benefited by trade between these two countries, but Bangladesh has no such scope as we have no direct land border with China. If a railway route can be established through this route and if it could be connected with the railway network of Bangladesh then we could travel from Bangladesh to China by railway, but apathy of India is a great hindrance.
There can be direct railway line between Dhaka and Agartala and between Dhaka-Guwahati of Assom (Assam). There is great demand of many Bangladeshi products like cement, pvc pipes, toiletries, cosmetics, medicines and many other daily essentials in seven sister states of north east India. Products of Bangladeshi will be cheaper than many Indian products in these areas if all tariff and non-tariff barriers are withdrawn by India. There should be direct railway link between Bangladesh and Myanmar via Chittagong and Teknaf. Hence I do believe all the railway routes that existed between India and Bangladesh till 6th September 1965 should be restored and should be opened for traffic of both passengers and transportation for goods.
So, I appeal to the government to take all possible steps in this regard, we should try to apprise India of the positive and good sides of this proposal.
^ TOP OF THIS PAGE ^ MAIN PAGE
LETTERS
Coaching centres
Dear Editor:
Three decades backs we had only one institution for education at primary, secondary, higher secondary, degree and versity levels. These days a student needs two institutions at all levels for education. The second institution is coaching centre.
Some coaching centres claim that they maintain international standard of education. They pay certain percentage as a commission to the teachers of educational institution who can send students for admission in their coaching centres. In this way they lure the teachers for more students. These coaching centres are mainly doing business in the name of education. It is surprising to note the teachers who teach in an educational institution the same teachers also teach in the coaching centres. Some meritorious students do part-time job in the coaching centres too.
Three decades ago some teachers and meritorious students did private tuition mainly for two subjects for a few months only. One was English and the other was the mathematics. But these days students have to study in the coaching centres for all the subjects throughout the year. As a result a guardian of a student has to maintain double expenditure for education. A student has to go to coaching centres under pressure of a teacher, otherwise he will not come out successful in the examination.
Educational institutions like schools, colleges, universities and commercial institutions like coaching centres should not go side by side in the name of education. It is wastage of time, money and merit of the students. The students become dependent on coaching centers; as such they cannot develop their merit. The quality of education is steadily falling. Our question: if teachers teach properly to fulfil course according to syllabus and curriculum then is it necessary for a student to go to coaching centres?
A.M.K. Chowdhury,
West Masdhair,
Narayanganj.
‘Black Gold’ and coastal poor people
Dear Editor:
Many of our political leaders and government officials do not bother as to how our people, over two crore men, women and children, living in the coastal areas of our country are passing their days.
Our coastal people are beset with abject poverty, living in subhuman condition underfed and half-naked in thatched houses without pure drinking water, electricity, gas and sanitary toilet service. They are bereft of educational and medical facilities, good communication and transportation system. They are regularly hit by tidal bores and cyclones and their sufferings know no bound.
It is however a great blessing of Allah and a great fortune, painful as well as tragic, that vast deposits of beach sand minerals Rutile, Monazite, Magnetite, Garnet, Elmenite and Zircon etc., called Black Gold are lying uncared., unused, wasted and lost under the feet of coastal people for decades together and billions of dollars of our national wealth beach sand valuable minerals ‘Black Gold’ is lost into the sea. It is a miracle that our coastal people are totally ignorant and. unaware of the available great treasure.
Our coastal people earn their livelihood by fishing in the turbulent Bay of Bengal, making shrimp cultivation, producing salt from the sea water, picking and selling oyster shells. But we are all sitting idle and acting like fools for not utilising the beach sand valuable minerals.
We have been trying our best for the commercial use of the valuable minerals ‘Black Gold’ either in the public sector or in the private sector for over last thirty-six years but in vain.
Our contention, claim and justification is if the coastal people can earn their livelihood as mentioned above why can’t they lead a far better life by utilising the valuable minerals Black Gold?
If the valuable minerals are extracted, collected and commercially utilised which has a worldwide demand, not only the coastal people would be financially benefited but the economy of the whole of Bangladesh would also be revolutionalised.
We feel and realise that due to fund constraint and also on account of poor performances and heavy financial losses in our various public sector enterprises, mills, factories and. industries our govern is shy and reluctant to make any capital investment for development and commercial utilisation of the valuable minerals.
It is imperative that our Bangladesh Chamber of Commerce and Industries, our experts, traders, industrialists and investors may come forward and visit some of the mineral deposit sites and do something positive and constructive for the commercial utilisation of the valuable minerals in the private sector. We hope our government would extent full help, cooperation and logistic support to our private sector.
It is worth mentioning here that recently vast deposits of same minerals as mentioned above have also been found at Chilmari in Kurigram. It is right time for our investors, industrialists to set up a company in the private sector and start utilising the valuable minerals without any further delay.
It is time for action and not contemplation. Better late than never. Where there is a will there is a way.
O. H. Kabir,
Dhaka.
EU’s unsolicited advice
Dear Editor:
Recently the EU has again come up with another piece of unsolicited advice to our Government to restore democracy etc. and not to involve our armed forces in the governance of the country. Is it not a blatant interference in the internal affairs of another country? Does EU have mandate in its constitution to do so?
It has become a habit of the EU to offer unsolicited advice on our Government which are not at all welcome. Certainly we have not appointed them as our advisers to tell how to govern our country. They should understand such interference or dictation from them is totally unacceptable. Regarding their reference to our armed forces, I would ask them to note that they have taken oath to protect the country from the external as well as any internal threat.
Frankly we are fed up with such unsolicited advice. My request to them is to mind their own business.
Mohammad Ataul Hoque,
A citizen of Bangladesh.
A request to Communications Adviser
Dear Editor:
There is no signalling system in big cities of Bangladesh including Dhaka, the capital ,which is very shameful. Anybody can ride his vehicle to any direction although there is red or green lights are shown. Does it reflect our national character? A few years back when I was in New Zealand, one TV commentator during cricket mini worldcup held in Dhaka was jokingly commented in that way.
Furthermore, traffic accidents and deaths are mainly manmade.
Most of roads of Dhaka should have speed limit of 40km/hr.
Nobody wears seatbelt in cars, neither driver nor passenger. Statistics abroad shows there is an inverse relationship between head injury patients and seatbelts.
We think, the current CG should ensure traffic rules. The Communication Adviser should look into the matter.
Dr Azizul Karim,
General Practitioner, Australia.
Email mounaj@optusnet.com.au
Politics and universities
Dear Editor:
I am very astonished with the political approach of some teachers of some universities; (for example, Dhaka University, Rajshahi University) for their whole-hearted open support for former Prime Ministers —- Sheikh Hasina and Khaleda Zia. This is very painful because they almost never think about the benefits of students, benefits of young teachers, benefits of research, etc. They protested openly and stopped taking classes.
This is a shame for the nation, as we feel that teachers are the heart of a nation. Hope that they will concentrate of common important issues rather than personal or political issues. We are still suffering a lot in our universities and damaging our career and life.
Shahera,
Dhaka.
^ TOP OF THIS PAGE ^ MAIN PAGE
|
